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Monday, 21 Feb 2011

Will the Euro's Rally Continue?

Last week, one of the most notable trends in the market was the bullish euro. By Friday, the euro was once again boosted on speculation that the ECB will hike interest rates in February. Today, several economic releases are expected from the euro-zone. Will the euro see another bullish session?

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trendupupdowndowndownno
Weekly Trendupupdowndownupdown
Resistance1.37501.631083.950.95401.02000.8500
1.37301.629083.750.95201.01800.8480
1.37001.626083.450.94901.01500.8450
Support1.36401.620082.850.94301.00900.8390
1.36101.617082.550.94001.00600.8360
1.35901.615082.350.93801.00400.8340

Economic News

USD - Dollar Closes a Bearish Week Following Weak U.S. Economic Data

The U.S. dollar fell against most of its major currency counterparts during last week's trading session. The dollar saw a 300 pip fall against the euro and a 250 pip drop against the British pound. As a result, the EUR/USD has crossed the 1.3700 level and the GBP/USD is trading near the 1.6250 level.

The dollar depreciated last week against most of the major currencies following disappointing economic releases from the U.S. The Long-Term Purchases report has shown that global demand for U.S. stocks, bonds and other financial assets fell in December. Net buying of long-term equities, notes and bonds totaled $65.9 billion during the month compared with net buying of $85.1 billion in November.

In addition, Retails Sales in the U.S. have increased less than projected in January. Purchases increased by 0.3 percent, the smallest gain since a drop in June. Sales at retailers were depressed by a drop in demand at building material stores and restaurants in the U.S.

As for the week ahead, the most impacting economic releases from the U.S. look to be the Consumer Confidence, the Existing Home Sales, the Durable Goods Orders, the New Home Sales, and the Preliminary Gross Domestic Data. Traders are advised to follow these reports as each and every one of them has potential to boost market's volatility. Traders should also note that the dollar might see fewer fluctuations today as U.S. banks will be closed in observance of President's Day.

EUR - Euro Strengthens vs. Rivals on Increased Risk-Appetite

The euro saw a bullish trend against most of the major currencies during last week's trading session. The euro gained about 300 pips against the U.S. dollar, and the EUR/USD pair has crossed the 1.3700 bar. The 17-naiton currency also saw a 180 pips gain vs. the Japanese yen.

The euro strengthened last week following a U.S. stock market rally. The rally has boosted risk-appetite in the market, and as a result increased demand for higher-yielding assets, such as the euro and the British pound.

The euro was also affected by the bearish dollar. The dollar weakened last week after several economic reports have shown that the U.S. economy is recovering at a slower pace than estimated.

Last, the euro gained after a European Central Bank board member Lorenzo Smaghi hinted that an interest rates hike may take place soon in order to fight the rising inflation.

Looking ahead to this week, traders are advised to follow the leading economic releases from Germany, as any economic data from the euro zone's largest economy is likely to impact the euro. Traders are also advised to follow speculations regarding a possible interest rates hike, as these speculations have potential to further support the euro.

JPY - Reduced Risk-Aversion Weakens the Yen

The Japanese yen fell against most of its major currency rivals during last week's session. The yen dropped about 180 pips against the euro and about 240 pips vs. the British pound. The GBP/JPY cross has reached as high as the 135.45 level last week.

The yen fell last week as reduced risk-aversion, caused by a rally of U.S. stocks, has boosted demand for higher-yielding assets and weakened demand for safe-have currencies, such as the yen.

In addition, it was reported last week that Japan's economy contracted for the first time in five quarters. Gross Domestic Product shrank an annualized 1.1 percent in the three months ended in December 31. As a result, China's economy overtook Japan's as the world's second largest for 2010.

As for this week, traders are advised to follow the leading economic releases from the Japanese economy, such as the Trade Balance and the Tokyo Core Consumer Price Index. Positive data might correct some of the yen's losses.

Crude Oil - Crude Oil Climbs Back To $91.65 a Barrel on Middle East Unrest

Crude oil began last week's session with a falling trend, and reached as low as $83.85 a barrel. However, the trend has then promptly reversed, and crude gained to $90.95 by Friday. As this week's trading begins, crude continues to rally, and is currently trading near $91.50 a barrel.

Crude oil rally continues as violence escalated in Libya, increasing concerns that crude supplies from the Middle East will be disrupted. Following the protests in Tunis and Egypt, the unrest has spread to Libya and Libyan leader Muammar Qaddafi's son has warned that a civil would risk the country's oil wealth.

As for this week, traders are advised to first and for most follow the developments in the Middle East. If the protest in Libya will proceed, and in case that the unrest will spread to Iran as well, crude prices could undergo another rally.

Technical News

EUR/USD

There is a very distinct bullish channel formed on the 4-hour channel, as the pair is currently floating in the middle of it. Nevertheless, as a bearish cross takes place on the chart's Slow Stochastic, it seems that a bearish correction might take place. Going short with tight stops could be the right strategy today.

GBP/USD

The cable recently saw several failed attempts to breach through the 1.6260 level. Currently, as the 1-hour chart's Bollinger Bands are tightening, it seems that the pair might see another attempt shortly. If the pair will manage to cross the 1.6260 level, it might spur a sharp bullish move; otherwise the pair might undergo a modest correction today.

USD/JPY

Ever since the USD/JPY pair has peaked at the 83.95 level, it's been dropping constantly, and is currently trading near the 83.10 level. In addition, as the MACD on 4-hour chart continues to point down, it seems that the pair's bearish move might proceed today. Going short seems to be the right choice today.

USD/CHF

There is a very accurate bearish channel formed on the 4-hour chart, as the pair is currently floating in the middle of it. In addition, as both the Slow Stochastic and the RSI on the daily chart are providing bearish indications, it seems that the pair might see another bearish session today, with potential to reach the 0.9320 level.

The Wild Card

Crude Oil

After falling below the $84.00 level, crude prices began recovering, and a barrel of crude is currently trading near $91.50. In addition, the daily chart's MACD has lately completed a bullish cross at a relatively low level, signaling that the bullish move has more steam in it. This might be a great opportunity for forex traders to join a very popular trend.

Current Time: 10/31 05:24 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
10/31
06:00JPY+ Housing Startsy/y-12.5%-17.1%-1
07:00JPY+ BoJ Outlook Report---3
08:00EUR+ German Retail Salesm/m2.5%-0.8%-3
08:45EUR+ French Consumer Spending m/m0.7%-0.3%-3
10:00EUR+ Italian Monthly Unemployment Rate12.3%12.4%-1
11:00EUR+ CPI Flash Estimate y/y0.3%0.4%-5
11:00EUR+ Unemployment Rate11.5%11.5%-3
11:00EUR+ Italian Prelim CPI m/m-0.3%-0.1%-1
13:30CAD+ GDPm/m0.0%0.0%-5
13:30USD+ Core PCE Price Index m/m0.1%0.1%-3
13:30USD+ Employment Cost Index m/m0.7%0.6%-3
13:30USD+ Personal Spending m/m0.5%0.2%-3
13:30USD+ Personal Income m/m0.3%0.3%-1
14:45USD+ Chicago PMI60.560.2-3
14:55USD+ Revised UoM Consumer Sentiment86.486.4-3
14:55USD+ Revised UoM Inflation Expectations2.8%--1
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