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Thursday, 26 Aug 2010
Yen Reaches 15-Year Low
Volatility was high today as the Japanese yen fell to its lowest level in the past 15 years. This has taken place as traders test the resolve of the Japanese government not to intervene in the currency markets to prevent a consistent rise in the value of the yen.
USD - Dollar Trades Sideways
The US dollar was mixed today versus the majors, rising against the yen but falling versus the British pound and the Swiss franc. Traders are anticipating market intervention from both the Japanese and the Swiss central banks following the sharp appreciation of the yen and the franc.
The EUR/USD traded near its opening price of 1.2655. The GBP/USD was higher at 1.5480, from an opening day price of 1.5429. The USD/CHF was lower at 1.0300, after opening the day at 1.0315.
Highlighting the volatility in yesterday's trading was the movement of the Dow Jones Industrials Average. The Dow was down by more than 100 points after global bourses were lower. Disappointing US data also sank traders' sentiment following the release of core durable goods orders, which fell 3.8% on expectations of a rise of 0.6%. Poor housing numbers were also released as new home sales recorded only 276K on expectations of 333K. However, the Dow came back and by the end of the day closed up 0.2%.
Today traders will be following US weekly unemployment claims that are expected to post 488K new applications for unemployment benefits. Also on the calendar is the Federal Reserve's Jackson Hole Symposium. The yearly meeting of central bankers may provide a forum for further debate of US monetary policy, including when to raise US interest rates that remain close to 0%. Support and resistance for the EUR/USD are found at the levels of 1.2470 and 1.2730.
EUR - When Will the SNB Intervene on Behalf of the Franc?
Traders are waiting for intervention from the Swiss National Bank (SNB) to halt the appreciation of the franc versus the euro.
The Swiss franc (CHF) continues to strengthen as the currency is typically used as a safe haven in times of economic stress. Yesterday the franc rose following disappointing US new home sales numbers and weak US core durable goods orders. The franc is currently trading at a high versus the dollar since January and a new all time high versus the euro.
To counter the rapid appreciation of the franc, traders are watching for signs that the SNB will begin selling francs to halt the rise of the currency. As of now, the SNB has not intervened. This has allowed traders to push the Swiss franc to new highs versus the dollar and the euro. Until the SNB intervenes, the bullish trend for the franc should continue, and the USD/CHF will target the 2010 low of 1.0125.
JPY - When Will the Bank of Japan Intervene on Behalf of the Yen?
Yesterday the yen found some relief from the appreciation the Japanese currency has experienced versus the dollar and the euro. But this should only be a temporary pause in the appreciation of the yen as the Bank of Japan inches closer to intervention in the foreign exchange markets.
The USD/JPY rose to 84.64, from an opening day price of 84.38. The EUR/JPY was also higher at 107.20, after opening yesterday's trading at 106.79.
The Bank of Japan (BOJ) continues to ramp up its rhetoric for intervention in the currency markets. Finance minister Yoshihiko Noda is beginning to lose his credibility in his attempts to talk the yen down. As the verbal intervention appears to be failing, the BOJ is inching closer to actual intervention in the market or other possible steps of a monetary policy easing which would be considered a step of last resort to weaken the yen.
Crude Oil - Crude Oil Rises Despite Negative Inventory Data
The price of spot crude oil rose today despite sluggish equity markets and rising crude oil inventories. Crude oil prices finished higher on the day at $72.75, from an opening day price of $71.88.
The US Energy Information Administration released its weekly crude oil inventory level report that showed crude oil inventories rose 4.1M barrels. Market expectations were for a rise of only 0.1M barrels.
The rise in the price of spot crude oil was the first significant gain the price has made in the last 17 trading days. This sudden appreciation caught the market off guard going against the downward trend. Also adding to the confusion was the large rise in inventories, another sign that demand has yet to pick up.
The next support and resistance levels for spot crude oil trading are $70.75 and $74.15.
Many indicators on this pair appear to be floating in neutral territory, but the direction of these indicators all point upwards. The price has just left the over-sold territory on the daily RSI, suggesting that we may see upward momentum gaining in the days ahead. Going long may be preferable today.
This pair seems poised for a steady downward movement. The hourly and weekly RSI has the price in the over-bought territory, highlighting downward pressure. The Stochastic (slow) on the hourly, 4-hour, and weekly charts all show fresh or impending bearish crosses. Going short may be wise today.
Technically speaking we should expect to see upward corrections to the sustained downward movement we see on the USD/JPY. However, the technical evidence for such a move is lacking. Almost all indications are neutral, and the few which are not neutral are indeed showing a potential for further downward movement. For example, the 4-hour Stochastic (slow) currently shows a fresh bearish cross. It appears as if staying with the downtrend is the best choice in today's trading.
The price of this pair appears to have pushed the RSI of the 4-hour and weekly charts into the over-sold territory, suggesting upward pressure. A recent bullish cross on the weekly Stochastic (slow) supports this notion. Going long with tight stops could be a wise tactic today.
The Wild Card
The sharp downturn in this pair has resulted, at last, in the technical indicators showing potential for a correction. The 4-hour, daily and weekly RSIs all float in the over-sold territory and just recently a bullish cross formed on the daily Stochastic (slow). All of this evidence points towards a beneficial opportunity for forex traders looking for a great opening price at the low point of a movement. Going long on this pair now seems to have the most potential for profits today.
|00:00||GBP||MPC Rate Statement||*||*||*|
|03:45||JPY||10-y Bond Auction||0.61|3.7||*||-|
|10:30||AUD||AIG Construction Index||54.4||-||-|
|11:15||GBP||Autumn Forecast Statement||*||*||*|
|12:00||GBP||Asset Purchase Facility||375B||375B||-|
|12:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|12:30||USD||Challenger Job Cuts||y/y||-4.2%||*||-|
|12:54||EUR||Minimum Bid Rate||0.25%||0.25%||-|
|13:30||EUR||ECB Press Conference||*||*||*|
|13:30||USD||Prelim GDP Price Index||q/q||1.9%||1.9%||-|
|15:00||USD||Natural Gas Storage||-13B||-||-|