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Tuesday, 23 Jun 2009
World Bank Forecast Returns Traders to Safe-Havens
The US Dollar has made some solid gains this week following news from the World Bank (WB) that economic forecasts for growth in 2009 are showing a 2.9% contraction, as opposed to the previous forecasts of 1.7%. As political turmoil in Iran and the show-down with North Korea continue, investors have felt a slight drop in confidence in markets lately and pulled their investments back into safe-havens such as the USD and JPY, which explains their sudden rise in value yesterday. This move back to less risky investments appears to be continuing today.
USD - USD Gains on Return to Risk Aversion
The U.S. Dollar gained against its riskier counterparts Monday after the World Bank issued a poor forecast for 2009. Renewed concerns over the state of the global economic recovery combined with unfolding instability in Iran and North Korea brought back an air of pessimism pushing investors to safer currencies. The Dollar was at $1.3856 per EUR following a 0.5% gain since Friday and at 95.99 Yen down from 96.23.
The World Bank predicted Monday that the global economy will shrink 2.9% in 2009, much deeper than the previous estimate of 1.7%. Doubts were also raised that developing countries will be able to spur global economic recovery as their GDP is expected to grow only 1.2% in 2009. The prospect for world economic recovery is expected to be slow and shallow. The report led to a decline in equity markets and commodities which further helped strengthen the Dollar.
The biggest risk to the Dollar this week is the highly anticipated Federal Open Market Committee (FOMC) meeting that is set to begin today and concludes Wednesday with a policy statement. Existing Home Sales are set to be released at 2:00 GMT; however, most of the focus will still be on the outcome of the FOMC meeting as investors await announcements regarding the Fed's Treasury buying program and direction of interest rates.
EUR - EUR Loses against Most Currency Pairs
The EUR lost against its major currency pairs Monday as investors returned to risk aversion after a disappointing report from the World Bank. The EUR traded at $1.3856 Monday down from $1.3948 and at 133.05 Yen down from 134.22 Friday.
Additional pressure to the EUR came after European Central Bank (ECB) President Jean-Claude Trichet stated that he has no intention of offering stimuli to the Euro-Zone economy. A slightly stronger than expected rise in the German Ifo Business Climate had a very short and mild effect on the EUR considering Germany's budget deficit shortfalls made this boost in optimism appear muted.
Despite some interesting economic data set to be released today, including the German Flash Manufacturing PMI and the German Flash Services PMI, both to be released at 7:30 GMT, the markets are awaiting the FOMC meeting statement and ECB's one-year refinancing operation, both due on Wednesday.
JPY - Political Turmoil Benefits JPY
The Japanese Yen gained against most major currencies Monday as risk aversion returned amid political unrest in Iran and a gloomy report from the World Bank regarding expected global recovery. The report stated that the recession will be deeper than previously forecasted, pushing investors to safer currencies, such as the Dollar and Yen.
The Yen traded at 132.87 per EUR following a 0.9% increase yesterday and was at 95.86 per Dollar, after rising 0.4%. Economic data released earlier showed an improvement in the business sentiment index as well as an improvement in the services sector, providing a brighter outlook for Japan's economic state. As the world turmoil continues, it is likely the Yen will extend its gains during today's session as well.
Crude Oil - Crude Oil Drops below $67 a Barrel
The price of Crude Oil dropped more than $2 a barrel yesterday after the World Bank estimated the world economy will contract 2.9% in 2009. A rebounding Dollar also put pressure on Oil as investors moved away from riskier assets and into safe-haven currencies.
Declining expectations of a recovery in U.S summer gasoline demand along with reports of sharp increases in inventories snapped Crude's recent rally. Gasoline demand usually peaks during the summer in the U.S, but in light of the continuing recession and growing unemployment there are less commuters and fewer vacation plans. Furthermore, since refiners are operating at roughly 86% of capacity, even with a sharp increase in demand, gasoline supplies are unlikely to tighten further. There is expectation that the U.S. gasoline inventories will keep rising.
Although some correction is expected, investors are awaiting the release of the U.S Crude Oil Inventories on Wednesday at 14:30 GMT and the FOMC statement to be released 18:15 GMT.
This pair appears to be consolidating towards the price of 1.3875 with what appears to be an impending volatile movement. The MACD on the hourly and 4-hour charts indicate bullish crosses, which support the price moving towards the convergence point and the Bollinger Bands on the hourly chart appear to be tightening, which indicates imminent volatility. Waiting for the breach and then riding the wave may be a wise choice today.
This pair may be poised for an upward movement today. The MACD on the hourly chart is showing an imminent bullish cross. The Slow Stochastic on the 4-hour chart also shows a fresh bullish cross that has just formed. These two together support the notion of an impending upward movement. Going long may be a wise choice today.
This pair's recent downward movement has pushed many of the indicators on all charts into the over-sold territory, as well as generating a number of bullish crosses. The pair is currently testing the solid support level of 95.30. If a breach occurs, the downward movement may continue despite technical indicators. However, if the price fails to breach, there may likely be an upward correction throughout the day.
This appear has been consolidating over the past few days towards the price level of 1.0850. As the MACD on the hourly chart shows a clear bearish cross, and the Bollinger Bands are tightening on the hourly chart, this pair could experience a sharp volatile movement after the impending downward move. Waiting for the breach and then riding the wave may be a solid strategy.
The Wild Card
The sustained upward movement for this pair has pushed many indicators into the over-bought territory and created bearish crosses across the board. However, the Parabolic SAR on all charts is still signaling for forex traders to buy. Without a clear downward correction today, this pair will likely continue upwards as the NOK loses value to the EUR. Today will either be the day this pair reverses, or continues to climb to record highs. Choosing the right one will earn big bucks today.
|00:00||NZD||NZIER Business Confidence||23||-||-|
|01:00||GBP||30-y Bond Auction||2.86|1.6||-||-|
|01:30||AUD||AIG Construction Index||47.8||-||-|
|06:30||AUD||RBA Rate Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.9%||0.1%||-|
|08:45||EUR||French Gov Budget Balance||-59.8B||-||-|
|08:45||EUR||French Trade Balance||-3.0B||-3.3B||-|
|09:00||CHF||Foreign Currency Reserves||517.5B||0.2%||-|
|16:00||GBP||NIESR GDP Estimate||0.6%||-||-|
|16:00||USD||IBD/TIPP Economic Optimism||48.1||-||-|