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Tuesday, 20 Sep 2011
ZEW Reports on Germany Likely to Cause Frenzy
Today will see the publication of several US economic releases, with most news focused on housing. Liquidity will likely be higher in today's later trading as these data points are published, though the impact of Europe's ZEW confidence readings in the morning could overshadow these figures, driving traders into a frenzy for the duration of the European sessions.
USD - US Dollar Stabilizes as Bullishness Sentiment Holds
The US dollar (USD) was seen trading only mildly bullish early Tuesday morning as investors remained pessimistic about growth in Europe and Asia. A sudden wave of risk aversion seemed to have lifted the greenback following a move the weekend's ECOFIN meetings in Europe which showed the region fraying at the edges.
Data on the American housing sector today may indicate mild optimism that could drive the greenback lower in the short-term. Recent news has done little to alter the current direction of the forex market, though news could hold values steady should they come in near forecasts. Housing inflation is forecast to hold steady in several nations this week, which could have the effect of lifting the value of riskier assets, though this will need further data to be confirmed.
As for today, there will be several US economic releases, with most news focused on housing. Liquidity will likely be higher in today's early trading as these data points are published, though the impact of Europe's ZEW confidence readings may not be enough to force a surge in any direction on USD pairs and crosses. Housing and consumer confidence are in focus this week and traders will want to pay attention to the latter in the case of mounting pessimism and its affect on dollar values.
EUR - EUR Trading Bearish as ZEW Data Anticipated
The euro (EUR) is expected to be seen trading with bearish results this week ahead of a slew of reports on the region's consumer confidence and manufacturing sector. Against the US dollar (USD) the euro has been trending downwards from a recent flight to safety after the weekend's dismal ECOFIN meetings.
Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in global stocks at the moment has many investors on edge and looking for safety. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets make long strides.
Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Great Britain, however, appears positioned for a relatively better quarter than its southerly neighbors. With several minor reports expected all week, most expecting bullish figures, the GBP is in a position to continue its recent streak, though the same cannot be said for the EUR.
JPY - Japanese Yen Consolidating as Traders Weight Global Sentiment
The Japanese yen (JPY) was seen trading mildly lower versus most other currencies this morning as its value as an international safe haven was being challenged by an air of impending intervention by the Bank of Japan (BOJ). Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.
The latest moves of the yen are causing some concerns, however, as many speculators are anticipating another round of intervention by the BOJ. With industrial production data out this week, traders are waiting to see what the BOJ will do in the face of a downturn. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan's current financial model. As the island currency remains bullish, the pressure begins to mount for the expected bank move to lower its currency strength.
Oil - Oil Prices Holding Steady amid Market Turmoil
Crude Oil prices held steady Monday as sentiment appeared to favor a mild downtick in global stocks following policies of monetary stagnation being executed by several central banks last week. Data releases out of Europe and the US are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.
An expected jump in dollar values due to this week's risk sensitive environment has helped many investors ram up their short-taking positions on physical assets, but with the USD's gains leveling off this morning, sentiment appears to have the price of crude oil holding steady near $89 a barrel. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.
As often occurs with a break of a trend line a currency pair has a tendency to pull back to the trend line only to continue in the direction of the breach. This is this situation with the EUR/USD following a break of the pair's long term trend line that runs off of the May 2010 and January low. Support for the pair will be located at 1.3425 where the February low coincides with a 50% retracement of the May 2010 to May move. The 61% Fibonacci retracement at 1.3040 may only be a mile marker as many market players have their eyes on the big round number of 1.3000 followed by the 2011 low of 1.2860. Resistance to the upside will be found back at the previously broken trend line at 1.4030 followed by the August high of 1.4550.
Cable has fallen 4-consecutive weeks and a close below the 1.5780 support puts the 1.4585 level in play. This price carries additional significance as it coincides with a 50% Fibonacci retracement level from the May 2010 to April bullish trend and intersects the previous falling trend line from the 2007 and 2008 highs. This old trend line provided the GBP/USD with support in July and could once again prove to be supportive. Below that rests the December 2010 low of 1.5340 and the 61% Fibonacci retracement at 1.5190, followed by the rising trend line off of the 2009 and 2010 lows which comes in at 1.4950. Resistance may be found at 1.5780, followed by old trend line at 1.6030.
After making a new all-time low at 75.94 the USD/JPY has failed to mount any meaningful rally above the 77.70 resistance with a slow and steady grind lower. Should the pair once again make a new push below the all-time low support may be found at 75.00 off the bottom of the channel line from the 1999 low and the March 2011 low. To the upside a break of 77.85 may find resistance off of the August high of 80.20 followed by the trend line that falls from the 2007 high which comes in at 80.80.
The USD/CHF made an attempt to trade back below the 200-day moving average at 0.8770 but only fell back below that level for two days before gapping higher after the weekend. Resistance comes in at the mid-September high of 0.8930 with a break here opening the door to the April 1st high of 0.9200. To the downside 0.8550 may be supportive while the rising trend line from the July and September low is the next support at 0.8175.
The Wild Card
After moving sharply lower on a combination of a safe haven bid and speculation the lack of liquidity in the Scandinavian currencies was felt as the shorts got squeezed when the pair failed to break the 8.8500 support level from the April pivot. A scissors pattern may have been formed at the 9.1800 level though a move above here would nullify the bearish candlestick pattern forex traders looking to the next resistance at the August high of 9.3500.