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Monday, 22 Feb 2010
Will the Euro Continue to Recover?
Last week's trading was mostly characterized by the sharp change of trends in the market. The most notable trend reversal was of the Euro, which dropped during the beginning of the week, just to bounce back later on, due to speculations of a Greek rescue plan. The main question for this week's trading is whether the Euro will continue to recover, or will the EUR/USD pair will reach a new low.
USD - Dollar Advances on Positive U.S. Economic Data
The Dollar strengthened throughout most of last week. The Dollar reached a 9-month high against the Euro as the EUR/USD dropped to the 1.3445 level. The Dollar rose against the Pound and the Yen as well during last week's trading session.
The Dollar continued to strengthen last week, mostly due to positive data from the U.S. economy. Several economic indicators that were published last week produced positive signs for the economy, helping to strengthen the Dollar. The Long-Term Purchases report showed that foreign investors have a strong faith in the U.S. economy. In addition, the Building Permits for January showed a continuous progress in the American housing sector. This holds an immense importance as the housing sector is what initially caused the financial crisis and recovering signs of it proves that the crisis is behind us.
However, the Consumer Price Index, which was published on Friday, showed a decreasing pace of inflation. The U.S. economy is still in fears from deflation, and thus the negative figures have an instant impact on the Dollar, which dropped slightly against the major currencies.
Looking ahead to this week, many interesting economic publications are expected from the U.S. The most impacting news events look to be the Consumer Confidence, the New Home Sales, the Durable Goods Orders indices and the Preliminary Gross Domestic Product. If the U.S. economy will continue to provide positive data this week as well, the Dollar is likely to continue to strengthen against the major currencies.
EUR - Speculations of Rescue Plan for Greece Boosts the Euro
The Euro began last week's trading session with sharp losses against the major currencies. However, close to the weekend the Euro began to recover against the majors, and marked a sharp uptrend against the Pound and the Yen.
The Euro's downfall at the beginning of the week came as a result of the Greek debt worries. The Euro-Zone's leadership seemed reluctant to provide a bailout plan for the Greek economy, and investors have fears of its effect on the Euro-Zone. This has decreased risk appetite in the market, and turned investors to look for safer investments such as the Dollar and the Yen.
However, reports that the Euro-Zone is working on a quick bailout for Greece have boosted the Euro. It seems that Germany has prepared a plan in which the Euro-Zone's nations will provide aid worth about 20 billion Euros for debt-laden Greece. These reports are yet to receive an official confirmation, but the speculations themselves were enough to boost the Euro. It seems that further positive indications regarding the Greek debt crisis are likely to support the Euro. However in case that a rescue plan will not be published soon, the optimism in the market could be erased, and the Euro will be damages as a result.
As for the week ahead, the most impacting data from the Euro-Zone appears to be the German Business Climate, which is scheduled for Tuesday. This is a survey which attempts to forecast the business conditions for the next 6 months. A positive result is likely to support the Euro. Traders should also look for any development regarding the Greek economy, as this seems to be the most influencing issue at the moment.
JPY - Yen Slides against the Majors
The Yen saw a bearish trend against most of the major currencies during last week's trading session. The Yen's most notable drop was against the Dollar as the USD/JPY pair rose in about 300 pips.
The Yen's depreciation took place due to three main factors. The first factor to weaken the Yen this week was the rise in Japanese stocks. This has damped demand for the Yen as a safe-haven. In addition, the Bank of Japan (BoJ) decided to leave the Japanese Interest Rates at 0.10%, the lowest in the industrial world. The BoJ's policy is to weaken the Yen in order to support the Japanese exports. This policy indeed weakened the Yen last week. The third reason for the Yen's weakness are speculations regarding a Greece rescue plan. This has increased risk appetite and lowered demand for safer investments such as the Yen.
This week traders should focus on two main publications from the Japanese economy, the Trade Balance and the Retails Sales. The Trade Balance will provide further evidence regarding the Japanese exports, and a positive result is likely to support the Yen. The Retail Sales are a primary gauge of consumer activity, and the market tends to promptly react to this publication. Analysts are forecasting that the Japanese Retails Sales have dropped during January. If the end result will be similar, it is likely to weaken the Yen.
OIL - Oil is traded for over $80 a Barrel
Crude oil rose sharply during last week's trading session. Crude oil rose from $73.00 a barrel on Monday to over $80 a barrel at the moment, completing a $7 rise in a week.
Crude oil rose during last week's trading on speculations that energy demand will increase as the global economy seems to recover from the recession. Current assumptions of the Organization of the Petroleum Exporting Countries (OPEC) are that global consumption may climb by as much as 1.4 million barrels a day in the second half of the year. In addition, the drop of the Dollar during the end of last week also supported the price of oil. Crude oil is traded in Dollars, and thus when the Dollar drops against the major currencies, crude oil tends to rise in accordance.
As for the week ahead, traders should follow the major news events from the U.S. and the Euro-Zone, as this tends to affect the prices of oil the most. Traders should take under consideration that positive data is likely to create speculations for global economic recovery, and thus boost the prices of crude oil further. Traders should also follow the U.S. Crude Oil Inventories report on Wednesday as this report tends to have an immediate impact on the market.
There is a bearish cross forming on the 4-hour chart's Slow Stochastic indicating a bearish correction might take place in the near future. The downward direction on the hourly chart's Slow Stochastic also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the 4-hour chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.
The USD/JPY cross has experienced a bullish trend for the past 2 weeks. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the overbought territory, indicating that a downward correction will happen anytime soon. Going short with tight stops might be a wise choice.
The typical range trading on the hourly chart continues. The daily chart's RSI is floating in neutral territory. However, there is a bullish cross forming on the 4-hour chart's Slow Stochastic indicating a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The Wild Card
Oil prices rose significantly in the last week and peaked at $80.30 per barrel. However, the daily charts' RSI is floating in an overbought territory, suggesting that the recent upward trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
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