Month: May 2011

Source: ForexYard

The US dollar opened this week moderately stronger versus the euro as traders appear to have continued nursing wounds from last week’s dizzying session. The result has been for the EUR/USD to come within reach of 1.4050 as of this morning.

Economic News

USD – US Dollar Opens Week Bullish vs. Euro

The US dollar opened this week moderately stronger versus the euro as traders appear to have continued nursing wounds from last week’s dizzying session. The result has been for the EUR/USD to come within reach of 1.4050 as of this morning. Against the pound, the greenback held close to 1.6180 after a short downward slide during the early Asian session, though bullishness in Britain has generated pressure beneath the Cable in anticipation of an uptick.

Last week’s market data was enough to bring the EUR crashing down against a number of its currency rivals with the USD gaining the most from the turmoil. American economic data was only slightly better, however, as most analysts considered US fundamentals soft considering the shift. Inflationary data out of the United States last week was bullish; whether it is enough to force an adjustment in interest rates is another matter. The Fed has made it rather apparent that interest rates will remain where they are for the time being.

As for today, forex traders are focused intently on the TIC long-term purchases report which will spell out how much investment the American economy has attracted this past month. A minor housing report is also scheduled for 15:00 GMT, but market momentum shows optimism already built around the housing market and this report will do little to change sentiment. If euro zone inflationary data published today can spark pressure for an interest rate hike then the EUR may find support versus the USD, but it may depend on other factors to instigate a reversal.

EUR – EUR Remains Bearish as Investors Seek Safety

The euro fell below its four-week low versus the US dollar this morning, with a price of 1.4050 rapidly approaching. Speculation about the speed of reforms in the euro zone, and the rapidity of a response being formed to handle its debt woes have both pulled the euro sharply lower since early last week. The EUR has held modestly steady versus many other currencies, but its primary counterpart was seen gouging the common currency heavily.

The EUR was not able to hold its recently stable price against the US dollar as regional investors battled over the direction of the 17-nation common currency. Regional bears won the day as the rumor mill chewed on the speculative reports that Greece had already secured a new financial aid package, or that it was planning to exit the euro zone. With both staunchly refuted, traders rapidly moved to safety as the speed of assistance appears to be slow in coming.

As for today, the euro zone will be publishing its CPI figures with expectations for solid growth, somewhat above last month’s readings. If the region can post stronger inflationary data then there is a chance the ECB will be pressured to adjust its stance on interest rates sooner than many had assumed. It is doubtful this can lift the EUR out of its recent doldrums, but minor upticks could be seen with heavily bullish figures.

JPY – JPY Mildly Bullish as Morning Data Surprises

The Japanese yen (JPY) has been trading with somewhat mixed results since early last week, with gains made against several currencies and losses elsewhere. After a week of ups and downs, the Japanese yen appears set to make gains today as investors seek safety from recent turmoil and as the Bank of Japan (BOJ) published several reports this morning which could help the island economy make gains. The dominant stance of risk aversion overarching last week’s trading environment has many traders moving towards the yen against the higher yielding currencies like the euro and British pound.

The USD/JPY was seen trading somewhat higher this morning, finding support near 80.70 and moving up towards 80.90 at today’s opening Asian sessions. Japan’s core machinery orders report was published this morning and revealed a modest uptick which may help the island currency in today’s market hours. Market news released out of the US and Europe today will likely be the driving force behind JPY values, though, and traders would be wise to watch the US TIC long-term purchases report closely for today’s direction. European inflationary figures could also cause a stir if highly bullish.

Crude Oil – Crude Oil Prices Steady Near $99 a Barrel

Oil prices held steady this morning with the $99 price level acting as a firm footing for this commodity. US oil stockpiles rose over 3 million barrels for the second week in a row last week, which had harangued the price of oil in last week’s later sessions, but as of today the price of oil appears supported by market forces.

The value of the US dollar versus the euro in recent trading has pushed towards a five-week high near 1.4070, which originally hurt the value of oil. With today’s steady sideways movement, traders appear likely to see oil reaching a decision point this week. Whether oil traders decide to lift oil prices from a buy-in on physical assets, or whether they decide to pull away from the black gold out of a perceived global oversupply, is a point traders will bear witness to this week. Make sure you are active in oil trading this week, it is expected to be more exciting than usual.

Technical News

EUR/USD

The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the RSI. Going long with tight stops may turn out to pay off today.

GBP/USD

The cross has been dropping for the past 3 weeks now, as it now stands at the 1.6180 level. However, the daily Chart’s RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops may turn out to be the right choice 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

The USD/CHF cross has experienced a bullish trend for the past few weeks. However, it seems that this trend may be coming to an end. The RSI of the 8-hour chart shows the pair floating in the overbought territory, indicating that a downward correction will happen anytime soon. Going short with tight stops might be a wise choice.

The Wild Card

USD/DKK

This pair’s sustained upward movement has finally pushed its price into the over-bought territory on the daily chart’s RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

Forex Market Analysis provided by ForexYard.

© 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.

