Dollar Up as Russia Sees No Other Alternative to the U.S. Currency

The EUR came under selling pressure against the greenback on Monday after the UK Daily Telegraph reported on its website that Germany’s top industrial group has warned that Germany’s credit crunch is deepening. The dollar also drew some support after Russia’s Finance Minister said the nation has full confidence in the U.S. currency. His remarks came ahead of the first summit of leaders of Russia, China, India and Brazil on Tuesday, at which the leaders are expected to discuss issues including foreign reserve diversification.

Economic News

USD – USD Finished Volatile Trading Week

Last week marked an extremely volatile trading session for the dollar, especially against the EUR and the Yen, enabling traders to make profits from going both long and short against the greenback. However, against the GBP and the CHF the USD dropped significantly.

It seems that mixed results from the leading economic indicators that were published last week have contributed to the volatility of the dollar. The most positive publication for the USD was the U.S Retail Sales index, which showed that the total value of sales at the retail level has increased in May for the first time in 3 months. However, the U.S Trade Balance continued to show negative balance between imported and exported goods and services, and during April, it even failed to reach expectations showing a significantly lower figure of -29.2B. Another disturbing publication was the Federal Budget Balance report which showed that during May the U.S. government’s spending was 189.7B higher than its income. This information proofs once again that it indeed might be premature to assume that the worse oof the economic crisis is already behind.

As for the week ahead, many interesting publications will provide the traders vast opportunities to increase their equities. First of all, today at 13:00 GMT, the TIC Long-Term Purchases report will be released, and is forecasted to deliver the best result in 7 months, what should strengthen the dollar. Also this week, the monthly Building Permits and the weekly Unemployment Claims will be announced, while forex traders are advised to follow these reports as they’re expected to have a large impact on the USD.

EUR – Has the EUR already exhausted its Bullish trend?

The EUR saw mixed results against the major currencies during last week’s session. The EUR mainly saw volatile activity against the dollar, yet it sharply dropped against the Pound, and significantly rose against the Yen.

It seems that the EUR’s instability came as a result of some disturbing figures published from the leading economies in the Euro-Zone. The German Factory Order index showed that the total value of new purchase orders in Germany in April has remained in the same low level as in March. Moreover, French Industrial Production report reflected a drop of 1.4% during April, as opposed to March. The Industrial Production in the entire Euro-Zone has dropped as well, and by 1.9%, making it the 8th consecutive drop in the Euro-Zone industrial production.

As for the week ahead, a few intriguing economic indicators will be published from the Euro-Zone, especially from the German economy. On Tuesday, the German ZEW Economic Sentiment will be delivered. This is a survey of about 350 German investors and analysts which asks respondents to rate the next six months economic outlook for Germany. Also this week, the German Producer Price Index is scheduled for Friday. Investors are paying a great deal of attention to this indicator because it considered being one of the leading inflation gauges. Therefore, the leading currencies and especially the EUR are likely to be affected by its results.

JPY – Yen continues to weaken against the majors

Last week the Yen continued its bearish trend as it continued to slide primarily against the GBP and the EUR, and underwent a volatile session against the dollar.

The Japanese economy continued to deliver negative notifications during last week trading. The monthly Core Machinery Orders, a report which measures the total value of new private-sector purchases orders placed with manufacturers for machines, has dropped by 5.4% in May as opposed to April. In addition, the Final Gross Domestic Product (GDP), the broadest measure of economic activity and the primary gauge of the economy’s health, has dropped by 3.8% in the last quarter, completing a 4 consecutive quarters of negative figures. It is quite clear that these results demonstrate the continuation of the gloomy condition of the Japanese economy. And it seems that for as long that the Japanese economy won’t begin to deliver positive signs, the Yen is likely to continue its freefall.

Looking ahead to this week, the most important publication from the Japanese economy will take place on Monday night as the Bank of Japan (BoJ) will announce the Interest Rates for June. Given the fact that Japan already has the lowest Interest Rate in the industrial world, 0.10% only, it’s not likely that another Interest Rate cut will take place. However, if the BoJ will anyway decide to take actions and manipulate its Rates, this will probably have am immediate impact on the Yen, and traders should be ready for such turn of events.

Oil – Has the Crude Oil Reached Its Peak?

Ever since reaching $73 a barrel, crude oil fell for a second day as it seems that the dollar bearish trend has limited its impact over crude oil. In addition, recent surveys in the U.S teach that unlike previous predictions and forecasts, the demand for gasoline in the U.S won’t increase this summer. This only adds to the fact that leaving aside the weak dollar, there was no fundamental basis for the inflating oil prices.

Currently, speculations are made whether OPEC will decide to increase oil production in their next meeting. However with recent data showing that demand for oil is less than expected, it seems unlikely that OPEC will make such a decision.

As for the week ahead, traders are advised to follow the dollar’s movements, as it was proven that crude oil prices are largely affected by USD fluctuations. In addition, traders should pay attention to the U.S Crude Oil Inventories report scheduled for Wednesday, as it tends to have a large impact on Crude Oil’s prices, especially for the short-term.

Technical News

The pair is continuing its bearish movement with full steam, as it breached through the 1.3965 level. The 4 hour chart shows that the current price has dropped beneath the Bollinger Band’s lower boarder, indicating that the bearish move has more steam in it. Going short seems to be a preferable choice today
There is a very distinct bearish channel forming on the hourly chart, as the pair is now floating in the middle of it. Currently, both the RSI and the Slow Stochastic on the daily chart are suggesting that the pair should continue its bearish movement. Going short might be the right choice today.
The pair is floating at the key level of 98.45, which is a very strong resistance level on the 4 hour chart. If the pair will manage to breach through that level, a much stronger bullish move is likely to break forth, with a target potential of 99.55. Going long with tight stops might be the right strategy today.
The range trading within the bullish channel of the hourly chart continues. The pair is now showing local bullish movement in the channel and it appears that a test of the upper level is quite imminent. Going long with tight stops might be a good strategy today

The Wild Card

Crude Oil
This commodity is giving a strong bearish signal on the 4 H and hourly charts. The negatively sloped RSI and Momentum support this bearish notion. The Slow Stochastic is also giving a strong signal that this Crude’s next move will probably be bearish. Therefore this gives forex traders the perfect opportunity to catch an early downward correction on an early stage.

Written by: