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Monday, 27 Sep 2010

Will The Bank of Japan Take Further Action to Halt Yen's Bullishness?

As speculations that last week's spike in yen value was the result of another intervention from the Bank of Japan remain unconfirmed, Governor Shirakawa says that the BoJ is prepared to take appropriate action if needed. Despite Japanese efforts, the yen continues to strengthen. Is another intervention simply a matter of time?

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Economic News

USD - Positive U.S. Data Boosts Risk Appetite and Weakens the Dollar

The U.S. dollar fell against most of the major currencies during last week's trading session. The dollar lost about 450 pips against the euro. The EUR/USD pair is currently heading towards the 1.3500 level. The dollar dropped about 200 pips against the British pound and about 150 pips vs. the Japanese yen.

The dollar's downfall came after several positive U.S. economic indicators were released last week. The U.S. sales of previously owned homes rose in August to a 4.13 million, up from 3.84 million in July. The result was above the predicted result of 4.11 million. In addition, the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items, climbed in August by 2.0%, beating expectations for a 0.9% rise. The positive data provided another signal that the U.S. economy will manage to evade another slowdown. This has increased optimism in the global economic recovery, and as a result boosted risk appetite in the market. The dollar, which is considered to be a relatively safe asset, weaned as a result.

As for the week ahead, many interesting economic releases are expected from the U.S. The publications which are likely to have the largest impact on the dollar are the Consumer Confidence report, the weekly Unemployment Claims and the Manufacturing Purchasing Managers' Index. Traders are advised to closely follow these releases, as any one of them has the potential to impact the dollar's trading.

EUR - Euro Is Trading At A 5-Month High against the Dollar

The euro saw a bullish trend against most its major counterparts during last week's trading session. The euro gained about 450 pips vs. the U.S. dollar. Currently the EUR/USD pair is closing in at a 5-month high, after reaching the 1.3494 level earlier today. The euro rose about 200 pips against the British pound and about 150 pips vs. the Japanese yen.

The euro's bullishness followed positive European economic releases, which indicated that the euro-zone is likely to overcome the economic slowdown. The most significant publication was the German Business Climate survey. The survey showed that German business unexpectedly rose to its highest level in more than three years in September, suggesting that companies can sustain a weaker demand from abroad as the global economic recovery slows. The survey rose to 106.8, beating expectations for an increase of around 106.3. That's the highest since June 2007. The report, along with other positive indications from the euro-zone's leading economies, have decreased risk-aversion, and convinced investors to open long positions with the euro and pound.

Looking ahead to this week, a significant batch of data is expected from the euro-zone. Traders are advised to follow the leading publications, especially from Germany, which holds the largest and strongest economy within the euro-zone. Further positive indicators are likely to boost the euro further, mainly against the dollar and the yen.

JPY - Yen Strengthens Despite Speculations of Bank Intervention

The Japanese yen strengthened against most of the major currencies during last week's trading session. The yen gained about 150 pips against the U.S. dollar and the USD/JPY pair is trading near the 84.00 level. The yen gained about 100 pips vs. the British pound as well.

After strengthening throughout the first half of the week, the yen fell sharply against the major currencies, on what was believed to be another intervention by the Bank of Japan (BoJ). However as doubts crept in about whether the Japanese leadership was indeed responsible for the yen's losses, the currency managed to correct itself.

In addition, earlier today the BoJ's Governor Masaaki Shirakawa said that the central bank is closely watching the effect the yen's appreciation is having on the Japanese economy, and is prepared to take appropriate action if needed. This has fueled speculation that another BoJ intervention is only a matter of time.

As for this week, traders are advised to be extra cautious while trading the yen. The Japanese currency continues to be one of the strongest currencies within the majors. At the same time, another intervention looks to be a real possibility at the moment.

Crude Oil - Crude Oil Remains Volatile

Crude oil saw another week of range-trading, in which the commodity remained between $73 and $77 a barrel. Crude oil began last week's session with a sharp rise towards $76.50 a barrel. However by Tuesday, the commodity dropped to $73 a barrel, only to jump back to $76.75 before the weekend.

The recent appreciation of crude oil comes as a result of the weak U.S. dollar. The decline of the dollar supports demand for commodities as an alternative investment. Furthermore, the fact that crude oil is valued in dollars means it is now more attractive to foreign buyers. It seems that as long as the dollar continues to weaken against the major currencies, crude oil prices have the potential to rise further.

Looking ahead to this week, traders are advised to follow the leading publications from the U.S. and the euro-zone, as these tend to have the largest effect on crude oil's trading. In particular, traders should follow the U.S. Crude Oil Inventories report, which is scheduled for Wednesday, as this release usually has a significant impact on the market.

Technical News


The pair peaked at the 1.3494 level on Friday, and has been correcting its gains since then. Currently, a bearish cross on the 4-hour chart's Slow Stochastic suggests that the pair might fall further, with potential to reach towards the 1.3380 level.


After rising 200 pips on Friday, the cable saw two failed attempts to cross the 1.5842 level. A bearish cross has formed on the daily chart's MACD, meaning the pair may correct Friday's gains today. Going short with tight stops might be a good strategy today.


After Friday's spike, the pair resumed its bearish trend with full steam, and is currently trading near the 84.20 level. As all indicators on the daily chart are pointing down, the pair looks to drop further, with a key-target at the 83.50 level.


There is a very distinct bearish channel forming on the 4-hour chart, and the pair is now floating in the middle of it. Currently, the RSI on the 1-hour chart has dropped below the 70 line, suggesting that further bearishness may take place today. Going short with tight stops may be the preferred strategy.

The Wild Card


After failing to reach $1,300 an ounce on Friday, gold appears to be on its way to cross that level today. Currently, a bullish cross on the daily chart's MACD indicates that gold still has plenty of upward momentum. If the metal will cross the $1,300 level it will mark a new all-time record. Analysts are not forecasting a downward correction in the near future. This may be a great opportunity for forex traders to join a very popular trend.

Current Time: 12/02 02:59 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
01:30AUD+ GDPq/q0.2%0.7%-5
02:00EUR+ FOMC Member Kohn Speaks---3
08:00EUR+ German Retail Salesm/m---3
09:00EUR+ Spanish Unemployment Change82.3K--3
09:30GBP+ Halifax HPI---3
10:30GBP+ Construction PMI58.858.4-5
11:00EUR+ CPI Flash Estimate y/y0.1%0.2%-3
11:00EUR+ Core CPI y/y1.1%1.1%-3
11:00EUR+ PPI m/m-0.3%-0.4%-1
14:10USD+ FOMC Member Lockhart Speaks---3
14:30USD+ Fed Chair Yellen Speaks---5
14:30USD+ Revised Nonfarm Productivityq/q1.6%2.2%-3
14:30USD+ Revised Unit Labor Costsq/q1.4%1.1%-1
15:15USD+ ADP Non-Farm Employment Change182K191K -5
16:00CAD+ BoC Rate Statement---5
16:00CAD+ Overnight Rate0.50% 0.50%-5
16:30USD+ Crude Oil Inventories1.0M--3
18:25USD+ Fed Chair Yellen Speaks---5
20:00USD+ Beige Book---1
21:40USD+ FOMC Member Williams Speaks---3
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