By ForexYard
With a report from the American housing market being released yesterday, traders have begun to see a sudden loss of strength in the core assets of the American economy. Though housing comprises only a portion of US economic strength, it does impact the value of much else by way of home furnishings, retail sales, loans, lending, consumer sentiment and economic outlook. As such, yesterday’s downtick caused the greenback to take losses in late trading.
Economic News
USD – USD Sees Mild Dip as Fed Easing Expected
The US dollar (USD) was experiencing mild downswings yesterday as investors took recent signs of decent manufacturing growth in Europe to mean a ramp up in the intensity of risk appetite. Recent speculation of a move by the Federal Reserve to ease capital markets in the US was felt yesterday, as well, with large firms betting on a move to weaken the greenback.
With a report from the American housing market being released yesterday, traders have begun to see a sudden loss of strength in the core assets of the American economy. Though housing comprises only a portion of US economic strength, it does impact the value of much else by way of home furnishings, retail sales, loans, lending, consumer sentiment and economic outlook. As such, yesterday’s downtick caused the greenback to take losses in late trading.
With a heavy news day expected today, traders are sure to see a growth of portfolio adjustment as volatility becomes elevated. The US economy will be publishing reports on crude oil inventories and another report on housing, admittedly more minor than yesterday’s news. Should today’s news disappoint, there is a possibility that some investment will get pushed towards the safety of the USD.
EUR – Euro Zone Manufacturing Improving, EUR Sees Gains
The euro (EUR) has been seen trading with largely bullish results so far this week as traders continue to assess risk sentiment across the region, with a renewal of favorability for alternate stores of value. The EUR was seen trading bullish in late trading as shifts away from the greenback, due to a mild swing back into global stocks and higher yielding assets helped drop the value of traditional safe havens.
With yesterday’s reports on PMI and economic sentiment showing disparate results, traders are wondering whether the uptick in manufacturing and services will be enough to offset consumer worries about future growth. Indications point to a mild recovery since last week, but the reading on outlook from ZEW showed increasing pessimism which could stifle such advances.
On tap today, traders will witness the release of a correlated report on consumer confidence from the Ifo institute. The euro zone will also be releasing its regional finding on industrial new orders for the month of July, revealing the level of demand for industrial goods from the euro zone region. Should the Ifo report reveal even more pessimism than yesterday’s ZEW finding for Germany, then the euro may get dragged down from yesterday’s highs. Decreases in industrial orders could behave in similar fashion.
AUD – AUD Trading Flat as Risk Sentiment Gets Weighed
The Australian dollar (AUD) was trading mostly weaker versus its currency counterparts yesterday despite data releases showing a return to heightened risk appetite. The Aussie has been losing momentum these past few weeks as risk aversion becomes predominant in the global market. Fears emanating from the current market environment have led many to seek safety.
This movement has gouged the AUD against all of its currency rivals, especially against safe-havens like the Swiss franc (CHF) and Japanese yen (JPY). With significant reports being released this morning, forex traders are likely to see heavy movement by the Aussie in today’s trading hours. News out of New Zealand later in the trading day is also expected to hike volatility throughout the Pacific countries of China, Japan and Australia. Pacific traders should be cautious in this week’s trading, similar to last week’s environment.
Crude Oil – The Price of Crude Oil Rallies as Libyan Output Expecting Return
Crude Oil prices rose slightly Tuesday as sentiment appeared to favor a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending. The potential return of Libyan oil also has many speculators eyeing production data and the impact it could have on the price of oil in the near future.
An expected rise in dollar values due to this week’s risk sensitive environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing in large enough numbers, sentiment appears to have the price of crude oil falling mildly late Tuesday. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week; direction is still unclear regarding the swing.
Technical News
EUR/USD
The push to 1.4500 found willing offers and the falling resistance line from the May high has kept the pair trading in a relatively defined 500 pip range since late-July. This scenario could change this week as the pair encroaches on the bottom of a triangle pattern that runs underneath the July and August lows at 1.4190. A move below this trading range is favored as both daily and monthly stochastics are declining. A break here could test the rising trend line from May 2010 and may have long term technical ramifications. To the upside last week’s high of 1.4515 will serve as initial resistance followed by 1.4700.
GBP/USD
Following a failure to move below its 200-day moving average Cable has underwent an impressive run to the 1.66 level. However, three failed attempts to close above the 1.6540 level points to sterling weakness. The pair also looks to be oversold as daily, weekly, and monthly stochastics are all turning lower. An initial move lower could run into support at the 20-day moving average at 1.6370 followed by the August 11th low at 1.6110. A deeper move could test the July low at 1.5780. Should the momentum continue to the upside initial resistance is found at 1.6580 with the most likely target at the April high of 1.6750.
USD/JPY
Last week the pair briefly moved below the March low and the 76 yen level but the dollar was quickly bid and the daily candlestick formed a doji. While often a sign of an impending reversal a doji by itself is not enough to change the technical picture. Bias remains to the downside and a close below 76 would signal further declines in the pair. A lack of support on the long term charts makes it problematic to forecast a target but the big round number of 70 yen stands out. Should the doji pattern hold and a reversal ensue; the pair will encounter plenty of selling opportunities with the most likely of entry points found at 78.50, 79.50, and 80.20.
USD/CHF
A rebound in the pair made it as high as 0.8015, just above the 50% retracement level from the May to August move. This move looks like it may have more room to run as weekly and monthly stochastics are rolling higher. Additional resistance comes in at the falling trend line from the February high at 0.8150. A break here would target the 61% Fibonacci retracement at 0.8220. However, traders should remember the long term trend is to the downside and support is found at 0.7800 followed by 0.7550.
The Wild Card
Gold
Spot gold prices reached above $1,900 before pulling back to $1,823, a touch above the $1,815 support level. The question of additional quantitative easing in the US may help to support gold prices and forex traders can keep a potential price target of the psychological resistance level of $2,000.
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.
