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Monday, 21 Dec 2009
Will the Dollar Continue to Strengthen?
Last week's most significant trend in the market was the bullish Dollar. Ever since the positive U.S. Non-Farm Payrolls figures were published, the Dollar is recovering on all fronts. The main question for this week is whether the Dollar can strengthen further. Read below to find out more.
USD - Dollar's Rally Continues
The Dollar continued its rally last week. The Dollar strengthened against all the major currencies during last week's session. The EUR/USD pair dropped to a 3-month low as the pair fell to the 1.4260 level.
Several positive economic indicators from the U.S. have extended the Dollar's bullish trend. The U.S. Producer Price Index rose by 1.8% in November. This indicates that consumer inflation is rising in the U.S. This inflation implies that consumers feel safe again to spend, and this is one of the key-targets for recovery in the economy. In addition, the Philly Fed Manufacturing Index, a leading indicator of economic health as well, surprisingly rose to 20.4 points. And in a general perspective, it currently seems that the global confidence in the American economy is strengthening. This means that for as long as the U.S. economy will continue to provide reassuring data, the Dollar is likely to continue with the bullish trend.
As for the week ahead, the most interesting publications from the U.S economy appears to be regarding the housing sector. The first report will be the Existing Home sales scheduled for Tuesday. Analysts forecast that 6.31M building were sold during November. The second report is the New Home Sales on Wednesday, and expectations are that 442,000 new single-family homes were sold during November. If the two reports will indeed deliver such positive figures, this is likely to support the Dollar.
EUR - Euro Drops against the Majors
The EUR dropped against most of the major currencies during last week's trading session. The EUR fell about 500 pips against the Dollar last week, reaching a 3-month low. The Euro also dropped against the Pound and the Yen.
There were two main reasons that led to the Euro's downfall last week. The first reason was the mixed results from the Euro-Zone. After a month of positive data from the Euro-Zone, last week's leading publications failed to continue with the positive trend. The ZEW Economic Sentiment dropped to a 5-month low, reaching merely 48.0 points, failing to reach expectations for a 50.9 result. Furthermore, this has been the third consecutive decrease in European economic sentiment. The second reason for the Euro's drop is the strengthening of the Dollar. After a few months of weakening Dollar, the greenback returns to rise. It is only logical that this will initiate a modest bearish correction for the Euro, as these are the two leading global currencies.
Looking ahead for this week, high impact data is expected from the Euro-Zone. Traders are advised to follow two leading publications, the German Consumer Climate and the French Consumer Spending report. Analysts expect a rather moderate result for both these indicators. However, if the end results will reach higher than expected, the Euro could be boosted as a result, and erase some of last week's losses.
JPY - Yen Sees Mixed Results
The Yen's volatility continued during last week's trading session. On one hand, the Yen appreciated against the Euro, and the EUR/JPY pair dropped to the 127.50 level. However on the other hand, the Yen slid against the Dollar to a 1-month low, as the USD/JPY pair rose to the 90.89 level.
The most significant publication from the Japanese economy last week was the Overnight Call Rate, which is of course the Japanese Interest Rates announcement. The Bank of Japan (BoJ) decided to leave interest rates at their current levels of 0.10%. This kept Japan with the lowest interest rates in the industrial world. The BoJ continues with its approach to weaken the Yen in order to support Japanese industry and by that a recovery in the economy. Its main tool is the low interest rates, and it seems that the BoJ is succeeding in its target to weaken the Yen. The Yen's rising trend against the Euro was mainly due to the weak Euro, which weakens on all fronts lately.
As for this week, several interesting economic publications are expected from Japan. The Manufacturing Index on Wednesday, the Household Spending on Thursday, and the Tokyo Core Consumer Price Index on Thursday. Traders are advised to follow these indicators in order to determine the Yen's trend for this week.
OIL - Crude Oil Recovers - Back to $75 a Barrel
Crude oil prices surprisingly rose last week. After dropping below $70 a barrel for the first time in 2-months, crude oil erased some of its losses, and a barrel of crude oil reached $75.48 on Friday.
It appears that crude oil prices rose due to optimistic sentiment that global demand for energy will increase as the leading economies are recovering from the recession. In addition, the ongoing positive data from the U.S. economy seems to be the main reason for crude oil's rising trend. The U.S. is the world's largest energy consumer, and thus its recovery is likely to boost demand for oil. In addition, tension in the Middle East, as Iranian troops occupied an oil field in a disputed border area with Iraq has also contributed to the rising oil prices.
As for the week ahead, traders are advised to follow the leading economic publications from the U.S. as this has a large impact on commodities prices, especially crude oil. In addition, traders should also follow the U.S. Crude Oil Inventories scheduled for Wednesday. This report usually has an instant impact on the market, and traders should be prepared.
According to the RSI on the daily chart, the pair is currently trading in oversold territory, which suggests an upward correction may be imminent. The Stochastic Slow on the daily chart currently supports this as it shows a bullish cross has formed, indicating the potential for upward movement. Traders may want to be long on the pair today.
The pair's long-term downward correction has continued and shows little technical signs of changing. The daily chart is showing neutral indicators. However, the weekly chart shows a distinct downtrend with the pair moving from its upper Bollinger Band at a price of 1.6876, crossing the middle line, with a potential to reach the lower Bollinger Band. Traders with the long term view may like to be short with a limit close to the lower border near 1.5860.
We can see from the hourly chart a tightening of the pair's Bollinger Bands, signaling an imminent breach of the borders. According to the daily chart, the pair has been trading in the upper half of the chart's Bollinger Bands, lending us to believe the pair will continue this trend. Traders may want to be long when this pair breaks out.
The daily chart show's the pair may be oversold as the Relative Strength Index is floating above the 80 level, leading us to believe a correction may be in the works. Traders may look to be short with a limit order to take profit at the middle Bollinger Band line at a price of 1.0245.
The Wild Card
The pair's hourly chart is showing the potential for a downward correction in the price. Currently the pair is trading slightly outside its upper border on the Bollinger Bands. The Relative Strength Index displays the price may be overbought, indicating the potential for a price decline. We also see a potential bearish cross forming on the Stochastic Slow Oscillator. Forex traders may want to be short on this pair for the potential downward movement.
|21:45||NZD||Overseas Trade Index||q/q||-4.4%||-2.9%||-|
|22:30||AUD||AIG Manufacturing Index||49.0||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.1%||-||-|
|00:00||AUD||HIA New Home Sales||m/m||-1.9%||-||-|
|00:30||AUD||Company Operating Profits||q/q||0.5%||0.7%||-|
|01:35||JPY||Final Manufacturing PMI||51.5||51.5||-|
|02:00||EUR||German Retail Sales||m/m||-||-||-|
|08:15||EUR||Spanish Manufacturing PMI||54.7||-||-|
|08:45||EUR||Italian Manufacturing PMI||49.9||-||-|
|09:00||EUR||Final Manufacturing PMI||-||-||-|
|09:00||EUR||Italian Monthly Unemployment Rate||12.9%||-||-|
|09:00||EUR||Italian Quarterly Unemployment Rate||12.8%||-||-|
|09:30||GBP||Net Lending to Individuals m/m||2.2B||-||-|
|09:30||GBP||M4 Money Supply||m/m||0.1%||-||-|