Dollar Anticipates Release of U.S. Unemployment Claims

Today, traders should pay close attention to the release of the U.S. Unemployment Claims report. This indicator always produces extreme market volatility in the major currency pairs. Traders may find good opportunities to enter the market following this vital announcement at 12:30 GMT.

Economic News

USD – Dollar’s Rally Continues

The dollar rose against the EUR on Wednesday, as renewed jitters over Greece’s debt crisis and the prospect of a faltering recovery in Europe drove investors to safe havens such as the U.S. currency and Japanese yen. Moreover, the dollar has been sold off recently partially due to growing optimism about the outlook for the U.S. economy. The USD finished yesterday’s trading session 60 pips higher against the EUR at the1.3340 level.

The other factor that led to the bullish Dollar yesterday was that U.S stocks fell on mounting concerns about spiraling debt in some developed economies, which boosted demand for the USD as a safe-haven currency.

Today’s Unemployment Claims release is expected to have a strong impact on the U.S currency. Any result could be a surprise, and the Dollar could go either way as a result. In any case, traders are unsure how the market will react to today’s data. A weak report could feed risk aversion, boost Treasuries and actually aid the U.S. Dollar. Then again, a better than expected result might be seen as a sign of relative U.S. economic strength, and lift the Dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the Dollar’s expense.

EUR – EUR Loses Momentum Prior to Interest Rate Announcement

The EUR fell against most of its major counterparts on Wednesday as concern over Greece’s debt crisis pushed the yield spread between Greek and German government bonds to its widest since the EUR’s launch in 1999. By yesterday’s close, the EUR fell against the USD, pushing the oft-traded currency pair to 1.3340. The 16 nation currency experienced similar behavior against the GBP and closed at 0.8750.

Worries over debt problems in Greece and other peripheral euro zone countries have knocked the EUR down almost 9% from its January high of $1.4580. Investor sentiment on Wednesday was also dented by news that Greek banks have asked the government for more financial support, highlighting the problems facing Greece’s economy, which is expected to contract by at least 2% this year.

Looking ahead to today, the most important economic indicators scheduled to be released in Europe is the German Industrial Production and Minimum Bid Rate at 10:00 GMT and 11:45 GMT respectively. Traders will be paying close attention to today’s announcement as a stronger than expected result may boost the EUR in the short-term. Traders are also advised to follow the ECB Press Conference at 12:30 GMT. This conference is very important as it is likely to impact the EUR volatility. Traders are advised to watch closely, as this is likely to set the pace of the EUR going into the rest of the week’s trading.

JPY – Yen Makes Big Gains on EUR

The Japanese yen has strengthened against most of its major counterparts, continuing to prove that for the time being this is the solid currency that traders can rely on to provide them with steady profits. The yen extended gains versus the EUR on Wednesday, to trade above 124.60 amid a broad sell-off in the EUR. The JPY also saw bullishness against the USD and closed at 93.40.

Investors worry over a recent rise in the JPY as it makes Japanese products less competitive abroad and hurts the value of overseas sales when translated back into the Japanese currency. With steady gains primarily against the Dollar, much of the yen’s bullish movement could be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. This has had a positive effect on major JPY currency pairings, as the rising turmoil in the market is leading to more investment in the Japanese currency.

OIL – Crude Oil Falls 1.1% on U.S Inventory Data

Crude oil fell for the first time in seven days after a government report showed a bigger-than- forecasted increase in U.S. crude oil inventories as imports surged. Crude oil fell around $1, or 1.1%, to settle at $85.55 a barrel on the New York Mercantile Exchange.

Crude inventories rose by 2 million barrels to 356.2 million barrels in the week to April 2, the highest since supply hit 357.7 million barrels in the week to June 12, 2009. Oil also dropped as the dollar gained against the EUR. A stronger U.S. currency reduces the investment appeal of commodities.

As for today, traders should pay attention to the U.S. Unemployment Claims report scheduled, as it tends to have a large impact on Crude Oil prices recently, especially for the short-term.

Technical News

The pair continues to decline as the charts show signs of a strengthening, downward sloping trend. The daily chart’s ADX 14 has risen above 25 and is sloping sharply higher, indicating a strong trend is apparent. This is confirmed by the weekly chart’s ADX 14 that is trading above 40, indicating a trending environment. Traders may want to begin utilizing trading strategies appropriate for a trending environment rather than a range trading environment.
The consolidation pattern the pair has experienced may be showing signs of weakening. The daily chart’s MACD histogram is showing a downward slope, indicating the previous trend may be weakening. The 7-day Relative Strength Index has also broken its trend line and is pointed sharply lower. Traders may want to go short today with the 1.5130 support level as a target.
After the failed breach of the 95.00 resistance level, the pair has steadily declined to the support line at 93.20. The daily chart’s MACD histogram is trending sharply lower and a bearish cross looks to be forming, indicating the pair could continue to decline. The 14-day RSI has breached below the 70 line, though traders may want to confirm the bearish move and wait for the RSI to break its upward sloping trend line. After the breach, traders should enter short with a target of the 92.15 support level.
The pair rose yesterday past its short term resistance level of 1.0750 and is currently trading close to this mark. Traders can target the next resistance line at 1.0800. However, a bearish cross appears to be forming on the daily chart’s Slow Stochastic Oscillator, indicating the pair could fall in the short term.

The Wild Card

S&P 500
A buying opportunity may present itself after yesterday’s sharp 0.6% sell-off. The index has been in a strong bullish trend since early February. This is confirmed by the price action appearing in the upper half of the Bollinger Bands on the daily chart. Forex traders may want to go long today with a target of the 4-hour chart’s resistance level of 1184.90.

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