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Friday, 20 Aug 2010

Weak U.S Economic Data Pushes U.S Dollar Higher versus Counterparts

The Dollar advanced against most of its major counterparts Thursday as unexpectedly weak U.S. employment and manufacturing data weighed on stocks and other riskier assets, prompting investors to seek the relative safety of the greenback and Japanese Yen.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendnonodowndownnono
Weekly Trendupnodowndowndownup
Resistance1.29151.568086.301.04250.90000.8310
1.28801.563085.951.03850.89700.8280
1.28451.560085.601.03500.89350.8250
Support1.27751.574085.001.03000.88750.8190
1.27401.570584.701.02700.88400.8155
1.27001.567584.351.02350.88100.8120

Economic News

USD - USD Gains on Poor Employment Data

The U.S. dollar gained versus most of its counterparts Thursday as negative economic data deepened concerns that the country's recovery is stagnating, sending investors to the safe haven USD and Japanese yen.

Disappointing U.S. employment and manufacturing data weighed on equity markets as well as riskier currencies which are tied to global growth, such as the Australian, New Zealand and Canadian dollars.

U.S. initial unemployment claims disappointed this week, rising 12,000 claims above expectations to 500,000 in the week ended Aug. 14, the highest level since Nov. 14 last year. The disappointing data intensified fears that the country's already weak labor market is deteriorating further. Later in the day, the Philadelphia Fed index fell to -7.7 in August compared to 5.1 in July, and on economists' expectations of an advance to 7.0.

The rise in claims was particularly troubling as no seasonal factors, like the hiring and firing of temporary workers for the 2010 Census, affected the recent employment results. Economists expected employment data to pick up in recent weeks.

With no major news released from the U.S. or euro zone today, investors should follow any movements in equity markets as these tend to have a major effect on the USD.

EUR - EUR Declines on Economic Growth Concerns

Renewed concerns about global economic outlook, brought on by disappointing economic data from the U.S. and comments by euro zone officials, spurred risk aversion in the markets and weighed on the 16-nation common currency.

Late Thursday, the euro was at $1.2820 from $1.2860 late Wednesday and at Y109.40 from Y109.87. The U.K. pound was little changed at $1.5606 from $1.5605; however, in today's early trading the GBP has declined below $1.5600 and is trading near the $1.5885 level.

Investors are concerned that austerity measures taken across the region earlier this year in response to the sovereign debt crisis will hamper the regional economy's growth and subsequently its economic recovery. This may also put lasting downward pressure on the euro as markets tighten up during downturns.

JPY - JPY Rises as Investors Turn to Safety

The Japanese yen rose to a 7-week high against the euro on signs the global economic recovery is slowing, turning investors to the safety of the Japanese currency as a refuge. The yen appreciated versus 15 of its 16 major counterparts after the release of disappointing U.S. economic data Thursday which showed that filings for U.S. unemployment benefits were more than forecast last week and a gauge of manufacturing in the Philadelphia region unexpectedly fell.

Japan's currency climbed to 109.09 per EUR in today's early trading from 109.49 in New York yesterday, after reaching 109.02, the highest level since July 1. The JPY rose to 85.24 per USD from 85.39 yesterday.

Weighing on the JPY is recent talk about possible intervention by Japan to stop the appreciation of the yen that is hurting Japanese exporters. Japan's economy is heavily reliant on exports and, therefore, its fragile economic recovery. A strong yen can curtail the Japanese recovery.

Crude Oil - Crude Decline on Negative U.S Economic Data

Crude Oil futures prices settled at a 6-week low Thursday, hurt by disappointing U.S. economic data which was released Thursday as well as the highest inventories in nearly 27 years. U.S. initial claims for unemployment benefits rose by 12,000 in the week ended Aug. 14. Economists had forecast a drop of 4,000.

Claims totaled 500,000 in the week, the highest number since 14 Nov. 2009. Further disappointing data came from the manufacturing industry with the Philadelphia Fed index falling to -7.7 in August compared to 5.1 in July.

Light Sweet Crude Oil for September delivery on the New York Mercantile Exchange settled down 99 cents, or 1.3%, at $74.43 a barrel, the lowest price since July 7. The contract, which expires at today's settlement, has fallen from a 3-month high near $83 a barrel on Aug. 4.

Technical News

EUR/USD

This pair appears to be floating in a sideways range between 1.2775 and 1.2900, with a current price just above the lower border. As expected, the indicators are showing an expectation for an upward move in line with this range trading behavior. The RSI on the hourly and daily chart both show the price in the over-sold region. It seems going long might be a wise choice today.

GBP/USD

This pair seems to be floating in a range between 1.5525 and 1.5675 with the current price sitting in the middle of this range. Most of our indicators seem to suggest the next movement may be in an upward direction. The RSI on the hourly and daily chart show the price being over-sold, and we have a fresh bullish cross on the daily chart's Stochastic (slow). Going long may not be a bad idea today.

USD/JPY

This pair has been trading within a bearish channel since early May and our indicators seem to suggest that this will not likely change anytime soon. We do, however, have a recent bullish cross on the weekly chart's Stochastic (slow) which may be hinting at longer-term corrective pressure, but with all other indicators neutral it is hard to tell. Going with the prevailing trend may be preferable in this situation.

USD/CHF

There appears to be a fresh bullish cross on the weekly chart's Stochastic (slow), suggesting some moderate upward pressure over the long-term. The price also floats in the over-sold territory on the RSI of both the weekly and 4-hour chart, supporting this notion. Waiting for the price to swing back upward and then going long may be a strong tactic in these circumstances.

The Wild Card

Crude Oil

After the significant drop in oil prices yesterday, we see some strong signs of corrective pressure. The daily chart's RSI has the pair floating in the over-sold territory, and the Stochastic (slow) appears to show an already-elapsed bullish cross which has turned upward into neutral territory. The momentum appears to favor that forex traders go long and take hold of this swing while the upward momentum holds.

Current Time: 12/18 23:35 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
12/19
00:00NZD+ ANZ Business Confidence31.5--3
JPY+ BoJ Press Conference---5
EUR+ EU Economic Summit---3
00:05GBP+ GfK Consumer Confidence-2-1-1
02:00NZD+ Credit Card Spendingy/y6.7%--1
07:00EUR+ GfK German Consumer Climate8.78.9-3
07:00EUR+ German PPI m/m-0.2%-0.2%-1
09:00EUR+ Current Account30.0B27.8B-1
09:30GBP+ Public Sector Net Borrowing7.1B14.8B-3
11:00GBP+ CBI Realized Sales2730-3
13:30CAD+ Core CPI m/m0.3%0.1%-5
13:30CAD+ NZD Core Retail Sales m/m0.0%0.2%-5
13:30CAD+ CPI m/m0.1%-0.2%-3
13:30CAD+ Retail Sales m/m0.8%-0.4%-3
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