Many analysts yesterday had anticipated a slight decline in the price of Crude Oil considering the recent strength in the USD brought on by last week's employment data. However, oil prices surprised many traders today as the price continued to climb above $70 a barrel to hit a 7-month high! As Geithner's speech demonstrated a renewed push for economic recovery, and potential plans to raise interest rates in the US, there isn't very stable ground around the common safe-haven investments. Traders should expect more volatility today.
USD - USD Strength Not Likely to Return this Week
The U.S. Dollar weakened during yesterday's trading session, correcting the sharp gains against the EUR and GBP seen earlier this week. This occurred as investors questioned whether the economy had improved enough to justify talk of higher U.S. interest rates by year end. By yesterday's close, the USD fell sharply against the EUR, pushing the oft-traded currency pair to 1.4060. The dollar experienced similar behavior against the GBP and closed at 1.6310.
The dollar, which fell sharply in May, rallied late last week after data showed U.S. employers cut fewer than expected jobs last month, but that move fizzled yesterday as analysts warned the U.S. economy still faced a rising jobless rate.
There was a quiet day of news from the U.S. as there were no major economic data releases on the calendar yesterday. However, U.S Treasury Secretary Geithner spoke about the state of the U.S. economy. He pointed out specifically that Barack Obama will unveil a new model for regulation of financial institutions next week which might affect the dollar. Overall, investors remained wary of making big bets in favor of the dollar these days, especially as they re-thought the chances of a Fed rate increase later this year.
Looking ahead to today, there are several important news releases coming out of the U.S. These include the Trade Balance and Crude Oil inventories at 12.30 GMT and 14:30 GMT, respectively. Better-than-expected results may help the Dollar recover some of yesterday's losses against some of its crosses such as the EUR and GBP. On the other hand, if the results turn out to be lower than forecast, then the Dollar may record a fairly bearish session in today's trading. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow these releases.
EUR - EUR Rises on Weaker Greenback
The EUR finished yesterday's trading session with mixed results versus the major currencies. The 16-nation currency extended gains versus the U.S. Dollar on Tuesday, to trade above $1.41 amid a broad sell-off in the greenback. The EUR experienced similar behavior against the JPY as the pair rose from 135.96 to 137.12 by days end. The EUR did see bearishness as well as it lost over 60 pips against the GPB and closed at 0.8620.
A leading indicator released yesterday was the German Industrial Production report. Germany holds the largest and strongest economy in the Euro-Zone, and thus the relevant publications from this economy usually have a hefty impact over the EUR. As a result, Germany's economy may be slow to recover from a record contraction in the first quarter as companies trim jobs and the global slump curbs foreign sales.
German exports fell more than economists expected in April and European Central Bank (ECB) Governing Council member Erkki Liikannen said yesterday that there is no quick recovery in sight for the world economy. Germany, a leading global exporter, has been mauled by bearish global demand in the past year, and notoriously thrifty German consumers have done little to compensate by hitting the stores.
Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the French Industrial Production at 6:45 GMT. Analysts are forecasting this figure to slightly increase from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the EUR in the short-term. Traders are also advised to follow the Manufacturing Production figures coming out of Britain at 8:30 GMT, and the Trade Balance figures coming out of the U.S. at 12:30 GMT as these results may set the EUR's main currency crosses for the day.
JPY - Yen Looks to Global Economic Recovery
The Japanese Yen completed yesterday's trading session with mixed results versus the major currencies. The JPY fell against the EUR yesterday, pushing the oft-traded currency pair to 137.12. The JPY experienced similar behavior against the GBP as the pair closed at 158.70 by day's end. The Japanese Yen did see some bullishness as well as it gained over 100 pips against the USD to close at 97.20.
Japan's deepest recession is easing now, as Japan's exports have received a boost from public spending in China and other countries, while Prime Minister Taro Aso's record stimulus spending on tax incentives and cash handouts helped consumer sentiment advance to a 10-month high in April. Even as overseas demand shows signs of stabilizing, exports and factory output have fallen by more than a third since the global financial crisis deepened in September, putting pressure on companies to cut jobs and investments.
Crude Oil - Oil Prices Hit 7-Month High!
Crude Oil prices rose for a second day on increasing optimism that the world economy is emerging from recession and fuel consumption begins to recover. Crude Oil ended above $70 a barrel for the first time in seven months yesterday as the dollar weakened and traders positioned themselves ahead of the crude oil inventory data which will start to be rolled out later in the day.
Oil prices have more than doubled since February, rising with equities on signs of a rebound in the economy and expectations of fuel demand will follow higher. As a result, a release of a string of positive economic figures could help continue its bullishness. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.
It appears that the pair has resumed its bullish activity, as it's testing the 1.4100 level. Currently, a bullish cross on the daily chart's Slow Stochastic is suggesting that the uptrend could go farther. Going long might be the preferable choice today.
After completing a 500 pips bullish move, it seems that the cable has reached a very strong resistant level placed around 1.6350. However, the MACD on the 4-hour chart continues to deliver bullish signals, and if the resistant level will be breached, a sharp upward movement could take place.
After failing to breach the 99.00 level, the pair has lost its bullish momentum and is currently traded around the 97.50 level. The daily chart's RSI has dropped below the 70 line, signing that the bearish move might be extended. Going short could be the right choice today.
There is a very accurate bearish channel formed on the daily chart, as the pair is now floating in its upper section. In addition, a bearish cross on the 4-hour chart's MACD suggests that the bearish momentum has more steam in it, with the potential of reaching the 1.0600 level.
The Wild Card
After 3 days of relatively peaceful trading, it appears that today could signal new volatility in gold trading. As a bullish cross is taking place on both the 4-hour chart's MACD and the daily chart's Slow Stochastic, it seems that a bullish move is imminent. This might be a great opportunity for forex traders to enter the trend at a very early stage.