Analysts have begun to make positive statements regarding China’s latest announcement that it may consider an easing of the rigidness of their monetary policy. This could result in the Chinese yuan being allowed to appreciate normally and boost risk appetite and market optimism in regards to a speedier recovery. It appears traders are scanning the horizon for a silver lining and China is believed to have come to the rescue, finally. But has it?
USD – Will China’s Latest Move Kick-Start a Global Recovery?
This week’s market opening delivered a shock in the form of a rapid drop in the value of the USD. Upon market opening, the greenback plummeted 81 pips against the euro and a similar amount against the British pound. The two pairs are currently trading at 1.2435 and 1.4844, respectively.
Analysts have begun to make positive statements regarding China’s latest announcement that it may consider an easing of the rigidness of their monetary policy. This could result in the Chinese yuan being allowed to appreciate normally and boost risk appetite and market optimism in regards to a speedier recovery.
However, it was not just the dollar which saw a significant price change. Dollar-based commodities also witnessed a sharp rise in value as the USD took the plunge. With oil prices rising rapidly, many analysts fear it could slow down the industrial recovery of the major global economies. The major monetary policies of countries like China have become more of a significant market mover than it has recently. It appears traders are scanning the horizon for a silver lining and China is believed to have come to the rescue, finally.
With few news events expected today, traders are advised to follow any announcements regarding China’s decision to re-value its currency and allow it the flexibility which many have been calling for since the economic crisis began.
EUR – EUR in Recovery as Risk Appetite Gets Boost from China
Global EUR-traders have awoken to a pleasant surprise this morning. The euro appears to be on its way to a healthy recovery thanks to China. Versus the US dollar, the euro has risen towards 1.2450 from as low as 1.2050 seen last Wednesday. The EUR/GBP has experienced similar behavior with a surge towards 0.8375 from as low as 0.8220 last week.
With European Central Bank (ECB) President Jean-Claude Trichet due to speak about economic and monetary policies before the European Parliament in Brussels, there is a chance that riskier assets, such as the euro, could experience another sharp incline if news proves positive.
There is a risk, however, that Trichet will incorporate China’s latest announcement that it may make its currency more flexible and counter in order to bring more stability. While the euro zone wants an appreciation of the euro, the speed of its recovery could bring too much volatility which could lead to instability. Some analysts are expecting dovish statements to bring the EUR back into a corrective spin, but still bullish.
JPY – Will New Japanese PM Respond to China with a De-Valuation?
Even the safe-haven currency of the Japanese yen appreciated against the dollar in this morning’s trading hours. As the USD took a dive following this weekend’s surprise announcements by China, the JPY actually appeared to take off alongside the other riskier assets, which is somewhat uncommon for the island currency.
Japan’s new prime minister may take the opportunity to see his currency decline as the global economy recovers; a sentiment he has expressed a number of times before his election as PM. His personal dissatisfaction with the current strength of the JPY has become a major talking point among political and economic analysts lately. Should any announcements come from Japan in that regard, traders would be wise to pay attention.
OIL – Crude Prices in Appreciation on Boosted Demand and Weak USD
Despite the US dollar’s surge, the price of Crude Oil may have been in a steady bullish channel before this morning’s announcements from China. The US driving season has officially kicked off as many Americans enter summer vacation with muddled optimism. This has boosted demand for the black gold and the depreciation of the dollar has only added to the momentum already being built.
This week’s news events may impact Crude Oil prices more than many are likely expecting. A number of analysts have begun to anticipate a rise in demand for oil and as a result this week’s manufacturing and industrial data from across the globe will give a sneak preview into the level of global demand. Should this week’s figures disappoint, we could see the price of oil hit $80 a barrel and promptly bounce off back towards $75.
The pair continues to move higher and is now trading close to the short term resistance at 1.2450, the daily high from May 28th. A breach of this resistance level may carry the pair to the next short term resistance at 1.2525, with the long term resistance resting at 1.2670.
The Cable is testing a speed line that branches off from the long term trend line on the weekly chart. The speed line begins on the week of January 17th. A breach of this trend line could propel the pair to the 1.5300 long term resistance level on the weekly chart.
Most technical indicators show the pair trading in neutral territory at the moment. With no discernable signs of a major price correction today, traders may want to take a wait and see approach in order to determine what the best options are.
The Relative Strength Index on the 8-hour chart shows the pair currently trading in oversold territory, indicating an upward correction should take place later today. This theory is supported by both the Bollinger Bands and Stochastic Slow on the daily chart. Traders are advised to go long with tight stops today.
The Wild Card
Most technical indicators are currently showing this pair trading well in overbought territory. These include the Relative Strength Index on the 8-hour chart and the Stochastic Slow on the daily chart. Forex traders are advised to go short for this pair today, as a downward correction may occur.
Written by Forexyard.com