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Monday, 31 May 2010
Will The Euro Drop Further Following Spain's Credit Downgrade?
After several days on which the Euro saw recovery signals, Fitch Ratings announced that it downgrades Spain's credit rating. The rating company explained that Spain's large debts were the catalysts for this decision. As a result the Euro promptly dropped on all fronts, and erased its profits. Could it drop further?
USD - U.S. Non-Farm Payrolls Data Expected On Friday
The dollar continued to strengthen against the most of the major currencies during last week's trading session. The Dollar about 350 pips vs. the Euro, and the EUR/USD pair is currently trading near the 1.2300 level. The Dollar strengthened against the Yen as well.
The positive signals from the U.S. economy combined with the high-uncertainty regarding the Euro-Zone continue to boost the Dollar. The purchases of Existing Home Sales in the U.S. rose by 5.77M in April, beating expectations for a 5.62 rise. Another positive data of the U.S. housing sector showed that the sales of New Home have jumped to a two-year high in April. The New Home Sales report rose by 504K in April, beating expectations for a 425K rise as well. In addition, the recovery signals of the U.S. economy were fairly observed in the Consumer Confidence survey for May. The survey rose to 63.3 points, its highest level since March 2008. This reflects optimism among U.S. residents regarding their financial outlook. In the long-run, such optimism usually leads to an economic widening, and to an appreciation of the local currency.
As for the week ahead, many interesting publications are expected from the U.S. economy. However the report that tends to hold the greatest impact over the market is the U.S. Non-Farm Payrolls which is expected on Friday. The Non-Farm Payrolls is considered to be the leading employment data in the U.S. As a result its publication usually has an immense impact on the market and on the Dollar in particular. Traders should also follow the ADP forecast which is expected on Wednesday, as investors tend to adjust their positions according to this forecast.
EUR - Euro Remains under Pressure As Fitch Ratings Downgraded Spain's Credit Rating
The Euro weakened against most of its major counterparts during last week's trading, yet managed to recover most of its losses.
The uncertainty regarding the Euro-Zone continues to grow, as Fitch Ratings cut Spain's credit by one notch to AA+ from AAA. The credit downgrade took place due to concerns that the nation's debt burden will weigh on economic growth. The rating company added that the downgrade reflects Fitch's assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium term. As the uncertainty regarding the Euro-Zone's ability to recover from the debt crisis continues, the Euro is likely to see further devaluation. The uncertainty also leads to risk-aversion in the market, and turns investors to look for safer assets, such as the Dollar and the Yen.
Looking ahead to this week, traders are advised to remain updated on every development regarding the Euro-Zone debt crisis. This is still that most important issue in the market, and every announcement on this matter is likely to have a large impact on the Euro. Traders should also follow the leading economic publications from the Euro-Zone, especially the German indicators.
JPY - Political Turmoil to Weaken the Yen
The Yen dropped against most of the major currencies during last week's trading session. The Yen dropped about 200 pips vs. the Dollar, and about 400 pips against the Pound.
The main reason for the Yen's bearish trend seems to be due to a political turmoil in Japan. A recent survey showed that more than half of the Japanese citizens want Prime Minister Yukio Hatoyama to resign. This has led to speculations that the Yen's safe-haven appeal will be damaged, and as a result will weaken the currency. The Japanese coalition could be at risk, especially after the Social Democratic Party has left the government, following Hatoyama decision to dismiss its only Cabinet minister.
As for this week, traders are advised to follow all the developments regarding the Japanese politics. It currently seems that as long that the uncertainty regarding the Japanese leadership remains, the Yen could drop further against the major currencies, especially the Dollar and the Pound.
OIL - Crude Oil Remain Stable around $74 a Barrel
Crude oil corrected some of its losses from the past few weeks. After dropping to $67 a barrel, crude saw a sharp rise, and a barrel of crude oil is currently traded around $74.
Crude oil's rise came as a result of the positive data from the U.S. economy, especially the Consumer Confidence that rose to its highest level since March 2008. The U.S. economy is the largest energy consumer in the world, and thus such a positive indication has instantly boosted crude oil prices. In addition, the Euro's recovery from last week also supported oil prices. Crude oil is traded in Dollars, and whenever the Euro strengthens vs. the Dollar, crude oil tends to rise as a result.
Looking ahead to this week, traders are advised to follow the leading publications from the U.S. and the Euro-Zone. Special attention should be given to U.S. Non-Farm Payrolls release which is expected on Friday. This report is considered to be the leading indicator of the U.S. employment condition, and its result tends to have an instant impact on crude oil prices.
While most indicators are currently floating in neutral territory with the pair currently range trading between 1.2284 and 1.2330, the hourly RSI is floating near the oversold territory indicating that an upward correction may take place later today. Going long with tight stops may be advised
The daily RSI is floating in the oversold territory while a bullish cross is evident on the 2 hour MACD indicating an imminent upward movement might take place later today. Going long for today may be a good choice for today.
The technical indicators on this pair don't seem to be giving off much indication of direction. However, the pair is range-trading in a bullish channel and has just touched topped a recent peak, suggesting that the price may experience a downturn as it continues floating within this range. Buying on lows and selling on highs within this range may be a good choice for the rest of this week.
This pair has just witnessed a bearish cross form on the 4-hour Stochastic (slow) and may soon move in a downward direction. The daily RSI also has the pair just about to exit the over-bought territory, suggesting downward pressure. Going short on this pair would probably be the best strategy in today's trading.
The Wild Card
It seems as though a new bullish cross has formed on the 4-hour Stochastic (slow) for the price of Gold. This may indicate that an upward price movement is imminent. The daily MACD/OsMA also shows a bullish cross, supporting the notion that upward pressure exists on this commodity at the technical level. Forex traders don't want to miss out on a possible opportunity to make fast profits by jumping in on this predictable price movement in one of the world's most exciting and tradable commodities
|23:30||AUD||MI Leading Index||m/m||-0.1%||-||-|
|00:00||EUR||German 30-y Bond Auction||1.77|1.2||-||-|
|00:30||AUD||Trimmed Mean CPI||q/q||0.4%||0.5%||-|
|07:00||CHF||UBS Consumption Indicator||1.29||-||-|
|07:00||EUR||GfK German Consumer Climate||9.0||9.2||-|
|07:00||EUR||German Import Prices||m/m||-0.8%||-1.4%||-|
|15:30||USD||Crude Oil Inventories||10.1M||-||-|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|20:00||NZD||Official Cash Rate||3.50%||3.50%||-|
|20:00||NZD||RBNZ Rate Statement||-||-||-|
|23:00||AUD||CB Leading Index||m/m||-0.2%||-||-|