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Tuesday, 13 Jul 2010
Will The U.S. Trade Balance Report Support The Dollar Today?
Due to renewed concerns regarding the Euro-Zone's debt crisis and due to the beginning of earning season in the U.S, the Dollar slightly strengthened against the Euro yesterday. However, what will determine the direction of the Dollar today is likely to be the economic data which is expected from the U.S. and the Euro-Zone, especially the U.S. Trade Balance report. Will the Dollar see another day of rising trend?
USD - Dollar Strengthens As Second-Quarter Earnings Season Begins
The Dollar rose against most of its major counterparts during yesterday's trading session. The Dollar strengthened against the Euro and the Pound, and the GBP/USD pair dropped to the 1.4950 level.
The Dollar gained against most of the major currencies as renewed concerns regarding European debts drove investors to look far safer assets such as the Dollar and the Yen. In addition, the start of the U.S. second-quarter earning season has supported the Dollar as well. There is currently pessimism about corporate outlooks as U.S. companies begin reporting second-quarter results this week. The combination of concerns regarding the economic condition of several Euro-Zone nations, combined with the pessimism in U.S. corporations' profits has reduced risk appetite in the market. This was concluded with modest gains for the Dollar.
Looking ahead to today, many interesting publications are expected from the U.S. economy. The report which might have the strongest impact on the market seems to be the Trade Balance. The Trade Balance measures the difference between imported and exported goods and services. Analysts have forecasted that the U.S. trade deficit has narrowed to 39.3B during May, from 40.3B on April. If the end result will beat expectations, the Dollar could rise further. In addition, traders are advised to follow the Federal Budget Balance. Current expectations are that the federal government's deficit narrowed to 70.0B on June, from 135.9B on April. If the actual result will be similar, the Dollar might strengthen as a result.
EUR - Euro Tumbles on Concerns Stress Tests Won't Ease Investors
The Euro weakened on Monday against most of the major currencies. The Euro dropped against the Dollar and the Pound and saw a 100 pips loss against the Yen, as the EUR/JPY pair fell to the 111.20 level.
The Euro dropped yesterday on speculations that tests that are made to demonstrate the resilience of the Euro-Zone's banking system will fail to ease investors. The biggest concerns regarding the stress tests results appear to be about the transparency of the data. Investors fear that they will not receive the details that they're looking for. This boots the already high uncertainty that exists in the markets, and turns investors to look for safer assets, such as the Dollar and the Yen. The main issue continues to evolve around the Euro-Zone's debt problems. It seems that until investors will receive solid data to believe that economies such as Greece and Spain will manage to recover, the Euro might see further bearishness.
As for today, a batch of data is expected from the Euro-Zone. The most intriguing economic publications will probably be the German ZEW Economic Sentiment which is scheduled for 09:00 GMT. It is a survey that asks German institutional investors to rate the next 6-month economic outlook for Germany. Analysts have forecasted that the German Economic Sentiment has dropped in June to 25.2 from 28.7 on May. If the actual result will be similar, this will mark the third consecutive drop of this survey, and has potential to weaken the Euro further.
JPY - Yen Rises as Risk Aversion Increases
The Yen rallied yesterday against most of the major currencies. The Yen gained about 70 pips against the Dollar and about 120 pips against the Euro and the Pound, correcting some of last week's losses.
The Yen strengthened yesterday on concerns that the Euro-Zone's deficit may worsen. There are speculations that the stress tests that are made to check the European banking system's condition will lack to deliver all the required data, and as a result will fail to assure investors. This has reduced risk appetite in the market, and has supported the Yen, which is considered to be a relatively safe asset. It currently seems that for as long that the Euro-Zone will fail to deliver recovering signals, and for as long that the U.S. economy will provide negative data, the Yen might appreciate further.
Looking ahead to today, the Yen will be absent from the economic calendar. Traders are advised to follow Japanese equity markets as they are highly correlated with Yen movements. Traders should also follow the main publications from the U.S. and the Euro-Zone as negative data has potential to boost the Yen further.
OIL - Crude Oil Drops To $75.50 a Barrel
Crude oil tumbled during yesterday's trading session. Crude oil began this week's trading at $76.30 a barrel. However on Monday oil saw a sharp drop and a barrel of oil was traded at a daily low of $74.50.
The main reason for the depreciation of crude oil seems to be the strengthening Dollar. Crude oil is valued in Dollars, and thus whenever the Dollar strengthens, crude oil tends to fall as a result. In addition, the renewed concerns regarding the Euro-Zone's debt crisis have created speculations about a reduced demand for energy, which also weighed on crude oil.
As for today, traders are advised to follow the main publications from the U.S. and the Euro-Zone, as they tend to have a large impact on crude oil trading. Traders should pay attention to the U.S. Trade Balance report and the German ZEW Economic Sentiment, as these publications look to have the largest affect on the market today.
The price of this pair appears to be floating in the over-bought territory on the daily chart's RSI indicating a downward correction may be imminent. The downward direction on the hourly chart Slow Stochastic also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy
The 4-hour chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the hourly chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.
The pair is floating at the key level of 88.55, which is a very strong support level on the 4 hour chart. If the pair will manage to breach through that level, a much stronger bearish move is likely to break forth, with a target potential of 87.95. Going short with tight stops might be the right strategy today.
There is a very distinct bearish channel forming on the 4H chart as the pair is now floating in the middle of it. A double doji formation on the daily chart is suggesting that another sharp movement is forthcoming. Traders should wait for the breach and swing.
The Wild Card
This commodity is giving a strong bearish signal on the 4 H and hourly charts. The negatively sloped RSI and Momentum support this bearish notion. The Slow Stochastic is also giving a strong signal that this Crude's next move will probably be bearish. Therefore this gives forex traders the perfect opportunity to catch an early downward correction on an early stage.
|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%||-||-|