Month: February 2009

Source: FOREXYARD

The currency pair which could experience the highest volatility today may be the AUD/USD. The Royal Bank of Australia (RBA) slashed Interest Rates by 100 basis points this morning at 3:30 GMT. This would be the 5th consecutive rate cut by the RBA. In the coming days, the European Central Bank and the Bank of England are expecting similar meetings to their discuss interest rates. These falling global interest rates have been bouncing the market to bizarre highs and lows. Forex traders should take advantage of this volatility today and start opening large positions during these price swings.

Economic News

USD – Risk Aversion Drives the Dollar Higher but Gains Fail to Hold

The Dollar began this week’s trading by strengthening against its major pairs, only to rescind those gains against the EUR in later trading. Gains against the GBP held and the GBP/USD stands at a 1-week low. Risk aversion was the driving force in the currency markets yesterday and this theme typically lends support for the greenback. As risk recedes in the market, riskier bets that are funded by USD are sold and converted back into Dollars, helping to appreciate the currency.

The greenback saw a boost against the European currencies as Moody’s downgraded the credit rating for Barclays Bank. This decreased traders’ risk appetite, but would soon prove to be short-lived as the Institute for Supply Management’s Index beat market forecasts. The report helped to spark a late-day rally in the EUR/USD, erasing the Dollar’s earlier gains. Some traders reported thin liquidity in the forex market as a large snow storm didn’t allow for many of London’s traders to make it to their offices today. Stymied liquidity can help to exaggerate price swings in the currency markets. At one point the EUR/USD reached as low as 1.2705 but the pair would later rebound to close the day at 1.2874.

Looking ahead to today’s trading session, a pair that may experience high volatility could be the AUD/USD. The Royal Bank of Australia (RBA) is forecasted to cut Interest Rates by the enormous amount of 100 basis points today at 3:30 a.m. GMT. This would be the 5th consecutive rate cut by the RBA. A dovish statement accompanying the rate cut could send the pair higher than the 0.6500 level. The pair has shed almost 10% this year on poor economic performance coming from down under.

EUR – Traders Await EUR Interest Rate Announcement

The EUR has taken a back seat lately, as fundamental issues surrounding the U.S. economy have been driving the EUR/USD pair. The release of the Obama administration’s economic stimulus package and U.S. GDP numbers last week took most of the headlines, along with the gains. The pair dropped more than 1% the previous week on stronger U.S economic fundamentals and overall market risk aversion.

Today, market participants will await the release of the monthly German Retail Sales report. Germany is the Euro-Zone’s largest economy and this report could provide a glimpse into the consumer sentiment going forward in a recessionary economic state.

On Thursday all eyes will be focused on the European Central Bank (ECB) and their decision to adjust European Interest Rates. Most economists forecast the rate will remain steady at 2.00%. This should create high volatility for the EUR/USD as the announcement approaches, creating ripe opportunities to make profits on these price spikes.

JPY – Government Gridlock May Hurt the Yen

An economic bailout package currently being debated in Japan may be delayed over a dispute between Japanese Prime Minister Aso and Japan’s legislative body. The refusal of the Diet to pass a Japanese economic stimulus plan comes at a time when Aso’s approval rating stands at an all time low. Aso refuses to call early elections while the Diet will not budge with the stimulus package until a date for the elections is set.

This could have a dire effect on the Japanese economy to overcome the most recent recession. Japanese Interest Rates stand close to 0%. This limits the government’s options for tackling the economic crisis or influencing fiscal policy. But the strife between the Prime Minister and the Diet threaten any type of fiscal policy changes. Now that the government is deadlocked in a political stalemate, the economic recovery may be significantly slower than both its neighboring economies.

A delayed economic recovery could spell trouble for the Yen. Forex markets tend to be forward-looking and may begin to depreciate the Yen for suspected economic weakness. Any further delays to a government stimulus package may cost the USD/JPY to rise to back to the 95.00 level in the coming weeks.

