Market Jitters Continue - Dollar and Yen Benefit, Crude Oil Tanks
The dollar continued to strengthen last week, and is capitalizing on the momentum that was created from the previous Friday's better than expected Non Farm Payrolls release. As a result, gold continues to be down around $100 from its recent record highs, although it has found support around 1120, as buyers have stepped up to buy the metal above the critical 1100 level. Also, Crude Oil has taken a beating as commodity traders are worried that global economic growth prospects may not match expectations and we may have future demand shortfalls for oil. The surprising aspect of the move in oil was that Crude Oil Inventory numbers actually showed a decrease in inventory levels. This bullish news still wasn't enough to cause a reversal in Crude, as traders were more concerned about refined gasoline inventories increasing. The fact that traders are shifting their concern to gasoline levels, from the traditional crude inventories, shows that there may still be major speculative players in the market. These participants therefore aren't taking any chances on their positions and have quick trigger fingers to bail their positions on any negative news.
Looking ahead, Forex traders will have their eyes on Wednesday's FOMC meeting. The FED isn't expected to make any changes to interest rates. Also, in Fed Chairman Bernanke's speech this past week, it became clear that even with an improving employment sector, the FED will continue to keep rates at record lows for the foreseeable future. However, Forex traders will be watching for any comments about the FED's asset purchases. The FED has already committed to ending open market purchases, but has pushed back their exit plan to Q1 2010. Traders will be looking for a rhetoric that confirms that the Q1 timetable.
Negative sentiment continued in the Euro this past week, as Forex traders reacted to downgrades of Greece's sovereign debt. The downgrades, came a week after the ECB President Trichet stressed that Eurozone countries must cut government spending to reduce their burgeoning debt levels. Forex traders no longer view the Eurozone as a surefire source of economic growth and expectations that the emerging markets in the Eurozone will carry the Euro higher now appear to have been overoptimistic. Looking ahead German ZEW Business Sentiment will be released on Tuesday. It will be important to see if German businesses continue to have an upbeat outlook or will they following the ECB in tempering down their growth expectations.
The pound had been trending lower the entire week in anticipation to the BoE's MPC meeting. With economic improvements in the UK stalling, the BoE made no changes and failed to cause much change in the pound. Sellers were content with the week's previous pound weakness, and pound bulls saw little in the BoE's language to cause them to become enthusiastic about the pound. This week, watch out for Tuesday's CPI numbers. They will highlight the week, and in the past, better than expected numbers have had the ability to kick start a new uptrend in the pound. Because the BoE makes special emphasis to the inflation numbers, Forex traders will be dissecting the news and we could see heightened volatility in the GBPUSD before and after the news release.
The strengthening yen caught a break this week as Forex traders reentered positions into the dollar. As a result BoJ intervention which seemed imminent now appears to be put back on the sidelines. On the week, the USDJPY briefly traded back above 90.00, but has since returned to the 89.00 level, as safe haven buyers purchased the yen. Looking ahead, eyes will be on Sunday night's Tankan report. If results are better than expectations it could signal that Japan's manufacturers are improving potential buying in the yen may occur. However, at Go Forex, we believe it pays to watch the Nikkei Index, if Japanese stocks bounce higher on the news, it may lead to increases in risk appetite and weakening in the Yen.
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