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Wednesday, 20 Oct 2010
Will the USD Be Able to Maintain Yesterday's Gains?
Following yesterday's volatile trading session, in which the US dollar gained around 300 pips against the euro, analysts are questioning whether the dollar gains were a temporary occurrence or the beginning of a larger trend. Today, news out of the UK and Canada will likely determine which direction the market moves.
USD - USD Gains Big Following Surprise Chinese Rate Hike
Yesterday, the dollar saw significant gains against virtually all of its main currency rivals, following a surprise Chinese interest rate hike that led to increased risk aversion among investors. The dollar was able to gain approximately 300 pips against both the euro and UK pound. Currently the EUR/USD pair is trading around the 1.3755 level, while the GPB/USD pair stands at 1.5715. While the greenback initially made gains vs. the fellow safe-haven yen, the USD/JPY pair has since fallen and is currently around the 81.30 level.
Analysts are unsure regarding how long the USD will be able to maintain these gains. Any future moves by China to tighten economic policy will likely benefit the greenback, as investors are likely to revert to safe-haven currencies as a result. That being said, with the Fed set to unveil its latest quantitative easing measures as early as next month, investor confidence in the US economy is quite low. As long as the US continues to release negative economic indicators, investors are likely to keep opening short positions for the greenback.
Today, a lack of significant economic indicators out of the US means that dollar values will likely be determined by news from the UK and Canada. Traders are advised to pay attention to the UK Spending Review and the Canadian BOC Press Conference, scheduled for 11:30 and 15:15 GMT respectively. Both sterling and the loonie took losses against the dollar yesterday. Positive news today will likely help either currency recoup its losses.
EUR - EUR Set to Reverse Yesterday's Losses
In addition to the 300 pip drop the EUR/USD took yesterday, the safe-haven yen was able to record significant gains against the 16-nation single currency. EUR/JPY plummeted some 210 pips yesterday before staging a minor recovery in the overnight session. Currently the pair is trading around the 111.90 level. Analysts attribute the drop to a decrease in risk taking following China's surprise interest rate hike announcement.
Whether or not this trend will continue today is unknown, but traders will want to pay careful attention to any major announcements out of China just in case. In addition, news out of the UK is likely to influence the euro today. The EUR/GBP pair dropped close to 100 pips yesterday. Today's UK Spending Review is expected to reveal that the Bank of England is set to inject a significant amount of capital into the economy, while keeping interest rates at their record low. If so, investor confidence in the UK economy will likely remain low, and could lead to significant gains for the euro in afternoon trading. Traders may want to jump on this impending trend before it is too late.
JPY - Yen Manages to Gain on USD in Overnight Trading
After losing close to 60 pips against the US dollar in yesterday's trading, the yen has managed to correct itself and is currently trading around the 81.40 level. Additionally, the Japanese currency has gained some 130 pips against the UK pound, and 75 pips against the Swiss franc. Analysts attribute the yen's gains to a return to risk aversion following the surprise announcement out of China yesterday. Whether or not these gains are temporary depends on a number of factors.
First, today's UK Spending Review is unlikely to help generate investor confidence in the British economy. Should the Bank of England announce a new stimulus plan, as predicted, the safe-haven yen is likely to see more gains. At the same time, traders always want to pay attention to any moves the Bank of Japan may make in order to devalue its currency. The yen's recent gains have not been good for Japan's export industry, and a move by the BoJ is not out of the question.
Crude Oil - Oil Prices Tumble As the USD Moves Up
Crude oil prices fell close to 400 pips in trading yesterday, as investors abandoned the commodity in favor of the safe-haven dollar. While oil managed to stage a slight correction in overnight trading, the trend is still very much down. Currently prices stand at $80.55 a barrel. Crude oil is typically viewed as an alternative investment to the US dollar. It appears for as long as the dollar is making gains, oil has the potential to drop down further.
Today, in addition to the direction the USD takes, traders will want to pay attention to the US Crude Oil Inventories figure, set to be released at 14:30 GMT. Analysts are forecasting an increase in inventories this week. Should the figure come in at its forecasted level of 1.5M, crude has the potential continue its bearish trend. Typically, an increase in inventories signals a decrease in demand which causes oil to fall, at least in the short term.
Following yesterday's downward spiral, the Williams Percent Range on the 8-hour chart indicates this pair is in oversold territory. This theory is supported by the Stochastic Slow on the 4-hour chart, which has formed a bullish cross. Traders are advised to long with tight stops today.
The Relative Strength Index on the 8-hour chart indicates that this pair is in oversold territory and may see an upward correction. In addition, the Stochastic Slow on the same chart shows that a bullish cross has formed. Now may be a good time for traders to open up some long positions in order to jump on the impending upward trend.
Virtually every technical indicator shows this pair trading in neutral territory at the moment. Usually this means that a clear direction has not yet presented itself for the day. Traders may want to take a wait and see approach in order to better judge which way the pair is moving.
The Relative Strength Index on the 8-hour chart shows this pair entering overbought territory, meaning that a downward correction could occur today. Traders may want to go short with tight stops today, as a bearish correction may take place.
The Wild Card
After tumbling in trading yesterday, technical indicators are showing that the commodity may be due for an upward correction. The Slow Stochastic on the 8-hour chart has formed a bullish cross, while the Relative Strength Index on the 4-hour chart is in oversold territory. Forex traders may want to go long with tight stops for some potentially serious profits today.
|22:30||AUD||AIG Manufacturing Index||46.9||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.0%||-||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:00||EUR||Spanish Unemployment Change||-64.4K||-32.4K||-|
|08:15||EUR||Spanish Manufacturing PMI||53.8||54.2||-|
|08:45||EUR||Italian Manufacturing PMI||48.4||49.3||-|
|09:00||EUR||Final Manufacturing PMI||51.0||51.0||-|
|13:30||USD||Core PCE Price Index||m/m||0.0%||0.0%||-|
|14:45||USD||Final Manufacturing PMI||53.7||54.1||-|
|15:00||USD||ISM Manufacturing PMI||55.5||54.9||-|
|15:00||USD||ISM Manufacturing Prices||38.5||40.1||-|