Oil – Averted Refinery Strike Does Little to Lift Crude Oil

Crude Oil fell for the 4th consecutive day as the likelihood of a strike by U.S. refinery workers dissipated. Crude finished the day down more than 2% to close at $40.51. On Sunday, Oil refinery owners and workers appeared closer to a deal that would avert a strike.

Events such as these offer short-term traders the ability to profit from limited interruptions in the steady decline of the price of Crude Oil. Eventually the price of Crude will climb, but only when the market feels a bottom is approaching. Crude traders may not find any support tomorrow when U.S. Crude Oil Inventories are due to be released. We may see the price drop below the $40 mark once again in the coming days.

Technical News

EUR/USD

It appears that the bearish trend may have run out of strength as the pair currently floats near the bottom barrier of the daily chart’s Slow Stochastic, suggesting that a bullish correction may be imminent. When the upward breach occurs, going long with tight stops appears to be the preferable strategy.

GBP/USD

The 4-chart is showing mixed signals with its RSI fluctuating in the neutral territory. However, the daily chart’s Slow Stochastic is showing a bearish cross suggesting that the downwards trend may continue. In that case, going short with tight stops appears to be preferable strategy.

USD/JPY

According to the daily chart, this pair is still floating in a neutral territory with no distinct price direction. However, a cross above the 70 line on the 4- hour chart’s Slow Stochastic is indicating that the next move is likely to be bearish. Traders should wait for the breach and swing.

USD/CHF

The pair is continuing to provide mixed results, and is now trading around the 1.16 level. The one-hour chart demonstrates a flat line since yesterday. The daily Slow Stochastic is showing no crosses, which indicates that the bearish trend may continue. Going short appears to be preferable today.

The Wild Card – Gold

The gold price is once again dropping and an ounce of gold is currently traded around $900. However, the hourly chart’s RSI is floating in an over-sold territory suggesting that a recent downwards trend is loosing steam and a bullish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

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The Reserve Bank of Australia today that it had reducted its interest rate to the lowest standing since 1964. The RBA reduced the official cash lending rate by a full percentage point today from 4.25 percent to 3.25 percent following a similar full percentage point reduction in December in order to combat a slowing economy and global financial turmoil. The RBA has now slashed the interest rate by 400 basis points since September when the rate was 7.25 percent. Today’s rate cut was widely expected and equaled market forecasts predicting the 100 point reduction.

Glenn Stevens, RBA Governor of Monetary Policy, commented on the Australian economy in the report, “The Australian economy has been more resilient than other advanced economies, but recent data nonetheless indicate that a significant moderation in demand and activity has been occurring. With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term. With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall.”

Australian dollar gains in Currency Trading.

The Australian dollar has been gaining ground today in currency trading against most of the major currencies after the rate announcement. The Australian dollar has advanced versus the U.S. dollar to 0.6459 AUD per USD in the US at 1:44pm EST after opening at the exchange rate this morning of 0.6383(00:00 GMT).

The Aussie dollar has increased versus the Japanese yen with the AUD/JPY trading at 57.68 from today’s opening exchange rate of approximately 57.21 yen per aussie. The euro has also fallen versus the aussie today and the EUR/AUD trades at 2.0054 aussie per euro after opening the day at approximately 2.0169.

The aussie dollar has advanced against the New Zealand kiwi as the AUD/NZD trades at 1.2646 kiwi per aussie after opening the day at at 1.2617. Against the Canadian dollar, the aussie has increased from the 0.7919 opening rate to trading at 0.8002 later in the North American afternoon session.

AUD/USD Chart – The Australian Dollar advancing today against the US Dollar in Forex Trading but still trades below the 21-day moving average(blue).

U.S. Manufacturing data, released today by the Institute for Supply Management, showed that manufacturing activity contracted in January for the twelveth straight month. January’s ISM Report On Business index readings for economic activity were at 35.6 percent, an increase from December’s revised 32.9 percent but still in monthly contracting territory. A score above 50 is considered to be growth while a less than 50 score is considered to be contraction or negative growth in that sector. January’s score came in above economic forecasts which were expecting a 32.5 percent reading.

