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Monday, 11 May 2009

USD Weakens and World Economies Strengthen?

Last week may have signaled a change in the Dollar's value against the major currencies. If you remember, the EUR/USD was traded almost at the 1.6000 level before the financial crisis outburst, and once it did, the EUR/USD dropped to almost 1.2200. The rally of all the major currencies against the Dollar could be the starting point for the idea that the forex market is finally correcting itself. Could we be seeing a return to market optimism?

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupnonodownnoup
Weekly Trendupupdowndownupup
Resistance1.37251.530099.251.11500.77500.9050
1.37001.527599.001.11250.77250.9025
1.36751.525098.751.10900.77000.9000
Support1.36251.517598.001.10250.76500.8950
1.36001.515097.751.10000.76250.8925
1.35751.512597.501.09750.76000.8900

Economic News

USD - Weakening USD May Signal the Final Stage of Recession

Last week may have signaled a change in the Dollar's value against the major currencies, as the USD lost a significant portion of its value despite, or maybe as a result of rather positive data from the U.S economy.

All the significant and influencing data published from the U.S economy last week delivered better figures than those expected by analysts. The Pending Home Sales showed a positive mark for the second time in a row, stating that maybe the housing sector is beginning to stabilize after a long period of crashing. This data has an immense impact on the U.S economy as the mortgage issue was the first catalyst for the current recession. An improving housing sector might be the first sign to tell us that people have regained their faith in the American economy.

Even the poor employment condition is starting to see the light at the end of the tunnel. True, we are still in a situation in which more people are losing their jobs than those who are being hired, but at least the pace of job losses is slowing down. The Non-Farm Employment Change report showed that 539,000 individuals lost their jobs during April, but this is the best figure since January's publication.

The influence of such news usually has a very "easy to predict" impact on the Dollar - it strengthens it; however, the exact opposite has happened, the greenback has dropped on all fronts.

If you remember, the EUR/USD for example, was traded almost at the 1.6000 level before the financial crisis outburst, and once it did, the EUR/USD dropped to almost 1.22. The rally of all the major currencies against the Dollar could be stating that the forex market is finally correcting itself, meaning that the major economies are finally climbing over the hill.

As for the upcoming week, a batch of data is expected from the U.S economy, and traders are advised to focus their attention to the U.S. Trade Balance report which is expected on Tuesday, the Retails Sales indices on Wednesday and unemployment figures on Thursday, as these indicators are expected to dictate the Dollar's movements for this week. Will the USD's weakness continue?

EUR - Interest Rate Cut Had the Opposite Effect on EUR

Traders who went long on the EUR last week saw significant profits as the European currency saw bullish trends within all of its major currency pairs and crosses. The EUR rose over 400 pips against the Dollar, over 200 pips against the Pound and close to 500 pips against the Yen!

The sharp jump in the EUR's value came at the least expected timing. On Thursday, at 11:45 GMT, the European Central Bank (ECB) published that it cut European Interest Rates to 1.00% from 1.25%. One of the reasons that drove the ECB to cut rates was to further weaken the EUR, as it will serve the European exporters and, by doing so, could improve dramatically the Euro-Zone's regional economy. For several weeks now, the entire world is looking forward to see the ECB becoming more active in the effort to fight the financial crisis, and it was widely expected that an interest rate cut will take place.

It could even be said that the 1.00% rate was already accepted in the market, which operated as if the decision was already taken. This initiated a bullish trend for the EUR over the past few weeks, and thus all we're experiencing right now is merely a technical correction to the ECB's publication which came about two weeks after the European markets had accepted the yet unreleased lower rates.

As for the week ahead, a lot of important data will be released from the Euro-Zone; however, the most vital one will be the German Preliminary Gross Domestic Product (GDP). This indicator measures the change in the value of all goods and services produced by the economy. Considering that Germany holds the strongest economy in the Euro-Zone, its health is vital for the valuation of the entire region, and thus this publication tends to have a great impact on the EUR. In case the real result will indeed show another negative result from this report, the EUR's bullish trend could reverse as a result.

JPY - Yen Slides on Inflation Concerns

Last week the Yen mainly saw bearish trends against its major currency counterparts. The JPY underwent sharp downtrends against the EUR and the GBP, and experienced a volatile session against the USD during the past week.

It appears that the Bank of Japan's (BoJ) statement on Thursday was interpreted by investors as a warning sign that inflation in Japan could rise dramatically over the next few weeks. The initial reaction was to avoid holding the JPY. That may have been the exact purpose of the BoJ's statement.

