Dollar Climbs after Housing and GDP Numbers

The U.S. dollar continued to strengthen against the majors during Tuesday’s trading session. Driving the dollar higher was a rise in existing home sales for the month of November and Final GDP numbers for the 3rd quarter that suggest the U.S. economy is improving.

Economic News

USD – Dollar Moves Higher on Positive Economic Data

Yesterday’s trading had the dollar climbing higher against a basket of currencies after data released from the States suggest the U.S. economy may be on the path to recovery. Driving the dollar’s trading was the release of U.S. existing home sales and GDP data. The upbeat release of 6.54M homes sold on expectations of only 6.29M during the month of November helped boost an appetite for the dollar, as did the final GDP numbers. A revised 2.2% for the 3rd quarter was enough to spur more buying of the dollar against its rivals.

The EUR/USD finished the day trading at 1.4253, down from an opening day price of 1.4285. The dollar was also stronger versus the GBP as the GBP/USD was trading down at 1.5969 from the day’s earlier price of 1.6053.

Today’s New York trading session will be highlighted by the release of the U.S. new home sales numbers. Market economists have predicted a rise of 442K new home sales during the month of November. This indicator has the ability to add momentum to the recent trend of a strengthening dollar. We could see the EUR/USD trading lower on better than expected results, perhaps close to the 1.4190 price level.

EUR – Sovereign Debt of Greece Downgraded

With the dollar’s rally, the EUR has been in a slump. The EUR is currently trading at its lowest level in the past three and a half months. Yesterday was no different as the EUR traded lower versus the dollar, though the Euro-zone currency was higher versus the pound and the yen.

The EUR/GBP was trading higher at 0.8923, from an opening price of 0.8896, as was the EUR/JPY at 130.87 from yesterday’s price of 130.09.

Market sentiment has turned against the EUR as the U.S. economy may be recovering faster than the Euro-zone. Also the assumption the Federal Reserve will begin to raise interest rates sooner than expected is helping the momentum. A sign of a weak European economy raised eyebrows today as Moody’s Investor Service downgraded the sovereign debt rating Greece. The ratings service also noted it is unlikely for the European Central Bank to step in and help Greece meet its debt obligations.

Traders should be looking towards the release of the French consumer spending numbers today. A release of better than expected data from the Euro-zone’s second largest economy may spur further buying of the EUR against the Pound. Traders should also be following the MPC Meeting Minutes from the Bank of England. We’ll be looking for signs of the Bank to begin to tighten monetary policy for England.

JPY – Yen at Seven Week Low Versus the Dollar

The Yen is currently sitting at a seven week low versus the USD. This will be looked on positively by both the Japanese Ministry of Finance and Japanese industry who depend on a weak yen to make their goods more competitive in the global market place.

Currently the USD/JPY is trading at 91.64 from an opening day price of 91.06. We’ve seen heavy buying of pair close to the 91 price level.

Japanese banks are closed today for a holiday today. Therefore, large bloc trades may have an extra high impact on today’s prices as liquidity is tight as we approach the holidays and trading desks are operating on skeleton staffs. With a significant amount of money sitting on the sidelines, this could give smaller traders opportunities to take advantage of the volatile price swings in the yen. Those who can find them may have larger potential opportunities in this type of market.

Oil – OPEC Holds Output Firm as Spot Crude Oil Prices rise.

As expected, OPEC agreed yesterday to hold its production quota steady for member nations, though a call was made for its members to comply with previously agreed production cuts. The price of crude oil is currently trading near $74.25 level after an opening day price of $73.70.

The member nations would like to see a drop in the supply of crude oil as the current price sits at a much more comfortable level for member nations who depend on the export of crude to drive their one dimensional economies. As demand for crude oil weakens, OPEC fears if production cuts are not met, there may be a lack of equilibrium for the supply and demand of crude oil, which could drive down the price. OPEC member nations are notorious for failing to meet their production cuts. Research shows OPEC nations fulfill only 60% of their declared production cuts.

Those traders who see the long term fundamental view of excess supply in the market may see an entry price of $75 to go short.

Technical News

The EUR/USD has gone increasingly bearish in the past month, and currently stands at the 1.4245 level. However, the RSI of the daily chart shows the pair floating in the oversold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The price of this pair appears to be floating in the over-sold territory on the daily chart’s RSI indicating an upward correction may be imminent. The upward direction on the 4-hour chart’s RSI also supports this notion. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the 4-hour chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.
The bullish trend is loosing its steam and the pair seems to consolidate around the 1.0490 level. The daily chart’s RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

The Wild Card

CAD/JPY sustained upward movement has finally pushed its price into the over-bought territory on the daily chart’s RSI. Not only that, but there actually appears to be an impending bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

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