Details of the report showed that new orders for manufactured goods increased in January with a 10.1 percent gain over December while the prices index also gained by 11.0 for the month. New orders, despite the monthly increase, have now fallen for 14 straight months and the prices index has fallen for 4 straight months.

Manufacturing production saw an increase of 5.6 percent for the month while employment showed no change from December. Inventories fell by 2.1 percent while exports grew by 2.0 percent and imports fell for the month by 2.5 percent.

Norbert J. Ore, chair of the ISM Business Survey Committee, commented on the manufacturing industry in the report, “January marked 12 months of contraction in the manufacturing sector. However, the rate of decline as measured by the PMI was slower than experienced in December. The January New Orders Index is at 33.2 percent, up from the seasonally adjusted 23.1 percent recorded in December. While this is a significant month-over-month improvement, it is still a sign of continuing weakness in the sector. Comments from our respondents indicate that it will take a recovery in automobiles and housing for the manufacturing sector to once again prosper. On a positive note, the Prices Index continues to indicate significant deflation in the prices that manufacturers have to pay for their inputs, and this should ultimately be good for the consumer.”

US Dollar mixed in Forex Trading.

The U.S. dollar has been mixed in forex trading today against the major currencies. The dollar has gained against the British pound, Australian dollar, Canadian dollar and New Zealand dollar while falling versus the euro, Japanese yen and Swiss franc.

The euro has gained versus the dollar from today’s 1.2721 opening to trading at approximately 1.2819 at the end of the US trading session at 5:12pm EST. The British pound has declined today versus the dollar from 1.4380 to trading at 1.4252 dollars per pound. The dollar has fallen against the Japanese yen today as the USD/JPY has declined from its 89.63 opening rate to trading at 89.35.

The dollar has advanced against the Canadian dollar after opening at 1.2328 earlier today to trading later at 1.2436. Against the Swiss franc, the USD has lost ground from the 1.1649 opening to trading at 1.1622.

The New Zealand and Australian dollars are both little changed against the US dollar from their opening exchange rates. The NZD/USD currently trades at 0.5029 after opening at 0.5032 while the AUD/USD trades at 0.6310 after opening today at 0.6319.

USD/CAD Chart – The USD gaining today against the Canadian Dollar in Forex Trading.

Source: FOREXYARD

The USD rose to the highest level in almost two months against the European currency ahead of a report tomorrow will show European producer prices slid a fifth month, giving the European Central Bank (ECB) more room to cut Interest Rates. As inflation is slowing and the Euro-Zone economy deteriorates, the Dollar is likely to increase further to as much as $1.27.

Economic News

USD – U.S. Senate Might Reject Obama Stimulus Plan; USD Could Suffer

After last week’s surprising bullishness against the EUR, the USD may be positioned to rise back up to price levels not seen since November. Ending last week at 1.2811 against the EUR, the greenback broke through a number of significant price barriers and continues to hold ground. However, the USD did not gain strength against every major currency. Against the British Pound the Dollar actually weakened to 1.4484 down from the 1.3660 seen at the start of the week.

With the week starting with troublesome news about Obama’s stimulus package potentially being killed in the U.S. Senate, the USD may stand to lose ground if action is not taken soon to help the economy recover. U.S. Republicans stand in opposition to this economic stimulus package as it appears to be in favor of excessive spending and a lack of focus on areas which Republicans feel need more attention, such as housing. But if this package is killed in the Senate, will there be quick enough action to come up with a new package which will appease both sides of the partisan divide in time to rescue the U.S. economy from entering a deeper recession?

This week’s upcoming news may indeed turn out negative for the U.S. economy, and the U.S. Dollar as a result. With Non-Farm Employment Change and the Unemployment Rate reports predicted to indicate a drop in employment across the United States, the U.S. currency will no doubt feel a pinch. Last week’s 11th-hour rally may in fact get reversed by mid-week unless the results from these reports turn out better than forecasted. Otherwise, traders should look for a weakening of the USD back to levels above 1.3000 against the EUR.

EUR – EUR Experiences Bad Week; Could this Week be Worse?

