Dollar Volatility to Continue as Banking Crisis Returns to the Forefront

The Dollar is set to be the dominant currency in the forex market this week, as the banking crisis returns to the forefront. The banking share slump and the bullish Oil prices may hurt the Dollar this week, as traders bet against the greenback.

Economic News

USD – Dollar Goes Bearish on Weak Economic Data

The Dollar experienced a volatile session last week, which was concluded with much bearish behavior in USD crosses. Since Friday, the USD has undergone a bearish trend against the EUR, depreciating over 80 pips to close at 1.2673 at the end of Sunday’s trading session. Much of this is owed to data that came from the U.S on Friday; the Non-Farm Employment Change, showing that 651,000 people lost their jobs during February. It’s important to note that these figures were worse than forecasted. What’s more, U.S. unemployment now stands at 8.1%, a rate not seen in decades. The weak figures from the U.S. are likely to lower the consumption quantity from consumers during the following months, which is highly likely to have an immense impact on the Dollar’s strength.

The Dollar lost 20 pips against the Yen to close at 98.02. This may show that the Dollar may not be making the comeback that analysts previously forecast. For example, on Tuesday, the Dollar hit as high as 99.66 on Tuesday, before sliding dramatically. We will have to see how the day unfolds to accurately determine the USD/JPY cross this week. The USD gained about 30 pips in yesterday’s trading against the GBP to close at 1.4123. The main factor that is likely to determine the level of this currency pair this week is how investors portray President Obama and his administration in tackling the U.S. economic situation.

As for the week ahead, the vital data expected from the U.S economy is due on Thursday and Friday, and is forecasted to continue with the negative line. The Retail Sales data release is expected to be poor, and the Unemployment Claims are expected to reach 640,000. The Consumer Sentiment survey on Friday is predicted to continue with a downtrend, and to drop beneath the 50 mark. Such a result will reflect a severe lack of trust by the American citizens that their economic situation is about to improve soon. Traders are advised to keep track of the real results of the main publications, as any surprising data might change the course of trends.

EUR – EUR Set for Another Volatile Trading Week

The EUR underwent a volatile trading week, seeing mixed results against the major currencies. On one hand, the EUR rose 200 pips against the Dollar to close Friday’s trading session. However, on the other hand it did not manage to appreciate against the JPY. Last week’s most significant announcement was made by the European Central Bank (ECB), which cut Interest Rates by 0.5% to a record low of 1.5%. Now, the entire Euro-Zone is expecting to see whether the low rates will manage to help lift the region out of the worst recession since World War Two.

The immediate reaction to the rate cut decision was a drop in the value of the EUR against the Dollar. However, the poor employment data from the U.S. helped reverse the trend slightly, as the Dollar dropped on all fronts. As of Sunday’s closing price, the EUR closed lower by about 10 pips against the GBP, and currently stands at 0.8970. Against the USD, the EUR closed down about 20 pips at 1.2673. In the long-term, the EUR is expected to strengthen even further against its main currency pairs, as it seems unlikely that the ECB will slash Interest Rates again in March.

As for this week, most of the news that might influence the EUR will come from the strongest economy in the Euro-Zone, the German economy. Almost all indicators such as the German Factory Orders, the Consumer Prices Index, and the Trade Balance are forecasted by analysts to deliver weak figures. This may generate a modest downtrend for the European currency. Despite expectations, traders are advised to follow economic news coming from the U.S and British economies as well, as they are likely to be an important catalyst in dictating this week’s trends.

JPY – JPY Upholds its Safe-Haven Status

Last week, the JPY saw predominantly bullish trends against the major currencies. The JPY rose around 300 pips against the GBP until midweek. However, these massive gains were short-lived, as the British currency made up for some of its losses. The GBP/JPY barely moved in Sunday’s trading and closed at 138.47. The JPY took 20 pips out of the USD in yesterday’s trading as the pair closed at 98.02. Some of these results show that the Yen rose as a result of the problematic data published from the U.S and the Euro-Zone

As of late, it is clear that Japan is in deep recession. However, its current condition still seems to be better than most of the leading Western countries and that is the main factor pushing the JPY higher as of late. This week traders should look forward to the Japanese Final Gross Domestic Product figures on Wednesday night, as this should be the most intriguing data from the Japanese economy this week. In addition, as proven in the past few weeks, it is the news from the West that is influencing the Yen the most. Traders must keep that under consideration and set their positions on the JPY in accordance.

Oil – Crude Oil Hits $46.50 a Barrel

The biggest development last week was that Crude Oil rose to over $46.50 a barrel for the first time in nearly 2 months. There are two main factors that supported Oil prices last week. Firstly, OPEC recently announced that the current low prices of Oil may lead to a supply crunch by 2013, and thus rejecting some arguments made lately by analysts that the cheap Oil might help the global economies recover. Second, the slide in the Dollar’s value last week largely contributed to the ascending Oil prices, as Crude Oil is valued in Dollars.

Traders should differentiate between the two reasons listed above. Whilst the first one is no more than an attempt made by OPEC to stop the decreasing Oil prices, and therefore could only affect the price of Crude Oil in the short-term, the second reason is much more crucial. For as long as the USD will continue to depreciate, it is very likely that Oil prices will rise in accordance. However, if the USD will not drop severely, Oil will probably continue to be valued at about $40 a barrel, which seems to be a reasonable price in helping the global economic recovery.

Technical News

On the 4-hour chart the pair continues to range trade in the upper half of its Bollinger Bands. Both the hourlies and the daily charts are providing mixed signals with no significant breach. Such a range trading floating nature may provide a good opportunity for traders to safely buy on the lows and sell on the highs while profiting from the relatively predictable range trading.
A bullish cross may be forming on the hourly chart, indicating a potential price movement towards the upper resistance level of 1.4300. The daily chart’s Bollinger Bands are tightening, indicating that a violent breach may take place in the next few hours, supporting the potential bullish movement.
The bullish trend is loosing its steam and the pair seems to be consolidating around the 98.25 level. The 4-hour chart shows a fresh bearish cross that has just formed, indicating a future downward price movement. Supporting this is the RSI on the hourly chart which is floating in the overbought territory. Traders may look for the pair to reach a lower support line of 97.50.
After bottoming at the1.1486 level on Friday, the pair has now consolidated a bit higher around the 1.1600 mark. A fresh bearish cross has just formed on the hourly chart and the upper Bollinger Band was also breached, indicating a potential downward movement in the near future. Going short today looks to be the right move for traders.

The Wild Card

Gold prices rose again significantly in the last week and peaked at $957.88. This may present an overbought situation as the 4-hour chart’s RSI is presently in the overbought territory, while the weekly chart shows a bearish cross has formed on the Slow Stochastic with its RSI floating in the over sold region. This week forex traders can take advantage of the overbought situation in Gold for a healthy profit.

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