An extremely bullish day for the equity markets pushed investors
back to riskier assets and away from the safe haven USD and JPY,
causing them to plummet against their riskier counterparts. The rally
in equities along with a weak Dollar has also helped push Oil prices
above $73 for the first time in over a week. Today's numerous economic
data releases from the U.S, Euro-Zone and Japan promise another
volatile trading day and will help determine if the current trends will
continue throughout the week.
The Dollar plummeted against the major currencies on Monday, as Wall
Street rallied. The bullishness in the U.S. stock market also spread to
Britain and the Euro-Zone. The Dow Jones rose by over 1%, while the
S&P extended its best rally since 1998. Amongst the biggest gainers
were banking stocks. The bullish stock market led to a fall in the
Dollar across the board, as traders ditched the safe-haven USD for
riskier assets in Monday's trading. This was exasperated due to traders
wishing to further their profits in stocks as the quarter comes to an
end.
The USD slipped about 80 pips vs. the EUR to finish trading
at 1.4115. This was helped as Euro-Zone economic confidence increased
more than expected this month. The Dollar's behavior was much the same
against the Pound, as the GBP/USD pair rose 160 pips to the 1.6634
level. The GBP's strength may have been owed to its dependence on U.S.
economic optimism. However, against the JPY the greenback extended its
rally for the second day, as investors dropped the "ultra" safe-haven
Yen for the "less" safe-haven USD.
Looking ahead today, there is
plenty of economic news that is likely to help determine the volatility
in the forex market. The releases from the U.S. are set to be the key
to today. Traders are advised to pay attention to the Chicago PMI at
13:45 GMT and CB Consumer Confidence at 14:00 GMT. It is also advisable
to follow the direction of the equity market, as this could be a key
factor in determining the Dollar's strength later
The Pound recorded a volatile, but bullish trading session yesterday
against its major crosses, as it benefited from the optimism from the
U.S. The rally in the British stock market was encouraged by Wall
Street's rally. What has been much of a pattern recently has seen the
Pound rising whenever equities make significant gains in the U.S. and
Britain. This may be explained by Britain's dependence on the financial
sector. With this sector doing well yesterday in the equities market
lent the Pound a boost, helping us understand much of the behavior of
the cable.
Both the GBP and EUR posted gains against the USD and JPY. The EUR/GBP was
32
pips lower at 0.8482. It seems that if global economies continue to
prove, then we may see this pair continue to approach the 0.8400 level
in the short-medium term.
The EUR was also helped yesterday by
strong economic confidence figures from the Euro-Zone. This is a
further signal that the economic situation in the Euro-Zone isn't as
dire as some analysts originally forecast.
Today, there is
plenty of data coming out of Britain and the Euro-Zone that is likely
to determine the GBP and EUR crosses in today's trading against the
major currencies. From Britain there is the release of the Nationwide
HPI at 6:00 GMT and Current Account and GDP data at 8:30 GMT. From the
Euro-Zone there is the publication of German Unemployment Change
figures at 7:55 GMT and the CPI Flash Estimate at 9:00 GMT.
The Japanese Yen tumbled on Monday, as the Japanese and global
equities recorded significant gains. Investors also lost confidence in
the JPY yesterday, as Japan released figures showing that unemployment
is at a 5-year high of 5.2%. Japan's government fears it will hit 6% by
mid-2010. Much of the JPY's weakness is due to
traders dropping the safe-haven JPY for more risky assets. As of late, this seems to be equities and commodities.
The
Yen slid for a second day against the USD by about 50 pips to 95.92.
The EUR/JPY cross slipped to135.38 from 133.90. Against the GBP, the
Yen slipped 235
pips to 159.63. The Yen's volatile movement is set
to continue in today's trading. Later today, this will be even more so
with the release of the important Japanese Tankan Manufacturing Index
and Tankan Non-Manufacturing Index at 23:50 GMT.
The price of Crude Oil surged passed $72 a barrel yesterday, rising an astonishing $4
to
$72.68. This was fueled by 3 dominant factors. Firstly, there was yet
another rebel attack in Nigeria, forcing the Shell Oil Company to close
one of its refineries yesterday. Additionally, there was a bullish U.S.
and European stock market session, leading to a boom in commodities, as
investors sold-off safe-haven assets such as the U.S. Dollar.
Yesterday's
gains came on the back of some bearishness in Crude in recent days, as
the commodity failed to hold above $70 a barrel. Recent reports by the
International Energy Agency revealed that demand will wane for the
foreseeable future. However, OPEC is unlikely to cut supply in their
next meeting in September. If there are more positive economic signs
from the U.S. in the next 2 days, then Crude could hit $75 by the end
of the week.
Technical News
EUR/USD
A bearish cross appears to be forming on the 4-hour chart's Slow
Stochastic, suggesting a downward movement may be in the works. The
price also floats in the over-bought territory on the daily chart,
which supports this downward notion. Going short might be a wise choice
today.
GBP/USD
The recent upward spike has pushed most indicators into the
over-bought territory while also generating a number of bearish crosses
on all charts. Waiting for the momentum to die down, and then going
short would be a good decision today.
USD/JPY
With most indicators floating in neutral territory, this pair
appears directionless. The bullish cross on the hourly chart's Slow
Stochastic signifies an imminent upward move; however, the bearish
cross on the 4-hour chart's Slow Stochastic suggests otherwise. Waiting
for a clearer direction for this pair may be a good choice.
USD/CHF
This pair's 4-hour chart shows an imminent bullish cross on the Slow
Stochastic, which implies a coming upward correction. As the price
floats near the over-sold territory on this chart's RSI, the upward
notion seems justified. Going long with tight stops might be a
preferable strategy.
The Wild Card
USD/ZAR
This pair has entered a long and steady downward trend and doesn't
appear to be stopping. After the Bollinger Bands on the hourly chart
tightened, a volatile downward movement occurred and there now appears
to be bullish crosses on the 4-hour and daily chart's Slow Stochastic
and MACD. Contrary to these indications, however, is the fact that the
downward momentum still has plenty of room to run. Sticking with the
downtrend, forex traders should enter their short positions and finish
riding out this profitable move.
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