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Tuesday, 31 Aug 2010
Yen Continues to Strengthen
The Japanese yen made another bullish move against the majors as the steps taken by the Bank of Japan to weaken the yen only served to increase traders' resolve to increase bullish bets on the Japanese currency.
USD - Dollar Stronger Following Lower Equities
The dollar traded higher versus the euro and the pound but weaker versus the yen in illiquid trading conditions. Much of today's trading revolved around negative sentiment for an increase in economic activity in the global economy.
The EUR/USD was trading lower at 1.2655 after opening the day at 1.2737. The GBP/USD was also down at 1.5470, from an opening day price of 1.5526. The USD/JPY was lower at 84.55 after opening at 85.38.
The US Commerce Department released a report showing that personal spending was in line with economists' expectation of an increase of 0.4% over the previous month. However, US Consumer Income rose only 0.2% on expectations of a 0.3% increase.
The Dow Jones Industrials Average finished lower by 1.39% on light trading. The New York Stock Exchange recorded its lowest trading volumes of the year. Only 3.2B shares traded hands yesterday. On average over 5B shares are traded on a daily basis. August is known to be a slow month as many traders are away from their trading desks on vacation. Also not helping the volumes was a banking holiday in London. Low volumes allow for price movements to be exaggerated in illiquid trading conditions.
Consumer data will once again be back in the spotlight as the CB Consumer Confidence index will be released today at 14:00 GMT. The report carries significant weight as consumer spending makes up a majority of US GDP.
The EUR/USD has broken out from a bearish flag pattern and will likely test the support level at 1.2610. A breach below this line could send the pair to its next support level at 1.2465.
EUR - Euro Weaker on Light Volume
The euro was down across the board but fell significantly versus the Japanese yen. A lack of liquidity was seen in today's trading as London banks were closed in observance of the summer bank holiday.
The EUR/GBP was down at 0.8180, after opening the day at 0.8202. The EUR/JPY was sharply lower at 107.08, from an opening day price of 108.76.
Driving the yen higher versus the euro was the market's lack of enthusiasm towards the Bank of Japan's program to expand liquidity by increasing loans to banks. Traders were looking for more concrete action by the BOJ to actively intervene in the currency markets to halt the strengthening yen.
Traders will be following the release of the German unemployment change due to be released at 09:00 GMT. Economists have forecasted a drop of 19K jobs over the previous month for Europe's largest economy.
JPY - Yen Continues to Strengthen Despite BOJ Easing
The Bank of Japan's (BOJ) attempt to stem the yen's strengthening looks to be in vain as traders continue to bid up the Japanese currency. Continued risk aversion has traders moving into the yen as a safe haven, pushing the yen to a 15-year high.
The USD/JPY was down sharply at 84.55 after opening the day at 85.38.
The BOJ announced that it will offer Japanese financial institutions 10 trillion yen of loans in new 6-month loans at the basement interest rate of 0.1%. This comes on top of the 20 trillion yen 6-month loans the BOJ had previously been offering.
Despite the new policy that is mean to weaken the yen, the market did not react positively and continued to buy the yen. Traders will now be looking for direct intervention in the currency markets by the BOJ to weaken the yen. Until now, Japan's tough talk and new liquidity provisions have not impressed the markets. The yen should continue to strengthen below its 15-year low versus the dollar at 84.00.
OIL - Crude Oil Snaps 3-day Win Streak
Spot crude oil prices fell yesterday as traders reduced their exposure to risky assets. This snapped a 3-day streak of rising prices for the commodity. Pushing the price of crude oil down were weak equity markets and lackluster consumer data released from the US.
The price of spot crude oil fell to $74.05, following an opening day price of $75.16. At one point in the day the price of spot crude oil fell to $70.77, the lowest price the commodity has traded since early June.
Traders will want to eye tomorrow's CB Consumer Confidence index, along with Wednesday's weekly crude oil inventory data. These two data pieces will be the main influencers this week. Traders should also be mindful of movements in the major equities indexes, such as the Dow Jones Industrials Average. Lately spot crude oil prices have been taking price moves from fluctuations in the equity markets. The next resistance level for spot crude oil rests at $75.50.
The cross has experienced much bearishness yesterday, and currently stands at the 1.2650 level. There is much evidence in the chart's oscillators that supports a possible bullish correction today. This is supported by the 4-hour chart's Slow Stochastic. Going long with tight stops may turn out to bring big profits today.
The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 8-hour Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the 4-hour chart's Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the 2-hour chart's Slow Stochastic. Going long with tight stops may turn out to pay off today.
The USD/CHF has gone increasingly bearish yesterday, and currently stands at the 1.0240 level. The 8-hour chart's Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart's RSI signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.
The Wild Card
This pair's sustained upward movement has finally pushed its price into the over-bought territory on the 4-hour chart's RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.
|13:30||USD||Non-Farm Employment Change||113K||151K||175k|
|13:30||USD||Average Hourly Earnings||m/m||0.2%||0.2%||0.4%|
|17:00||USD||FOMC Member Dudley Speaks||*||*||*|