Month: October 2009

01 October, 2009 by Stephen Leahy

Boston Oct 1 10:15 EST

Shanghai Index: It seems to be following the same pattern as last time it dipped below the important 2,800 closing level. The last few days have been meandering with slightly higher closing levels. A clear break in either direction would be nice.

EUR/USD: we are not out of the position yet, and we keep our Stop level of a close below the 1.4590 level at the end of any given day (17:00 EST). Today has started out poorly, but we will see where the afternoon takes us. There are more and more analysts stating that they believe EUR/USD’s move higher has run its course, but many of them turned bearish on the pair at the start of August with the NFP release. Those analysts missed the last 7 big figures on the way up. We have been long since the end of July (www.backbayfx.com/blog.php) and remain in our “half” long position. Even if EUR/USD is starting to reverse it’s long term trend, we think there is a good possibility that the NFP numbers tomorrow will allow for a final push higher in the pair to shake out the weak players who have already put on short positions.

Gold: we missed the last move higher. We thought we would have a sharp breakdown in the last few days and that did not pan out. We remain committed to a long term (year plus) higher level in gold, but for our trading, we are on the sideline at the moment.

Watch for tonight/tomorrow’s “Think Like A Dealer” post.. We will get it posted before the NFP release.

Stay Nimble!

Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com

Source: ForexYard

This week has been a bumpy ride for the US Dollar. After entering a bullish trend against a number of its currency rivals, the USD appeared set to step onto the world stage and announce the return of the safe-haven. However, a few positive reports in Europe and a level of optimism before the US Non-Farm Payrolls data tomorrow have helped many currencies pare some of the losses against the USD going into this morning’s early trading hours. The USD, now appears, however, to be retaking the lead, as if optimism has taken a hit. Today’s heavy news cycle and tomorrow’s NFP report may be more important than many traders assume. If you’re not in the market today and tomorrow, you should be.

Economic News

USD – Mixed Economic Data Weighs on the Dollar

The Dollar declined versus most of its major currency counterparts on Wednesday after mixed economic data showed that while the U.S economy is stabilizing, it is still very shaky. The Dollar index fell to 76.744, down from 77.085 in North America late Tuesday.

The greenback pared losses after a weaker than expected Chicago PMI report was released; however, data overseas served to reinforce growing optimism over the global economic outlook, reducing investor desire for the relative safety of the U.S. currency. The greenback extended a two-quarter slide against the EUR after a report showed China’s manufacturing sector grew for a fourth consecutive month.

A heavy news day is expected today from the U.S with the Unemployment Claims due to be released at 12:30 GMT and the ISM Manufacturing PMI and Pending Home Sales due to be released at 14:00 GMT. Furthermore, Fed Chairman Ben Bernanke is due to testify at 13:00 GMT. This will likely result in a very volatile trading day for the Dollar, particularly ahead of the highly anticipated Non-Farm Employment Change report due tomorrow.

EUR – EUR Gains on ECB Comments

The EUR gained versus the Dollar Wednesday, shaking off disappointing U.S. economic data and sagging equities, after the ECB said it will lend banks 75.2 billion euros ($110 billion) for 12 months at the current benchmark interest rate of 1%. This was a lower number than was anticipated by economists, indicating banks’ need for cash has eased for now.

The EUR traded at $1.4634, up from $1.4581 Tuesday, and at 131.44 Yen from 131.33 Yen. Comments from Federal Reserve officials pointed to a continuation of the loose monetary policy which encouraged risk appetite, despite concern over the sustainability of a U.S. economic turnaround. Loose economic policy reassures markets there is still an extended period of liquidity, which is positive for risky assets.

The Pound has continued to under-perform versus its major currency counterparts, unable to shake off the comments by Bank of England (BOE) governor Mervyn King that a weak Sterling will be beneficial for the U.K.’s recovery. In today’s early trading the Pound is at $1.5942 versus the Dollar.

While most of the news today is expected to come from the U.S., traders are advised to follow the release of the British Manufacturing PMI at 8:30 GMT. A better than expected result might help reverse some of the Pound’s recent losses.

JPY – Yen Declines on Risk Appetite Return

The Yen dropped against 14 of its 16 major counterparts yesterday as Japan’s former top currency official said there are few reasons for the yen to rise further. Further pressure on the Yen versus the EUR came after the International Monetary Fund (IMF) cut its forecast for write downs on loans and investments, signaling that economic recovery is indeed on its way and reducing the appeal of the safe heaven currency.

The Bank of Japan’s Tankan survey today showed an index of confidence among large manufacturers improved to minus 33 from minus 48 in June. While an improvement, a negative number means that pessimists still outnumber optimists. With no major news from Japan today, the Yen’s direction will likely be set by the array of news coming from the U.S and Europe throughout the day.

Crude Oil – Oil Rallies 5.8% to Above $70 a Barrel

Despite a rise in inventories and sagging equities, Crude Oil futures rallied 5.8% Wednesday to above $70 a barrel. November crude futures rose $3.90 to $70.61 a barrel on the New York Mercantile Exchange, ending above the $70 level for the first time since Sept. 22.

Oil gained yesterday after the US Energy Department report showed an unexpected decline in supplies of gasoline. However, Crude imports also fell, down 2.7% to 9.5 million barrels a day which may suggest that the drop in gasoline supplies doesn’t necessarily comes from increase in U.S demand.

While some improvement in demand is evident, in light of the poor economic data from the U.S and the continuous increase in Oil stockpiles there is no room for another strong rally as the U.S economic recovery proves to be sluggish. With a busy news day from the U.S., Oil levels are expected to experience quite a volatile trading day today; worse than expected results might erase Oil’s gains from yesterday, however.

