Crude Oil Soars on Middle East Risk Premium

Spot crude oil prices rose to their highest level of the year following further violence in Libya and Yemen, as well as protests in Iran. As unrest spreads, crude oil and the US dollar look to benefit from further geopolitical risk aversion.

Forex Market Trends

Daily Trend no up down no down down
Weekly Trend down down up up down down
Resistance 1.3700 1.6275 84.50 0.9580 1.0135 0.8515
1.3665 1.6235 84.00 0.9535 1.0100 0.8485
1.3625 1.6200 83.65 0.9500 1.0065 0.8440
Support 1.3565 1.6140 83.00 0.9450 1.0000 0.8375
1.3520 1.6115 82.75 0.9415 0.9970 0.8345
1.3485 1.6080 82.40 0.9375 0.9940 0.8290

Economic News

USD – US Dollar Firms over Presidents Day Trade

The US dollar strengthened versus the majors during yesterday’s trade as geopolitical events in the Middle East helped to move traders into the greenback. Renewed violence in Libya, Bahrain, and Yemen sparked dollar buying. US markets were closed yesterday in observance of Presidents Day.

Over the weekend, the House of Representatives approved new budget cuts of $61B. A vote from the Senate is not expected until next week.

In Asian trading, the EUR/USD was down at 1.3580 from an opening week price of 1.3692. The GBP/USD was lower at 1.6156 from 1.6250 while the USD/CHF was up at 0.9485 from 0.9445.

After a day lacking US economic data releases, US consumer confidence numbers will be released today at 15:00 GMT. Market expectations are for the report to show improving sentiment in the US economy which could support the dollar. The greenback slumped last week versus the majors as growing expectations for interest rate increases in Europe expanded.

The EUR/USD has support and resistance that comes in at 1.3540 and 1.3740, respectively.

EUR – EUR Falls despite Strong Economic Data from Europe

The euro was lower in yesterday’s trading despite strong economic data from the euro zone. Yesterday’s flash PMI for manufacturing was reported higher at 59.0 from 57.3, a new high. Flash service PMI increased to 57.2 from a previous reading of 55.9. The German Ifo survey was also higher at 111.2 from 110.3.

Also a potential impact on Germany was the defeat of German Prime Minister Angela Merkel’s CDU party in the Hamburg Elections. This will reduce the size of the CDU representation in the upper house of parliament and is a sign of the weakening grip Merkel and the CDU have on Germany’s political moves. This could have further implications down the road as elections in six other states will begin next month.

Due up on the economic calendar from Europe is German consumer data and British Public Net Borrowing.

The EUR/CHF continues to weaken after failing to move above its 200-day moving average. A breach below the 1.2900 support could trigger further losses to the 1.2770 level. Resistance is found at Friday’s high of 1.2990.

JPY – Moody’s Warns Japan

Moody’s Investor Services warned Japan it was reducing the outlook on the nation’s bond rating from stable to negative due to its widening debt load.

The USD/JPY rose following the news and finished the day at 83.35 from an opening day price of 83.20.

Since breaking higher above a triangular consolidation pattern and rising to a high of 84.00, the USD/JPY has fallen to a low yesterday of 82.79. However, a bullish consolidation pattern looks to have formed already.

The recent declines in the USD/JPY have created a bullish flag on the daily chart. An estimate of the move from the chart pattern would suggest an additional 1.00 yen move higher to the resistance level of 84.50. Support for the pair is found in a range near 82.50.

Crude Oil – Crude Oil Rockets Higher to $98 on Middle East Turmoil

Protests were met with violence in the Middle East as the geopolitical events rolled the commodity markets, with spot crude oil rising to a price not seen in the past 2.5 years.

Libya is the first oil exporter to be engulfed in violence as reports of the regime opening fire on protesters to disperse the demonstrations has reached major news outlets. Protests have also been put down by violence in Iran, Bahrain, and Yemen.

Spot crude oil prices spiked in overnight trading to a high of $98.37, finally settling at $96.40 after opening the week at $89.90.

The geopolitical events appear to have added an extra risk premium now that the protests have spread to oil producing nations such as Libya, OPEC’s seventh largest producer. Traders will be eyeing further events in the Middle East as the risk of crude oil supply disruptions could spread throughout the region.

Following today’s price spike, the $100 price level seems well within reach this week.

Technical News

The pair has sold off in overnight trading, falling to the 1.3570 level. This comes on the heels of Friday’s breakout higher from a bullish flag pattern. For those traders that missed the original breakout, the EUR/USD has retraced back to the upper line of the chart pattern, setting up a buying opportunity. An estimate of the price move from the chart pattern suggests a 3 cent move, a level that fits nicely with the February high of 1.3860.
The Cable has found resistance from a trend line that falls off of the January 2010 and February 2011 highs. A breach above the trend line, and the February high of 1.6280, could spur further buying to the January high of 1.6450 as well as the November 2009 high of 1.6870.
The recent declines in the USD/JPY have created a bullish flag on the daily chart. An estimate of the move from the chart pattern would suggest an additional 1.00 yen move higher to the resistance level of 84.50. Support for the pair is found in a range near 82.50.
The 61.8% Fib retracement from the December move has proven to be a powerful resistance level that has consistently sent the pair lower. Traders may want to be patient and wait for better levels to sell this pair. Support is found at Friday’s low of 0.9440.

The Wild Card

The commodity has pushed above its all-time high, and the $34.00 level, in its latest move. Rising momentum hints at further gains for the commodity. Forex traders will want to be long on the commodity with stops below the support at $31.20.

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