Dollar Pairs Losses but Remains Weak

The U.S dollar held near its lowest levels in 6 months against the euro on Monday after Federal Reserve officials said more quantitative easing might be needed if the U.S. economic outlook remained weak.

Economic News

USD – Dollar near Latest Lows vs. Euro

The U.S currency was not far from an 8 month low against a basket of currencies on Monday with expectations increasing that the Fed would resort to a second round of bond purchases.

U.S. manufacturing growth slowed last month and inflation remained subdued in August, leaving the door open for the Federal Reserve to launch a fresh round of monetary policy easing.
How fast that happens will depend on economic indicators to be released before the Fed’s next policy meeting on November 2-3.

The dollar looked vulnerable against a basket of currencies, hovering near Friday’s 8 month low, but had edged up 0.2% against a basket of currencies in early trade on Monday.

EUR – Euro Falls On Debt Issues Concern

The euro weakened from a six-month high against the U.S dollar as Europe’s sovereign debt concerns reduced demand for the region’s assets.

The euro ended 4 days of gains versus the greenback after the Financial Times reported Ireland’s budget deficit this year will be higher than previously forecasted. The Financial Times said, citing unidentified officials, that Ireland’s budget figures, due out today, are a result of a slowing economy rather than a reduction in project tax receipts.

Analysts said that the euro remains under pressure because some countries such as Germany are running trade surpluses while Ireland, Portugal, Greece and others have deficits, which may lead to selling of the euro and buying of the dollar and the yen.

JPY – Yen Declines on BOJ Economic Outlook

The yen retreated from near a 2 week high versus the U.S dollar as gains in Asian shares boosted demand for higher- yielding assets and on prospects Japanese importers sold the currency to take advantage of recent strength. Japan’s currency weakened against all of its 16 major counterparts as the Bank of Japan begins a two-day policy meeting today.

Japan’s currency also fell to a 4 month low against the euro on speculation the Bank of Japan will take more credit-easing measures at a meeting starting today. The market is waiting to see if the BOJ eases policy further to shore up the economy and dampen strength in the yen.

OIL – Oil Ends at 7 Week High

Oil was steady on Monday after earlier touching a 2 month high near $82 on expectations that the slow pace of the U.S. economic recovery will prompt a monetary boost that would spur energy consumption.

Oil becomes relatively cheaper for buyers outside the U.S. when the greenback weakens. But a stronger dollar against a basket of currencies, up 0.15 percent on Monday, capped oil’s gains.

The International Energy Agency said on Friday it anticipated upward pressure on oil prices in the second half of 2011 due to a projected decline in oil stocks.

Technical News

The daily chart shows the pair may be relatively moving higher. The Relative Strength Index has the pair’s price floating in the oversold zone, hinting at the possibility of further price appreciation. Traders may see this as a buy opportunity to go long on this pair.
The hourly chart is showing a tightening of the pair’s Bollinger Bands, indicating the potential for an imminent breach. On the daily chart, the price is floating near the lower border, indicating the potential for the pair’s break out to be higher. Traders may want to be long on the pair with take profit at the significant resistance level of 1.5850.
Signals are pointing to a correction for the pair. The daily chart is displaying a bearish cross on the pair’s Slow Stochastic Oscillator, indicating the potential for a downward correction. The chart has the pair floating in the oversold range on the Relative Strength Index, signaling further potential for downward movement. Being short on this pair today may be the right move.
This pair is in the middle of a very intensive downtrend that was initiated 3 days ago and it still shows great momentum that on a bigger scale appears to have more room to run. In the shorter time frame, there might be a minor bullish correction before the bearish move resumes. Selling on highs appears to be preferable today.

The Wild Card

The violent bullish trend continues as all technical indicators on the daily and the 4 hour charts are showing that the direction is up and the momentum is high. This provides forex traders with a great chance of enjoying the additional upwards momentum which still reigns for this commodity.

Written by