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Thursday, 24 Sep 2009
USD Up on Fed Statements; Oil Sinks on Demand Concerns
The US Federal Reserve yesterday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession. As expected, the Fed kept its target for its federal funds rate set at a range of zero to 0.25%. The previously weakened Dollar had been propping up commodity prices. Following the US Crude Oil Inventory report yesterday, oil prices dropped nearly 4% to below $68.50 a barrel. The Fed statement, which pushed the US Dollar up, only helped extend these decreases in oil prices.
USD - Dollar Optimism High Following Fed Statements
The Dollar rallied yesterday against most of its major counterparts amid concern that the Federal Reserve is nearing the end of its efforts to lift the economy out of recession. The Dollar has been sold-off recently partially due to growing optimism about the outlook for the U.S. economy. The USD finished yesterday's trading session 100 pips higher against the EUR at the1.4700 level.
The Federal Reserve yesterday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession. As expected, the Fed kept its target for its federal funds rate set at a range of zero to 0.25%. The Fed repeated that it continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
The Fed also said it would slow its purchases of mortgage debt to extend that program's life until the end of March, in a move toward withdrawing the central bank's extraordinary support for the economy and markets during the contraction. Analysts had expected the move, which smoothes out the purchases.
Looking ahead to today, the most important economic indicators scheduled to be released from the U.S. are the Unemployment Claims and Existing Home Sales at 12:30 GMT and 14:00 GMT respectively. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to boost the USD in the short-term. Traders are also advised to follow FOMC member Evan's speech at around 14:30 GMT. This speech is very important as it is likely to impact the Dollar's volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar's movements going into the rest of the week's trading.
EUR - EUR Declines as Stock Market Falls
The EUR fell to session lows against the U.S. Dollar yesterday, weighed down by declines in stocks following early gains. This came after the Federal Reserve signaled that interest rates will remain low for some time. By yesterday's close, the EUR had fallen against the USD, pushing the oft-traded currency pair to 1.4700. The EUR experienced similar behavior against the GBP and closed at 0.9000.
Europe's manufacturing and service industries expanded for a second month in September, suggesting that the Euro-Zone regional economy is gathering strength and showing signs of emerging from its worst recession in more than six decades after governments stepped up stimulus measures and the European Central Bank (ECB) injected billions of euros into markets.
In addition, European economic confidence rose to a 10-month high in August but rising unemployment is a reason to remain prudent about the economic outlook.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.
JPY - Yen Trading Down against Currency Rivals
The Japanese Yen saw a bearish trading session yesterday, losing ground against most of its currency crosses. The JPY fell against the USD after several days of recovery, while the GBP/JPY cross also rose to around 149.40. The only economic events out of Japan yesterday were the trade balance figures; only slightly changed from forecasts as volatility was kept to a minimum.
Japan's exports fell in August for an 11th consecutive month as recovery struggled to gain traction in the island economy. Bank of Japan Governor Shirakawa said last week that he is concerned the recovery may not outlast the worldwide stimulus packages that boosted demand for the country's cars and electronics. The central bank cited exports as the main reason for raising its assessment of the economy last week, as record unemployment and slumping wages weaken consumer spending.
Another headwind for Japanese exporters is an appreciating currency. The yen has gained more than 7% against the Dollar in the past six months, threatening to erode companies' profits earned abroad.
Crude Oil - Oil Drops as Inventory Rises; Demand Concern?
Oil prices dropped nearly 4% to below $68.50 a barrel during yesterday's trading session. This drop came after a U.S. government report showed Crude Oil inventories rose more than expected, rekindling worries that energy demand in the world's biggest consumer will be slow to recover in the wake of the recession.
The International Energy Agency (IEA) said that the inventories rose to 2.8 million barrels in the week September 18, against analysts' expectations of a 1.5 million barrel decline.
A weak Dollar had been propping up prices recently. The greenback was narrowly mixed against the JPY, EUR and GBP on Wednesday. Oil, like other commodities, is priced in dollars so when the U.S. currency weakens, commodities become cheaper for investors holding other currencies.
As for today, traders should pay attention to the U.S Unemployment Claims report as it has tended to have an impact on Crude Oil's prices recently, especially in the short-term.
While this pair experienced a substantial correction yesterday, it failed to break out of its current bullish channel. With a bullish cross on the 4-hour Slow Stochastic, there is the possibility that the upward movement may continue later today. Going long might not be a bad idea today.
With many signals pointing to neutral, this pair appears to be leveling off. The hourly and 4-hour MACD float near the 0.0 mark, while the Slow Stochastic indicator floats evenly between the 20 and 80 levels on both charts as well. Waiting for a clearer signal on the hourlies might be a wise strategy today.
It appears as if yesterday's downward movement has created a few signals which are anticipating a correction today. The hourly Slow Stochastic shows a fresh bullish cross, as does the daily MACD. With the price hovering near the over-sold territory on the hourly, 4-hour, and daily RSI, there is a concern, however, that there may be a little room to continue its bearishness before correcting back up. Traders should wait for the upward swing, and then jump in as early as possible.
This pair appears to be giving off mixed signals. The hourly chart shows neutrality, the 4-hour chart has both bullish and bearish indicators, and the daily chart suggests upward pressure. While some signals contradict this message, it seems as if the overall trend is for an impending bullish movement. Going long with tight stops might not be a bad choice today.
The Wild Card
It appears as if a fresh bearish cross has formed on the hourly Slow Stochastic, suggesting to forex traders that an opportunity is impending. The RSI on the hourly, 4-hour, and daily chart are all sitting in a bearish posture. Combined with the bearish cross mentioned above, it is evident that a downward movement is impending. Going short on this pair today may not be a bad idea.
|00:30||AUD||AIG Manufacturing Index||45.4||-||-|
|01:00||NZD||GDT Price Index||-8.8%||-||-|
|01:00||USD||Total Vehicle Sales||16.2M||16.5M||-|
|01:50||JPY||Tankan Manufacturing Index||12||14||-|
|01:50||JPY||Tankan Non-Manufacturing Index||16||17||-|
|03:35||JPY||Final Manufacturing PMI||50.4||50.4||-|
|09:15||EUR||Spanish Manufacturing PMI||54.2||54.0||-|
|09:45||EUR||Italian Manufacturing PMI||51.9||52.3||-|
|10:00||EUR||Final Manufacturing PMI||51.9||51.9||-|
|14:15||GBP||ADP Non-Farm Employment Change||212K||231K||-|
|15:00||USD||FOMC Member Williams Speaks||-||-||-|
|15:45||USD||Final Manufacturing PMI||55.3||55.3||-|
|16:00||USD||ISM Manufacturing PMI||52.9||52.5||-|
|16:00||USD||ISM Manufacturing Prices||35.0||38.1||-|
|16:30||USD||Crude Oil Inventories||8.2M||-||-|