The EUR witnessed a significant drop at the end of last week versus the USD, Pound Sterling, and Yen, as investors lost more confidence in the 16-nation currency. As the economic downturn worsens, traders and investors alike are searching for a proper safe-haven to store their money. Dropping below 1.2900 against the USD and falling farther away from parity with the British Pound last Friday to hit a recent low of 0.8800, the EUR has seen better days.

With most fundamental data being released about the U.S. stimulus plans and British banking crisis, the EUR appears to be receiving little attention. With this week’s monetary policy meeting on the Euro-Zone interest rates looming, traders, while anticipating a decision to hold rates steady, perceive the EUR as a weak investment option compared with stronger safe-havens such as the U.S. Dollar. However, upcoming news about the U.S. Senate potentially refusing to pass President Obama’s stimulus package, the EUR may benefit from an unwinding of Dollar positions in exchange for an alternative investment.

This week will, however, be an important week for the Euro-Zone economies. The European Central Bank (ECB) will be meeting to discuss interest rates, as will the Bank of England (BoE). These two rate decisions being held simultaneously could potentially guarantee that the two currencies of these regions – the EUR and GBP – may witness high volatility in anticipation of these rate decisions. As interest rate decisions lately typically revolve around rate reductions, traders are likely to see early sell positions being taken on these currencies, which will drive their value lower in the coming days.

JPY – Japanese Yen Maintains Holding Pattern

The Japanese Yen continues to trade in a limited range of prices as its economy remains largely on track to continue its recession. As the Japanese economy weakened in recent months, the JPY was pushed higher as a result of Japan’s monetary and fiscal policies which intentionally held the Yen at an artificially low level while economic growth was bounding. As this growth unwinds and global interest rates are cut, the Japanese Yen reaps the benefits. But does this help Japan?

As is typically expected, there is not much fundamental data coming from Japan this week. Forex traders can expect the Yen to maintain its recent holding pattern as it awaits news from the European economies about this week’s upcoming interest rate policy meetings. If European rates continue falling, the Yen is likely to experience another period of appreciation. If rates are held steady, risk appetite may help push the island currency above the price level of 91.00 against the USD and 121.00 against the EUR.

Oil – Crude Oil Prices Expected to Dip

After a couple days of trading around the $41 price range, the price of Crude Oil appears to be preparing for a week of downward movement. Recent recessionary fears carry the potential to push the price of this commodity below $40 a barrel for the first time since March contracts began trading. A few Middle Eastern oil producers have downgraded their growth forecasts as a result of declining prices, as well as speculation of a continuation of these downward price trends.

News surrounding the price of Crude Oil doesn’t appear to be providing much information that hasn’t already been stated time and time again by many analysts. The global recession still holds full sway over commodity prices. This growth slump maintains downward pressure on the price of Crude Oil, and will continue to do so into the near future.

Technical News

EUR/USD

The Slow Stochastic and the RSI on the daily chart are showing a continuation of the current bearish correction. There is also a very accurate bearish channel forming on the 4 hour chart. In addition, all indicators on the hourly chart are pointing down. Going short might be the right choice today.

GBP/USD

Ever since bottoming at the 1.3750 level, the pair is galloping upward with full steam ahead and is currently traded around the 1.4414 level. The daily chart is providing exclusively bullish signals; implying that another bullish session is forthcoming and the 1 hour chart support that notion. Going long seems to be the right strategy today

USD/JPY

The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.

USD/CHF

According to a daily chart this pair is still floating in a neutral territory with no distinct price direction. However a cross above the 70 line on the hourly chart’s Slow Stochastic is indicating that the next move is likely to be bearish. Traders should wait for the breach and swing.

The Wild Card – AUD/USD

There is a very accurate bearish channel forming on the 4 hour chart, as the pair has consecutively dropped for the past three days. Currently, as the RSI on the daily chart is floating below the 50 line and the Slow Stochastic is pointing down, the pair might extend its bearish trend. This might be a great opportunity for forex forex traders to join a very popular trend.

Market Analysis provided by Forex Yard.