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Monday, 15 Mar 2010
Will the Dollar Continue To Slide Against the Euro?
During last week's trading, the Dollar saw a bearish correction against the Euro, following several weeks of a consistent bullish trend. This week's most interesting question is whether the Dollar will resume the bullish trend, or might the Euro's recovery proceed? This could be answered on Tuesday when the U.S. Interest Rate decision will be announced. If the Fed will surprise and hike rates, it has potential to create mayhem in the market.
USD - U.S. Interest Rate Announcement Expected Later On This Week
The Dollar saw mixed results against the major currencies during last week's trading session. The Dollar dropped about 100 pips against the Euro, and the EUR/USD pair saw a weekly high at the rate of 1.3793. The Dollar saw volatile sessions against the Yen and the Pound, and the two pairs didn't see a significant trend.
The Dollar failed to rise during last week's trading as several economic indicators delivered worse than expected figures. The Federal Budget Balance reflected a 220.9B deficit in the government's spending during February, failing to reach results for 207.5B deficit. The weekly Unemployment Claims showed that 462,000 individuals have filed for unemployment insurance for the first time during the past week, failing to reach expectations for a 456,000 result. Currently it seems that even though the Dollar is generally strengthening, for as long that the economic data from the U.S. won't show a recovery - the Dollar could drop on the short-term.
As for the week ahead, the main news event that is expected looks to be the Federal Funds Rate on Tuesday. The Federal Funds Rate is in fact the U.S. interest rates announcement for the next month. Current expectations are that the Fed will leave rates at their current low levels of less than 0.25%. However, if the Fed will surprise and hike rates, this has the potential to erase the Dollar's losses from last week.
EUR - Greece Bailout Speculations to Boost the Euro
The Euro managed to erase some of its losses against the major currencies during last week's trading. The Euro gained about 100 pips against the Dollar and the Pound, and rose close to 200 pips against the Yen, having the EUR/JPY reach above the 125.00 level.
The main reason for the Euro's uptrend seems to be the speculations regarding the Greece rescue plan by the Euro-Zone. It is expected that the Euro-Zone finance ministers will agree on Monday on a mechanism for helping Greece financially. Such a plan, if will indeed be announced this week, has potential to boost the Euro further. Every publication of potential rescue plan has strengthened the Euro so far, and a final solution to the Greek debt crisis is likely to be received as a strong signal that the Euro-Zone has healthy economies that can aid Greece.
Looking ahead to this week, a batch of data is expected from the Euro-Zone. The main publication looks to be the German ZEW Economic Sentiment. This is a survey of about 350 German institutional investors and analysts that are asked to rate the next 6-month outlook for Germany. Traders should also keep close attention to any development regarding the Greece bailout plan. This seems to be the most urgent matter at the moment, and any publication on the subject is likely to create harsh volatility in the market.
JPY - The Yen Continues To Drop against the Majors
The Yen continued to drop against most of the major currencies during last week. The Yen saw a relatively peaceful session against the Dollar, yet it underwent a bearish trend vs. the Euro and the Pound.
Several economic publications from the Japanese economy have contributed to the Yen's weakness during last week's trading session. The Final Gross Domestic Product showed that value of all goods and services produced by the economy during the first quarter rose by merely 0.9%, failing to reach expectations for a 1.0% rise. In addition, the Core Machinery Orders, which measures the value of new private-sector purchase orders placed with manufacturers for machines, has dropped by 3.7% during January. Currently it seems that until a series of positive data will be published from the Japanese economy, the Yen might continue tumbling.
As for this week, the most interesting publication from the Japanese economy looks to be the Overnight Call Rate, which is in fact the Japanese interest rates announcement for the next month. Japan currently holds the lowest rates within the industrial world, and analysts have forecasted that the Bank of Japan (BoJ) is likely to leave rates at their current low levels. However, if the BoJ will surprise and hike rates, this is likely to boost the Yen.
Oil - Will Crude Oil Drop Below $80 a Barrel?
Crude oil saw a relatively bullish session during the beginning of last week, and reached a weekly high of $83.05 a barrel. However, close to the weekend, crude oil dropped significantly and is currently traded around $80.80 a barrel.
The decline of crude oil seems to be the result of the drop in the U.S. Consumer Sentiment survey from Friday. The survey fell from 73.6 points on February to 72.5 on March, renewing concerns about energy demand in the world's largest oil consumer. If the following data from the U.S. economy will continue to disappoint, it seems that crude oil might drop below $80 a barrel.
Looking ahead to this week, traders are advised to follow the main publications from the U.S and the Euro-Zone. Special attention should be given to the U.S. Interest Rate announcement on Tuesday and the Crude Oil Inventories report on Wednesday, as these seem to be the news events that will impact crude oil the most this week.
The pair has been moving higher the past two weeks. However, this correction could be coming to an end and the bearish trend may resume. The recent price appreciation has failed to make a significant breach of the daily chart's downward sloping trend line that began on December 3rd. The pair is currently being traded at the resistance level of 1.3790. Going short at a downward sloping trend line can be a great entry point into the market. A bearish cross has also formed on the Slow Stochastic Oscillator, providing another signal for a potential downward movement in the price.
The Cable is showing signs for a continuation of the bearish trend. Currently the daily chart displays the Relative Strength Indicator floating in the oversold region, indicating the recent price appreciation may have gotten ahead of itself. It also appears that a bearish cross is forming on the chart's Slow Stochastic Oscillator, indicating the potential for a downward price movement. Traders may want to be aggressive today by shorting the pair prior to the breakout and the continuation of the bearish trend.
The daily chart shows very little technical resistance to the pair's recent price rise. The 7-day Relative Strength Index has moved into the oversold level but is showing a sharp up trend, indicating the pair may have more momentum behind it to rise. The pair could continue to rise to its downward sloping trend line, close to the resistance level of 91.25. From there the pair could reverse direction and head lower in line with the long term downward trend.
The sharp drop in the value of the cross may have gotten ahead of itself and could be due for a short term correction. The daily chart shows a bullish cross has formed on the pair's Slow Stochastic Oscillator, indicating the potential for a rise in the price. The 7-day Relative Strength Index is also floating in the oversold zone, further strengthening the oversold theory. The price could correct today to the resistance level of 1.0645.
The Wild Card
Spot crude oil prices have fallen below the daily chart's upward sloping trend line. The price move lower began at the resistance level of $83.05 and is approaching the 20-day moving average line of the Bollinger Bands. Forex and commodity traders may want to enter into the market with this downward momentum at their backs. An entry strategy may be to wait for the price to break the 20-day moving average line and go short, with a price target at the lower Bollinger Band line, near $78.50.
|08:00||EUR||German Industrial Production||m/m||0.1%||0.6%||-|
|08:45||EUR||French Gov Budget Balance||-85.6B||-||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.0B||-|
|09:00||CHF||Foreign Currency Reserves||498.4B||-||-|
|10:30||GBP||Consumer Inflation Expectations||2.5%||-|
|14:30||CAD||Labor Productivity q/q||q/q||0.1%||0.2%||-|
|14:30||USD||Non-Farm Employment Change||257K||241K||-|
|14:30||USD||Average Hourly Earnings||0.5%||0.2%||-|