Technical News

EUR/USD

After this morning’s sudden drop, the price of this pair now floats in the over-sold territory on the hourly RSI, while a bullish cross is developing on the hourly Slow Stochastic. Immediate short-term movement appears to be for an upward correction. Going long with tight stops might be a wise choice.

GBP/USD

The price on this pair recently exited the over-sold territory on the daily chart’s RSI, suggesting some bullish movement may be expected. The fresh bullish cross on the hourly Slow Stochastic supports this notion. Going long may be today’s preferable strategy.

USD/JPY

There appears to be a bearish cross forming on the both the hourly and 4-hour Slow Stochastic indicators for this pair, suggesting impending bearish movements. Going short might not be a bad idea in the short-term.

USD/CHF

This pair continues to trade within a bullish channel. Following its recent upward movement this morning, the pair is now set for a downward correction in order to stay within its channel. The fresh bearish cross on the hourly chart and the price floating in the over-bought territory on the RSI both support this notion. Going short in the near future may be a smart tactic, but this pair remains bullish. Longer-term positions may want to keep their long positions open and let this momentum ride.

The Wild Card – USD/MXN

The price of this pair appears to be floating in the over-bought territory on the hourly and daily RSI, suggesting strong downward pressure. With fresh bearish crosses in the hourly and daily Slow Stochastic, this notion only gains more strength. Going short on this pair may offer forex traders a great opportunity to capture an impending downward wave and ride it out for hefty profits.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Market Movers of the Day Asia-Pacific Australian Retail Sales trend at 0.9% MoM Australian building permits disappoint with a rise of -0.1% Japanese Labor cash earnings falling -3.1% less than -3.9% expected Japanese Housing starts fall in august Europe German Unemployment at 8% surprising for the better EU CPI at -0.3% versus -0.2% expected Swiss KOF leading indicator at 0.85 against expectation of 0.33 Americas US Q2 GDP forecast at -0.7% significantly better than the -1.2% expected US ADP unemployment change at -254k US Real personal consumption expenditure falling -0.9% Chicago PMI at 46.1 substantially worse than expectations Canadian GDP for Jul MoM AT 0% against an expected rise of 0.4% US EIA Crude oil stocks at 2.8M

The Overall Sentiment

Overall sentiment was slightly negative as investors move to the side lines amid strong equity gains for the third quarter. In Asia pacific equities traded flat with Australian retail sales trend slightly better than expected and Japanese housing data still at subdued levels. In Europe stocks moved south as investors’ expectations for lower growth in the US continued to loom. German unemployment surprised slightly for the better but still pointed weak job market in the largest European economy. In addition CPI figures for the Euro Zone stud at -0.3% YoY pointing subdued inflation levels in the EU as demand remains at low levels. In New York sentiment was rather flat with the Dow weaker by –0.31% and the S&P by -0.33% in a session loaded with US economic data. The revised GDP estimate for the US surprised for the better with a -0.7% annualized growth against market expectations of a -1.2%. The improvement in GDP assessment which came surprisingly from higher than expected consumer and business spending which are considered to be the weak links in the current economic crisis moved Sentiment swiftly to the green side with stocks edging higher. However this spurred optimism was proved to be short lived as ADP unemployment, real core consumption expenditures and most importantly the Chicago purchasing managers index surprised for the worst with the Chicago PMI index lower than the most pessimistic forecasts reading 46.1.The weak employment data and business sentiment painted a sluggish recovery story causing stocks to retreat back to opening levels and end the day flat after edging higher. FX sentiment was largely in correlation with equities the Euro ended the day flat against the greenback settling at the 1.46$ zone and the Sterling hitting the 1.6$ before moving back to the 1.59$ zone. In the Petroleum arena crude oil stocks were higher than expected, Brent crude closed at the 68$ level still short of the 70$ mark and WTI crude at 70$. Precious metals ended the day with strong gains as looming instability of the FX markets make precious metals look as an attractive hedge. Gold advanced above the 1000$ mark once again settling around 1006$ an ounce, and silver pushed to the higher end of the 16$.

The Day Ahead

A day loaded with heavy weight economic data across the board will open with the Tankan readings before the opening of the Tokyo session. Most tankan readings published were in line with expectation and therefore not expected to swing sentiment in the region too much as investors’ eyes are focused on the Japanese Jobless rate at the day’s end. In the London session EU unemployment due at 9:00 is expected to set the tone with investors forecasting European unemployment to continue slowly but confidently advance to the double digit zone.UK manufacturing PMI will most likely effect sentiment for the Pound and UK equities as market expects an improvement in manufacturing with the weaker sterling is expected to assist the country’s industry. Moving to the US the New York session will open with the Personal income, personal spending data which will reflect on the resilience of the US consumer. Later in the day US ISM manufacturing is due with investors expecting manufacturing to continue rebound and the initial Jobless claim which always gathers market attention as investors expect unemployment to help time the fed rate hike. The concluding data for the day will be the Japanese unemployment figure with market forecast at 5.8%.Any negative surprise is expected to strongly effect sentiment for the Yen as this might postpone a change in the BoJ loose monetary policy.

Technical Analysis EUR/USD

The pair is currently aiming towards retest of the 1.44 support of the bullish trend. After topping out around 1.484 and trying to rebound around the 1.72 the pair is showing signs of weakness. The pair still has not broken the 1.45 level but a break of that level would confirm a test of the 1.44 support. A break of the 1.44 support might ignite even move bearish pressure and has the potential to move the pair to lows not seen in a while. A failure to break the 1.44-1.45 support zone could suggest a retest of the 1.48 zone as a resistance.

Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

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