The euro came off its overnight lows but failed to move above a previous resistance/support level. Traders this afternoon will be looking for a spark in US manufacturing data after a quiet European trading session has kept the majors in tight ranges and equities in the red.

The EUR/USD is currently being traded at 1.4115 from an opening day price of 1.4086. Market sentiment continues to go against the euro as future aid to Greece, Portugal, and Ireland will be debated by European Union finance ministers today. Earlier today EU y/y inflation was released in-line with expectations, rising by 2.8%. The report modestly increased traders’ appetite for euros but was not substantial enough to turn market sentiment. A break below the 1.4020 for the EUR/USD could spur further selling to the 50% retracement of the January to May move at 1.3900. EUR/GBP is firmer at 0.8720 from 0.8706 on sterling weakness. Support is found at 0.8670, a level that coincides with the 100-day moving average.

Cable is trading just below its opening day price as Friday’s low of 1.6150 appears to have held as short term support. The GBP/USD continues to decline for the fourth straight session as traders wait for tomorrow’s CPI data. Market players may be hesitant to short sterling ahead of the major data release. A move below the support may find support at the apex of two trend lines at 1.6050.

The yen is stronger versus both the dollar and the euro after stronger than expected machine orders climbed 2.9% on expectations of a contraction of -9.7%. The sharp difference between market forecasts and the data release may be explained by the time the data was collected. As such, the move in the yen may be due to further safe haven buying as portfolio managers take a bit of risk off the board given the downturn in equities.

Equity markets continue to trade in the red on European debt woes. The Nikkei is lower by almost -1.0% while the German DAX is down by -1.34%. The FTSE is off by -0.89%.

Approaching the New York open the Empire State Manufacturing Index is forecasted to decline to 20.7 from 21.7. A worse than expected output may feed into USD selling and a stronger reading would benefit equities and slumping commodity prices.

Read more forex trading news on our forex blog.

The decline in the GBP/USD is approaching a level where two trend lines merge and could provide a technical level for a bounce higher.

Currently cable trades at 1.6200 but following the decline over the past two weeks momentum has shifted to the downside as shown by the falling weekly stochastics.

One area on the chart stands out as the GBP/USD has two merging trend lines near the 1.6050 level. The first trend line rises off of the May and December 2010 lows while the second trend line falls off of the November 2007 and July 2008 highs. The cable bounced higher from later trend line which turned into a support level as previous trend lines often do. Below this apex further support rests at the March low at 1.5935 followed by the late December low at 1.5340.

To the upside, should the bullish trend continue the GBP/USD would look to rise to this year’s high at 1.6750. A breach here and traders could expect the pair to rise to the August 2009 high at 1.7040.

Read more forex trading news on our forex blog.

Today’s release of European inflation data is expected to show continued price pressures in the EU and may force the ECB to raise interest rates in the July meeting. While this may be a positive for the euro, technical signals have shifted against the currency following the 9 cent decline versus the dollar in less than 2-weeks.

Today’s Key Economic Data Releases

EUR – CPI y/y – 09:00 GMT
Expectations: 2.8%. Previous: 2.8%.
While the headline inflation number is expected to remain at 2.8%, the rise in commodity prices may have fed into other price pressures in the core inflationary reading which is expected to rise 1.5% from 1.3% y/y. While many economists argue that the rise in commodity prices are transitory, the ECB has attempted to prove its inflation fighting agenda with most market expectations for a second rate hike this year to come in the July meeting. Stronger inflationary pressures today would hint at this scenario and lend strength to the euro, albeit in the short term as the Greek aid package that was put together last year looks to be adjusted by EU officials.

A breach of the rising trend line from January and falling weekly stochastics hint at further declines in the EUR/USD. Support is found at 1.4020. A break here would open the door for increased selling of the pair to the 50% retracement of the January to May move at 1.3900. Resistance is found at Friday’s high of 1.4340.

CAD – Manufacturing Sales m/m – 12:30 GMT
Expectations: 1.6%. Previous: -1.5%.
The Canadian dollar has backpedaled lately following a decline in both oil prices and an overall dollar recovery. On Friday the USD/CAD found resistance at the 100-day moving average, a level that has proven to be resistive in the pair’s downtrend and the last time the USD/CAD tested this level was on March 15th. Support for the pair comes in at 0.9600 and 0.9510.

USD – TIC Long-Term Purchases – 13:00 GMT
Expectations: 57.7B. Previous: 26.9B.
The report is expected to show that foreigners increased their purchases of US financial instruments in the month of March but a release in line with expectations should do little to shift investor sentiment away from the dollar recovery which has stemming from the decline in commodity prices and increased pressures surrounding the Greek bail out.

WTI crude oil suffered an unprecedented fall last week when it was dropped like it was hot from a high of $114.81 per barrel to a low of $94.65 in a matter of days. Since then oil prices have rebounded again. However, it appears that oil could bound for another dip in the near term.

