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Tuesday, 6 Jul 2010
Volatility Expected in First Day Back Following Long Weekend
The EUR dropped some of its gains against the dollar and the yen in thin trading as U.S. markets were closed yesterday. A lack of high impact data on the economic calendar kept currencies in a tight range. However, this should change today with influential economic data expected to be released from the U.S. and European interest rates due out.
USD - Strong Economic Data Needed to Prevent Double Dip Recession
With U.S. markets closed for the 4th of July holiday, many of the major players in the currency markets were away from their trading desks. Low liquidity prevailed throughout the day as the dollar failed to make any significant move.
The EUR/USD dropped to a low of 1.2521 after trading as high as 1.2565. The USD/JPY was unchanged at 87.88. The GBP/USD fell to 1.5163 before closing at 1.5180.
The dollar was able to hold modest gains despite Friday's weaker than expected unemployment data. The U.S. reported Non-Farm Employment losses of 125k. Market expectations were for a loss of 110k jobs.
It appears the market is beginning to shift its focus from the fiscal issues in the euro zone to the struggling U.S. economic recovery. Economists worry of a potential double dip recession for the U.S. economy and a ballooning U.S. deficit. Today's data release of the ISM Non-Manufacturing PMI at 14:00 GMT may help to support or dispel the double dip theory.
The next support and resistance lines for the EUR/USD rest at 1.2470 and 1.2650 respectively. This resistance level also coincides with a 23.6% retracement level from the long term bearish trend that began in December of 2009.
EUR - Traders Eye EU Interest Rate Decision
Yesterday's European trading session was just as quiet as the New York trading session. With the U.S. out on holiday, the major currencies were caught in tight trading ranges as major players in the FX market were away from their desks. Today's trading will prove to be more volatile with the institutional desks returning to full staff.
The major event traders are eying for this week is Thursday's European Central Bank (ECB) interest rate announcement. Most economists expect the ECB to hold rates steady at 1.00% but are looking for upbeat comments from ECB President Jean-Claude Trichet concerning the management of the European debt crisis along with future direction of EU monetary policy.
The ECB continues to purchase EU government bonds, particularly those of Greece that are the most illiquid securities. The purchases of the government debentures are slowly increasing the money supply in the euro zone. This is raising further concerns over the euro's long term valuation versus the dollar and the pound.
JPY - Aussie Interest Rate Forecasted to Hold Steady
Today's Asian trading session will be highlighted by the release of the Australian Cash Rate followed by the accompanying statement from the Reserve Bank of Australia (RBA). Economists forecast the RBA to hold interest rates steady at 4.50%. Previously the RBA took a pause from the last 6 consecutive interest rate increases. The interest rate decision will be released at 04:30 GMT followed by comments from RBA Chief Glenn Stevens.
Further economic data from Australia will be released on Thursday in the form of employment data that is forecasted to deteriorate from the previous data release.
The Aussie dollar has slumped recently with the falling prices of commodities. This is despite recent dollar weakness in most of the major pairs. Continued downward movement may be seen in the AUD/USD with the next support lines resting at 0.8260 and 0.8070. Should the RBA surprise the market with an interest rate hike, the pair could rise to its next resistance level at 0.8570.
Crude Oil - Double Dip Fears Weigh on Spot Crude Oil Trading
Fears of a double dip recession are causing spot crude oil prices to decline as the price of the commodity has fallen in the early morning hours of the Japanese trading session.
Spot crud oil prices are currently trading at $71.50, the lowest price the commodity has seen since the first week of June.
Traders are concerned that another downturn in the U.S. economy could slow future demand for crude oil. As such, spot crude oil prices have fallen almost 10% over the past 7 trading days. This is despite a slumping dollar which is down 3% versus the euro. Typically the price of spot crude oil rises when the dollar weakens as this allows holders of foreign currencies to buy crude oil cheaper.
Positive economic data may help to lift the price of spot crude oil. Today's release of the U.S. ISM Non-Manufacturing PMI at 14:00 GMT could support a lift in prices to the resistance level of 72.50.
The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's Stochastic Slow signals that a bearish reversal is imminent. . Going short with tight stops might be a wise choice.
There is a fresh bearish cross forming on the daily chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the hourly chart's Momentum oscillator also supports this notion. Going short with tight stops might be the right strategy today.
The USD/JPY cross has experienced a bearish trend for the past month. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the oversold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the hourly chart's Slow Stochastic. Going long with tight stops may turn out to pay off today.
The Wild Card
Crude oil prices are once again dropping, and it is currently traded around $71.85 a barrel. And now, the daily chart's Slow Stochastic is giving bullish signals, indicating that oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
|13:30||USD||Core PCE Price Index||m/m||0.0%||0.1%||0.1%|
|14:45||USD||Final Manufacturing PMI||54.3||54.3||-|
|15:00||USD||ISM Manufacturing PMI||53.5||53.4||-|
|15:00||USD||ISM Manufacturing Prices||35.0||36.2||-|
|00:00||CAD||GDT Price Index||-||-||-|
|00:00||USD||Total Vehicle Sales||16.7M||16.8M||-|
|01:00||NZD||ANZ Commodity Prices||m/m||-0.9%||-||-|
|02:30||JPY||Average Cash Earnings||y/y||1.6%||0.6%||-|
|04:30||AUD||RBA Rate Statement||-||-||-|
|04:45||JPY||10-y Bond Auction||0.31|2.7||-||-|