Dollar Falls after Dubai Relief Package

The dollar fell slightly against the major currencies on Monday as signs of a sustained economic recovery and reduced concerns of a default in Dubai curbed demand for the U.S. currency as a refuge. The emirate’s move initially prompted investors to sell the dollar and pushed up global equities on improved risk appetite.

Economic News

USD – Dollar Falls on Dubai Bailout

The dollar slipped slightly against most of its major counterparts on Monday after Dubai’s announcement it had received help from Abu Dhabi to repay its debts. This bolstered risk appetite and eroded some of the U.S. currency’s safe-haven appeal. By yesterday’s close, the USD fell against the EUR, pushing the oft- traded currency pair to 1.4647. The dollar experience similar behavior against the GBP and closed at 1.6302.

The currency market’s bent to sell dollars on improved risk appetite, contrasted with last week when strong U.S. economic data boosted risk sentiment to the benefit of stocks and the dollar, and have bolstered the view that the Fed may have to act sooner than expected to tighten monetary policy. Investors were also watching to see whether a year-long trend in which the dollar weakens on strong U.S. data was starting to break down.

Moreover, markets await more details from the Federal Reserve, which wraps up its last policy meeting of the year on Wednesday. Investors expect the central bank to keep its benchmark interest rate at a historic low level of near zero for the time being, but there is some concern that rates could rise sooner than previously thought as the economy improves. Higher interest rates or the expectation of higher interest rates in the near future can boost a currency as investors transfer their funds to higher yielding currencies.

EUR – EUR Boosted by Increased Risk Appetite

The EUR rose slightly against the dollar on Monday as Abu Dhabi’s decision to throw
Neighbor Dubai a $10 billion lifeline to repay debts slowed safe-haven buying that boosted the U.S. currency last week. The emirate’s move initially prompted investors to sell the dollar and push up global equities on improved risk appetite.

The 16-nation currency edged up to $1.4647 in late New York trading from $1.4617 Friday after Greece’s prime minister announced a barrage of spending cuts and warned that the country risked drowning in debt. The government has promised to step up efforts to reduce the deficit after a ratings agency downgraded the country’s debt rating. Also last week, a rating agency lowered the credit rating outlook for Spain to negative.

Looking ahead today, the news event that may have a very large impact on the EUR and its main currency pairs in today’s trading is the German ZEW Economic Sentiment at 10:00 GMT. This report is very important and is likely to impact the EUR volatility. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.

JPY – Yen Experiences Mix Result against Major Currencies

The Yen completed yesterday’s trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session at around the 130.05 level. The JPY also saw a small bullishness against the USD and closed at 88.55.

Confidence among Japan’s largest manufacturers climbed the least since the economy emerged from its worst recession as companies have become more concerned the yen’s gains will erode profits. The report showed large companies planned deeper spending cuts to protect earnings that are under threat from a currency that climbed to a 14-year high against the dollar last month.

OIL – Crude Oil Declines on Falling Demand

Oil dropped for a ninth day yesterday, the longest losing stretch in eight years, amid declining industrial output in Europe and the smallest improvement this year in consumer confidence in Japan, the third-largest oil-consuming country.
Prices have fallen because of a slow recovery in demand in developed markets. Oil has dropped 11% since Dec. 1 in the longest decline since July 2001.

Oil failed to reverse the downward trend on Monday despite rising equity market and falling dollar, which had helped to boost oil prices most of the year. Investors were worried about the weak demand as fuel supplies have risen six out of the past ten weeks.

Technical News

The daily chart shows the pair may be relatively oversold. The Relative strength index has the pair’s price floating in the oversold zone, hinting at the possibility of a price appreciation. Traders may see this as a buy opportunity to go long on this pair.
The 4-hour 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 1.6340.
The bullish correction on the hourly chart appears to be weakening as the pair has now fallen back below the upper Bollinger Band line. We may expect the pair to fall back to its lower Bollinger Band, in line with the long term trend. Traders may want be short with a limit order near the 88.40 price level.
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.

The Wild Card

Crude Oil
Crude oil may due for an upward correction as the daily chart is providing significant buy signals. The chart shows the pair floating in the oversold range on the Relative Strength Index, indicating the potential for a price appreciation. The daily chart also displays a bullish cross on the Slow Stochastic Oscillator, giving forex and commodity traders reason to be long on crude today.

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