As you can see from its 4-hour chart above, WTI crude oil looks to have formed a rising wedge pattern in its recent run-up. Technicians consider this this pattern as bearish since it generally just indicate a temporary rally in prices following a deeper descent. Notice also that is is already nearing the 50% Fibonacci retracement level, using its last high at $114.81 and the low of $94.65 as swing points. Additionally, the presence of a hidden bearish divergence, where the price makes lower highs and at the same time its stochastics register higher highs, suggests of a possible downbeat turnaround soon. Moreover, crude oil’s condition appears to be already overbought as indicated in its stochastics. A breakdown, therefore, from the rising wedge pattern could sent it back to its recent low.

More on LaidTrades.com …

USDCHF ran in a rising price channel on 4-hour chart, and remains in uptrend from 0.8553. Now the pair had reached the upper border of the channel, minor consolidation of uptrend would likely be seen later today, and another rise towards 0.9000 is still possible after consolidation. Support is at the lower border of the channel, only a clear break below the channel support could indicate that the rise from 0.8553 is complete.

Daily Forex Analysis

By CountingPips.com

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators increased their positions in favor of the US dollar against the other major currencies last week. Non-commercial futures positions, those taken by hedge funds and large speculators, were overall net short the US dollar by $27.68 billion against other major currencies as of May 10th. The data is a decline from the total short position of $35.01 billion on May 3rd, according to the CFTC data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

This week’s notable changes were euro positions decreasing after reaching the highest level since July 2007 while Japanese yen positions improved for a third straight week and positions rose over to the long side for the first time since March.

EuroFx: Currency speculators decreased their net long positions for the euro against the U.S. dollar after two weeks of increases. Euro futures positions declined to a total of 61,447 long contracts following a total of 99,516 long positions on May 3rd which had marked the highest level since July 2007.

The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

GBP: British pound sterling positions edged lower for a second straight week as of May 10th to a total of 18,118 net long positions. This follows a decline the week before to a total of 30,807 long contracts on May 3rd.

JPY: The Japanese yen net contracts improved for the third consecutive week and rose over to the long side for the first time since March. Yen positions increased to a total of 13,054 net long contracts reported on May 10th following a total of 18,819 net short contracts on May 3rd.

CHF: Swiss franc long positions edged lower after increasing for four straight weeks. Franc positions fell to a total of 16,336 net long contracts following a net of 18,381 long contracts on May 3rd.

CAD: The Canadian dollar positions declined lower for a third consecutive week to a total of 37,203 contracts as of May 10th. CAD net contracts had fallen to a total of 54,041 net long contracts on May 3rd.

AUD: The Australian dollar long positions declined for the fifth straight week to a total net amount of 60,321 long contracts as of May 10th. AUD positions had totaled 73,421 net long contracts on May 3rd.

NZD: New Zealand dollar futures positions continued to increase higher for an eighth consecutive week. NZD contracts increased to a total of 13,714 long positions as of May 10th from a total of 12,800 long contracts on May 3rd.

MXN: Mexican peso long contracts dipped for a third week after reaching the highest level in at least a year on April 19th. MXN contracts fell to 118,065 net long contracts as of May 10th from a total of 124,260 long contracts as of May 3rd.

COT Data Summary as of May 10, 2011
Large Speculators Net Positions vs. the US Dollar

EUR: +61,447
GBP: +18,118
JPY: +13,054
CHF: +16,336
CAD: +37,203
AUD: +60,321
NZD: +13,714
MXN: +118,065

EUR/USD should see further downside

The weekly timeframe bearish engulfing bar on EUR/USD has been confirmed by a move beneath the previous weeks range low.  When taking this into consideration, and the strong move through the daily time frame trend line shown in the chart below, further downside looks to be a distinct possibility for the leading FX pair.

Any retrace has been sold heavily so far with a drop of over 850 pips seeing only a 219 pip retrace to date.  A combination of highly leveraged longs taking profit and speculative shorts entering the market have contributed towards a major bearish wave down.

The fundamentals are also supporting the dollar in the near term with the Euro Greek debt situation dominating.

Longer term dollar weakness should return but the current sentiment favours shorting the EUR/USD pair.

See Forex-fx-4x for further Forex trading analysis

Major FX Pair Relative Strength

The Japanese Yen is currently riding high against it’s major forex counterparts with the euro at the other end of the scale, as per the day 1 correlation chart below.

The correlation/relative strength chart gives a useful overview as to the current strongest and weakest currencies to trade against each other.

Price action on the euro dollar pair last week had indicated a further drop was around the corner, with the weekly bearish engulfing candle giving a tip off.

The dollar has been strong across the board with steady gains all week.  Renewed dollar strength hit the markets on friday with the euro and pound lower against the safe haven currency pairs of JPY,USD and CHF.

For further updates see our forex technical analysis blog.

EURUSD’s fall from 1.4939 extended to as low as 1.4067. The pair is now in downtrend. Deeper decline could be expected next week, and next target would be at 1.3800. Resistance is at 1.4350, only break above this level will indicate that minor consolidation of downtrend is underway, then the following upward move could bring price to 1.4500-1.4600 area.

For long term analysis, EURUSD had formed a cycle top at 1.4939 on weekly chart. Further fall towards 1.1500 is possible in next several months.

Weekly Forex Forecast