It is no secret that the Japanese economic chiefs are holding the stand that a weak currency is one of the main keys to pull the local economy out of recession. This is largely due to the support of the exporting sector which has an immense influence over the Japanese economy. The easiest way to try and manipulate the currency value is by cutting interest rates. However, Japan is currently holding the lowest Interest Rates in the industrial world - 0.10% - and it would be difficult to go lower. This leaves the BoJ no choice but to create speculations on rising inflation that has the potential of weakening the JPY, and it seems that they have done just that.

As for the week ahead, traders should focus their attention on statements made by BoJ Governor Masaaki Shirakawa on Wednesday. As proven this week, the BoJ is using its last resort in order to control the economy's condition, and that is done by speeches and statements. Any update on the BoJ's plans for the future will probably have an imminent impact on the Yen, and traders should be ready.

Crude Oil - Will Crude Oil Reach $60 a Barrel this Week?

Crude Oil continues its straight bullish trend, and last week a barrel of oil saw a record price of $58.20 a barrel; a price not seen in about six months.

The first reason beyond any doubt to Crude Oil's surprising rise is the sharp drop in the U.S Dollar this week. Crude Oil is valued in Dollars and as such, any sudden movement in its value is being immediately reflected in the commodity's value as well, especially when the change is so unexpected. In addition, it has been proven over the past few months that the price of Crude Oil is highly correlated with the American equity markets. The relatively solid week that equity markets saw in the U.S had also a direct effect on oil prices, which helped it reach close to $60 a barrel.

The main question now is whether a barrel of Crude Oil will rise over $60 a barrel this week, and the answer is probably no. Current forecasts are assuming that the traveling expenses this summer will drop significantly as opposed to previous years. This will have a devastating impact on oil's value. If the upcoming weeks won't show a massive increase in traveling package orders, then a drop is Crude Oil's prices is probably just a matter of time.

Technical News

EUR/USD

Last week's sharp upward movement appears to have pushed the price of this pair into the over-bought territory on the RSI of the 4-hour and daily charts, indicating a downward correction may be due. The volatile breach of the upper border on the 4-hour chart's Bollinger Bands also signals strong downward pressure. Going short might be a wise choice today.

GBP/USD

The price of this pair appears to be floating in the over-bought territory on the RSI of both the hourly and daily charts, indicating that we could see a downward correction in the nearest future. The bearish cross on the 4-hour chart's Slow Stochastic supports this notion. Going short might be a good strategy today.

USD/JPY

There appears to be a bullish cross on the hourly chart's Slow Stochastic for this pair, indicating an upward correction may be imminent. The recent bullish cross on the 4-hour chart's Slow Stochastic supports this notion. Going long might not be a bad idea today.

USD/CHF

After the volatile downward movement last week, this pair seems poised for a modest correction today. The price currently floats in the over-sold territory on the RSI of the hourly, 4-hour and daily charts, and there is a fresh bullish cross on the 4-hour chart's Slow Stochastic. All of this information leads to the idea that going long might be a wise strategy throughout the day.

The Wild Card

Silver

The continuous upward trend in this commodity appears to be running out of steam lately. The highs of the upswings have begun to diminish in size and the longer-term oscillators are beginning indicate an imminent correction. There appears to be a bearish cross on the daily chart's Slow Stochastic, and the weekly Momentum oscillator has turned downwards. Forex traders have a great opportunity to enter this possible trend reversal at a fantastic price and capture the impending price swing.

Current Time: 07/23 23:20 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
07/23
23:45NZD+ Trade Balance285M--5
00:50JPY+ Trade Balance-0.86T--3
07/24
02:35JPY+ Flash Manufacturing PMI51.5--1
07:00EUR+ Spanish Unemployment Rate25.9%--3
08:00EUR+ French Flash Manufacturing PMI48.2--5
08:00EUR+ French Flash Services PMI48.2--3
08:30EUR+ German Flash Manufacturing PMI52.0--5
08:30EUR+ German Flash Services PMI54.6--3
09:00EUR+ Flash Manufacturing PMI51.8--3
09:00EUR+ Flash Services PMI52.8--3
09:00EUR+ Italian Retail Salesm/m0.4%--1
09:30GBP+ Retail Sales m/m-0.5%--5
13:30USD+ Unemployment Claims 302K--5
14:45USD+ Flash Manufacturing PMI57.3--3
15:00USD+ New Home Sales504K--5
15:30USD+ Natural Gas Storage 107B--1
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