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Monday, 24 Aug 2009
Will the Dollar's Bearish Trend Continue this Week?
Last week marked a sharp drop in the Dollar's value, especially against the EUR and the CHF. The biggest question for this week is whether the Dollar will continue to see bearish trends against the major currencies, or reverse. It seems that the upcoming data from the U.S. economy will play a main role in this week's trading, and traders are advised to follow these main publications closely.
USD - Dollar to Go Bearish on Strong Equity Market
The positive homes sales and manufacturing figures from the U.S. last week helped increase risk appetite resulted in the Dollar dropping significantly against the EUR. The bullish equity markets also continued to drive the greenback lower last Friday. The EUR/USD pair was trading as high as the 1.4374 level on Friday, and now trades at 1.4330. The GBP/USD cross began Friday's trading at 1.6442, and now stands at the 1.6535 level. This in itself indicates the very high volatility that the forex market has been going through in recent weeks.
The key meeting in the latter part of last week in Jackson Hole, Wyoming, is likely to play a key role in USD trading for today and this week. Traders should follow news still flowing from the developments from this meeting that was attended by central bankers and key financial experts. Additionally, forex traders need to pay close attention to economic news that will come out of Britain and the Euro-Zone, as news from these 2 regions will help establish the greenback's dominance against its main currency pairs today.
Looking ahead to this week, there are many economic data releases which will affect the Dollar. This includes CB Consumer Confidence, New Homes Sales, Prelim GDP, and Unemployment Claims. Also, the USD may indeed continue to go bearish if the equity market continues to rise rapidly. This could happen if traders continue to increase their risk appetite. In addition, the Personal Spending and Revised UoM Consumer Sentiment figures at 12:30 and 13:55 GMT on Friday are set to dominate the mind of traders at the conclusion of this trading week.
EUR - EUR Rises on Increased Optimism
The EUR/USD rate reached as high as 1.4374 last week, and it now stands at 1.4330. This has come about as the U.S. economy and other leading global economies, such as Germany and France continue to rise out of the recession. On the other hand, the British economy hasn't been fairing well as of late, as the EUR/GBP rate opened at 0.8608 last Thursday. However, it now stands at 0.8680, which signals a loss in confidence in the GBP since the beginning of Thursday's trading.
Due to the more optimistic patterns that we have seen from Germany, France, Japan and even the U.S., the EUR continues to strengthen as a response. However, Britain is lagging far behind, as she has a fragile banking system, debt is 60% of GDP and the printing of money is out of control. Things are so bleak that even the Governor of the Bank of England (BoE), Mervyn King, has run out of ways to stimulate the British economy. This may explain the GBP's weakness against the EUR and CHF last week.
Leading analysts forecast the possibility of a sell-off of the GBP at the commencement of this week. Nevertheless, this may actually reverse as the week drags on. Today, there is much important economic news coming out of the Euro-Zone, including Industrial New Orders at 9:00 GMT. Furthermore, there is a lot of data coming out of the Euro-Zone during the coming trading week. Thus the EUR is set to be a key currency in the forex market this week.
JPY - Yen to Lead Forex Trading This Week!
Recently, Japan's economy rose out of recession, beating even the best of estimates. Moreover, we saw some bullishness in the previous week for the Yen. For example, the Japanese currency rose heavily vs. the USD. There may be a number of reasons for this. Mixed figures from the U.S. played a role, as pessimistic unemployment figures from the U.S. economy, and increased risk appetite hurt the USD. The USD/JPY cross went was as low as 93.46 last week, and it is currently trading at the 94.60 level.
As there are many important data releases coming out of Japan this week, there is great potential for volatility in the Yen. A number of releases, such as the Trade Balance, Household Spending and Tokyo Core CPI figures are scheduled to be released this week. These releases will help forex traders get a taste of the health that the Japanese economy currently is in. Therefore, it is reasonable to suggest that the Yen will have a crucial role in leading forex trading this week.
Crude Oil - Oil Set to Hit $75 a Barrel?
Oil recorded a good trading week overall, as the commodity now stands at $74.30 a barrel. Crude prices were helped by a number of different factors last week. Improvements in data coming out of the leading global economies did help. A weak Dollar last week also helped push up the price of Crude, as the commodity itself is priced in Dollars. Additionally, the Crude Oil Inventories figures plummeting last week also drove-up the price of Crude.
Last week's behavior contradicted many people's expectations, as they expected Crude Oil to have another bearish trading week. However, last week shows that the black gold still has much support. Trading on Friday saw Crude rise by $1.75, which was probably due to the weak USD. If the U.S. continues to release positive economic news and the USD continues to weaken, we may see Crude prices hit $75 a barrel very soon.
The pair's bullish trend is showing its first signs of halting. The 4-hour chart is currently showing a quartette doji formation, indicating that the price has stabilized around the 1.4300 level. Furthermore, as the 1-hour chart's RSI has risen above the 70 line, it appears that a modest bearish correction might take place today.
The cable continues to show mixed results without marking a distinct trend, and the pair is currently traded around the 1.6520 level. As a bullish cross is taking place on the 4-hour chart's Slow Stochastic, it looks that a bullish movement could be impending. Going long with tight stops might be the right strategy today.
The pair is in the midst of a very sharp upward movement. The pair is currently traded near the 94.80 level, and the next significant resistant level seems to be placed at the 95.30 level. If the pair will manage to breach through this level, it may have the potential to climb up towards 96.30.
The 4-hour chart's bearish channel is showing its first signs of a breach, as the pair rose close to 50 pips and is now traded around the 1.0600 level. Currently, as a bullish cross is taking place on the daily chart's Slow Stochastic, it seems that a bullish correction might be imminent, with the potential of reaching the 1.0680 level.
The Wild Card
Gold prices saw a bullish trend during last week's trading session, and an ounce of gold is currently traded for over $952. However, as a bearish cross is taking place at the 4-hour chart's Slow Stochastic, it appears that a bearish correction might take place soon. This might be a good opportunity for forex traders to catch the trend at its beginning.
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|
|09:00||CHF||KOF Economic Barometer||90.1||-||-|
|09:00||EUR||Spanish Flash CPI||y/y||-1.1%||-||-|
|10:30||GBP||Net Lending to Individuals m/m||m/m||2.4B||-||-|
|10:30||GBP||M4 Money Supply||-0.8%||-||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||-||-|
|16:00||USD||Pending Home Sales||m/m||1.7%||-||-|