Dollar Rises Despite Increased Risk Taking

The greenback continues its correction as better unemployment numbers and rising import prices helped to strengthen the Dollar yesterday. Liquidity may be thin during today’s trading due many European firms closed for holiday. However, this may only increase price volatility, creating the potential for traders to take advantage of other’s missed opportunities.

Economic News

USD – The Greenback Heads for Its Weekly Gains

The U.S Dollar advanced against the EUR and the Yen on Thursday as better than expected U.S. weekly jobless claims helped spark a rally in the market, rekindling appetite for riskier assets. A batch of economic data including a dip in jobless claims and a rise in import prices, have improved sentiment for the greenback. In afternoon trading, the USD was 0.8% higher versus the yen at 100.46, while against the EUR the U.S currency rose to 2-week high to $1.3110.

The Dollar also surged after Wells Fargo & Co., the second-biggest U.S. home lender, reported a first quarter profit that beat the most optimistic Wall Street estimates, which point to an easing in the financial crisis. The greenback has risen 2.8% against the European currency this week, the most since the period ended Jan. 9. The improved trade deficit dynamic was Dollar positive, as the U.S. trade deficit in February unexpectedly narrowed to the lowest level in 9 years analysts have said. The narrowing U.S. trade deficit may further support the Dollar as the U.S. spends fewer greenbacks in international markets to buy foreign products.

Currency movements may be volatile in Asian and European trading today as the Easter holiday in the region reduces liquidity amid thin trading volume, exaggerating market moves. This can give volatility traders good reason to enter the market today as the Dollar could extend its positive momentum into the holiday weekend. The EUR/USD could trade as low as the 1.0350 support level today.

EUR – EUR Falls on Speculation the ECB Will Lower Its Benchmark

The European currency lost 0.4% versus the USD, down to $1.3112 and eased 0.1% to 131.94 Yen yesterday, on concerns the Euro-Zone economy would skid more deeply into recession in the coming months. The market has been watching for signs the European Central Bank (ECB) will take unconventional steps to improve credit availability after similar moves by the Federal Reserve and other major central banks.

European Central Bank President Jean-Claude Trichet said the central bank still had some leeway to cut its main Interest Rate from its record low of 1.25% and that benchmark rate below 1% is still open for debate. The central bank would lay out plans for possible unconventional monetary policy measures at its next meeting on May 7. However, Trichet would not give any further details.

Meanwhile, the British pound had also sunk to $1.4663, compared to $1.4704 late Wednesday. Earlier Thursday, the GBP was little changed against the Dollar after the Bank of England left its key lending Rate unchanged at an all time low Thursday and said it would continue buying government bonds and other assets. Policy makers were widely expected to stay on the sidelines after an aggressive series of Rate cuts slashed the bank’s benchmark from 5% to 0.5% since October.

JPY – Yen Drifts on Market’s Slow Activity

The Yen drifted against the Dollar on Thursday, holding on to gains made the previous day as currency market remained quiet, unwilling to build positions ahead of earnings reports by major U.S. banks next week. The Yen was flat against the USD at 99.85 yen after rising about 0.8% on Wednesday. The Japanese currency fell as low as 101.45 on Monday to strike a 6-month peak. The Yen was also unchanged against the EUR, settling at 132.50.

Data on Thursday showed Japan’s machinery orders, a leading indicator of corporate spending, unexpectedly rose in February, a rare positive sign as the country suffers its worst recession since World War Two. Traders said expectations of the stimulus package helped the Yen’s rebound against the Dollar and the EUR but investors may refrain from pushing it higher past the 101 level.

OIL – Oil Breaks $52 a Barrel

Crude Oil prices rose nearly 5.8% on Thursday, fueled by a rally on Wall Street and data showing that the number of workers filing new claims for unemployment benefits fell last week. Adding support to Crude, the UK consultancy Oil Movements said on Thursday that Organization of Petroleum Exporting Countries (OPEC) production will fall 280,000 barrels per day (BPD) in the four weeks ending April 25th. OPEC has agreed to slash 4.2 million BPD of crude output since September to counter falling prices and match slumping world demand.

Oil prices had also climbed Wednesday on weekly Energy Information Administration data showing a smaller-than-expected suppl in U.S. crude inventories and a big slump in distillate stocks. The market reacted violently as optimism in equity markets about the U.S. economy carried over into Crude. The U.S. Economic data that showed crude-oil supplies increased 1.65 million barrels to 361.1 million last week, the highest since July 1993.

Technical News

After touching on its daily low at 1.3091, the pair has rebounded and is steadily appreciating. There is currently a bullish cross on the 4-hour chart. Perhaps the bullish momentum may continue throughout the day. Also the Bollinger Bands appear to be tightening on the 4-hour as well as the daily chart, indicating a violent breach of the borders may be imminent. Traders may look to be long on this pair today.
The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic is providing us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
The price of this pair appears to be floating in the over-bought territory on the daily chart’s RSI, indicating a downward correction may be imminent. The downward direction on the 4-hour chart’s slow Stochastic also supports this notion. When the downward breach occurs, going short with tight stops appears to be the preferable strategy.
The bullish trend is loosing its steam and the pair seems to be consolidating near the 1.1580 level. The daily chart is already floating in over-bought territory, indicating a bearish correction might take place in the nearest future. When the downward breach occurs, going short with tight stops appears to be the preferable strategy.

The Wild Card

Crude Oil
Crude Oil prices rose significantly yesterday and peaked at $52.17 per barrel. However, there is a bearish cross on the hourly chart’s Slow Stochastic, suggesting that the recent upward trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

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