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Tuesday, 17 Aug 2010
Yen Strengthens Despite Weak Japanese GDP Report
Volumes were light during Monday's trading as the yen climbed versus the major currencies. Japanese Q2 gross domestic product failed to meet market expectations, raising concerns over the pace of the global economic recovery.
USD - Dollar Weakens on Light Trading
The U.S. dollar was weaker across the board today as trading today began on a down note. Risk sentiment was sapped following disappointing Japanese GDP numbers.
The EUR/USD pair rose for the first trading day since the pair began a sharp correction last week. However, gains in the pair were reduced following the release of strong TIC long term purchases data. The report came in positive at 44.4B on expectations of 36.3B. But the added support was not enough to turn the tide of negative risk sentiment. The Dow Jones Industrials Average finished the day even.
Yesterday the EUR/USD closed up at 1.2820, from an opening day price of 1.2775. The GBP/USD was higher at 1.5650, after opening at 1.5573. The USD/CHF was significantly lower at 1.3090, from an opening day price of 1.0510 highlighting the lack of risk taking in yesterday's trading.
Traders will be looking today for signs the global economic outlook is improving following the dismal GDP numbers from Japan. A slew of data is on the calendar for today's trading. The major data releases from the U.S. will be monthly building permits and monthly PPI. Housing data has been bleak during the recent downturn in U.S. economic data. Tomorrow's release of building permits may carry the same trend. The inflationary data will also be significant as talk of deflationary conditions in the U.S. economy take shape. Support and resistance for the EUR/USD come in at last night's low of 1.2730 followed by the mid July high of 1.3030.
EUR - EUR Recoups Losses
Yesterday's trading saw the euro mixed versus the major currencies as a lack of fundamental data releases for the euro zone held the currency within its daily trading ranges. The lone data release for Europe was yearly CPI data which came in as expected at 1.7%. However, this data piece was not influential as most of the data was known to the market via previous data releases.
Both the EUR/USD and GBP/USD traded higher, receiving support on technicals as the pairs approached the trend line from the bullish moves that began in early June.
The Swiss franc was stronger in yesterday's trading, moving as low as 1.0350. The pair has been range trading between the 61.8% (1.0600) and the 76.4% Fibonacci retracement levels from the last bullish trend that began in January and ended in June of this year.
Significant data releases are on the economic calendar from Europe today. Traders will be following yearly British CPI data to confirm or rebuke claims of stagflation in the British economy. Also on the calendar is German ZEW Economic Sentiment. Better than expected results could continue to boost the euro and the pound versus the dollar in today's trading.
JPY - Japanese Q2 GDP Disappoints
Japanese economic data started this week's trading on a down note. Yesterday Japan released disappointing Q2 GDP to the tune of 0.1%. Economists had expected the Japanese economy to expand by 0.6%. The stagnant growth increases concerns over the pace of the global economic recovery.
Following the release of poor data, the yen strengthened on safe-haven buying. The USD/JPY fell as low as 85.20 before ending the day at 85.30. The pair was held above the support level of 85 on speculation that the Bank of Japan will intervene and begin selling yen in order to weaken the nation's currency. The Japanese economy is dependent on its exports to fuel economic growth. A strong yen makes Japanese exports less competitive overseas.
More gains for the yen may be in store today should U.S. building permits be released to weaker than expected data. This could cause a similar run to safe haven assets and add further doubts as to the recovery of the global economy. Support and resistance for the USD/JPY rest at 86.30 and 85.00.
Oil - Oil Declines for 5th Consecutive Trading Session
Spot crude oil prices continued their decline yesterday. Causing the drop in the price was weaker than expected Japanese GDP data and a slumping U.S. dollar. This was the 5th consecutive drop in spot crude oil prices. The recent declines have amounted to more than $5 in the value of the commodity.
The price of spot crude oil ended the day at $75.50, after opening the day at $75.62. The price reached a low of $74.86.
The low for the day coincides with the short t term trend line that begins on May 25th. This is the 3rd point of contact the price has made with the trend line, making this a significant trend line.
Resistance for spot crude oil is found between the current price of $75.50 and $76.00. A breach above $76 may be an opportunity to go long on the commodity with a price target at the next resistance level just below $80.
The EUR/USD saw a mild bullish correction yesterday and gained about 100 pips. At the moment, as a bullish cross takes place on the MACD's 4-hour chart, the pair looks to rise further, with potential to reach the 1.2920 level.
After dropping consistently during last week's trading, the cable saw a modest bullish move yesterday, and has peaked at the 1.5700 level. Currently, a bullish cross of the Slow Stochastic on the daily chart is suggesting that the bullish move might be elongated.
There is a very distinct bearish channel formed on the daily chart, and the pair is now floating at the middle of it. In addition, as all the oscillators on the daily chart are pointing down, it seems that another bearish movement could be expected, with a key target price of 84.50.
For the past month the pair has been trading within a restricted range, between the 1.0350 and the 1.0620 levels. The MACD and the RSI on the 4-hour chart currently provide bearish signals, suggesting that going short with tight stops might be a good strategy today.
The Wild Card
For the past month the pair has resumed the bearish trend, and after dropping over 400 pips, the pair is now trading around the 0.8200 level. Currently, the 4-hour chart's MACD continues to point down, suggesting that further bearishness might be expected. This might be a good opportunity for forex traders to join a very popular trend.
|08:00||EUR||German Factory Orders||m/m||4.2%||-0.8%||-3.9%|
|13:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|13:00||GBP||Asset Purchase Facility||375B||375B||-|
|13:30||USD||Challenger Job Cuts||y/y||17.6%||-||-|
|13:45||EUR||Minimum Bid Rate||0.05%||0.05%||-|
|14:30||EUR||ECB Press Conference||-||-||-|
|14:30||USD||Revised Nonfarm Productivity||q/q||-1.8%||-2.2%||-|
|14:30||USD||Revised Unit Labor Costs||2.7%||3.1%||-|
|16:00||USD||FOMC Member Williams Speaks||-||-||-|
|16:30||USD||Natural Gas Storage||-||-||-|
|23:30||AUD||AIG Construction Index||45.9||-||-|