Dollar and Yen Continue to Rise on High Risk Aversion

Traders moving assets to safer, lower yielding currencies appear to be playing a factor in the correction of the major crosses. The USD and the JPY have been the primary beneficiaries of this trading strategy. Comments by Treasury Secretary Geithner also have been swaying the Dollar. Further testimony by Geithner today could push the Dollar higher once again.

Economic News

USD – Greenback Advanced vs. the EUR on Crisis Concerns

The Dollar rose to a 5-week high against the EUR as concern the global financial crisis will worsen. This fear boosted demand for the U.S. currency. Renewed worries over the financial turmoil are making investors risk-averse again. In the market’s current direction, the Dollar and the Yen are likely to be favored by the investors, analysts said. The USD traded at $1.2899 per EUR as of 9:13 a.m. in Tokyo from $1.2921 in New York yesterday.

The U.S. currency declined however more than 1% versus the Australian and New Zealand dollar and CHF on reduced concerns about bank balance sheets. This may prompt investors to shift funds to higher-yielding assets. The Dollar has lost more than 10% in the past 2-months against the AUD and NZD on signs the global economic slump may be weakening.

The USD also weakened after Treasury Secretary Geithner said that the vast majority of U.S. banks still have sufficient capital, thus reducing the greenback’s risk haven appeal. The market is awaiting the outcome of the U.S. authorities’ stress tests on banks. The U.S. Treasury Secretary said most U.S. banks had enough capital to keep lending but a pile of bad debts are fostering doubts about their health and slowing a recovery. The Federal Reserve plans to release its test results on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next 2 years should the recession worsen.

EUR – EUR Rebounds on Positive German Sentiment

The EUR advanced for the first time in 4 days against the Yen after a report showed German investor confidence in April increased to its highest level in almost 2 years. The European currency has also climbed slightly against the U.S Dollar after the ZEW index rose to 13, from minus 3.5 in March. The currency rose 0.3% to 126.84 Yen, and to $1.2957, from $1.2921 yesterday, and after reaching $1.2990 earlier.

The currency market is highly volatile at the moment, reversing steep moves from one day to the next, and the EUR gained on Tuesday as an improvement in German investor confidence lifted stock markets and helped pull commodity currencies higher. However the EUR gains might be limited and needs to be treated with caution. The Euro currency continues to suffer from risk aversion and expectations of a major change in European Central Bank (ECB) monetary policy, largely imposed on the central bank by deteriorating internal and external conditions.

Any gains in the EUR will likely be limited and the currency may trade as low as $1.24 by the end of the month. This is due to the uncertainty over what unconventional policy steps the European Central Bank may adopt next month. The central bank is expected to cut Interest Rates below their current 1.25%. Analysts also expect the ECB to have to resort to flooding the banking system with money to promote lending and growth, though what method the ECB might use remains in doubt.

JPY – Yen Bullish Day on Strong Export Numbers

The Japanese currency rose against 15 out of 16 most-traded currencies after Japan’s Ministry of Finance said custom-cleared exports declined 45.6% in March from a year earlier, following a record drop of 49.4% in February. The trade balance data seem to suggest that Japan’s economic slump may also ease somewhat in the last quarter.
The Yen climbed against the Dollar and the EUR after a government report showed exports fell at a slower pace; spurring speculation the worst of the nation’s recession may be over. The JPY climbed to 98.29 per USD from 98.73 yesterday. Against the EUR, Japan’s currency advanced to 127.09 from 127.81.

OIL – Oil Continues to Trade on Under Stress

Crude Oil prices finished largely unchanged after an industry report showed U.S. stockpiles fell, raising optimism that fuel demand has increased as the economic crisis abated. The gains came as U.S. stock markets rose roughly 1% after industrial bellwether United Technologies posted results that beat Wall Street expectations and bank shares rebounded. The price of Crude plunged as low as $46.70, only to rebound as the gains in U.S. stock markets occurred. Oil prices have been tracking moves in equities closely in recent months as traders look for signs of a recovery from the economic slowdown that has curbed global demand for Oil for the first time in a quarter century.

Crude prices have been trading in a range between $46 and $55 for the past month, after rallying steadily since February from $33 a barrel, helped by hopes of economic recovery and OPEC’s compliance with agreed supply cuts. The producer group has already cut member output quotas by 4.2 million barrels per day since September.

Technical News

The pair has been trading within a restricted range lately, and is currently traded at the 1.2940 level. a double dojy formation on the daily chart indicates that a strong movement is expected, and as a bullish cross takes place on the Slow Stochastic, it appears that an upward move could be imminent. Going long with tight stops might be the right strategy today.
The daily chart shows that the bearish channel was breached as the cable is currently traded for 1.4640. Furthermore, on the 1-hour chart, the RSI has bottomed beneath the over-sold boarder, and is currently pointing up, suggesting that the bullish trend might continue farther. Going long appears to be the preferable choice today.
The pair is continuing its bearish momentum as it is traded now around the
98.30 level. A bearish cross on the 4-hour chart’s Slow Stochastic suggests that the bearish move may have more room to go, with the potential of reaching as low as the 97.60 level.
The trend-line has been relatively flat for the last few days, as the pair is currently traded around the 1.1680 level. A triple doji formation on the 4-hour chart indicates that a sharp movement is expected, and as the MACD is pointing down, it appears that going short could be the right choice today.

The Wild Card

The bearish trend is showing signs the end may be nearing as the daily chart shows a bullish cross has formed on the slow stochastic, signaling the pair could reverse shortly. This is reinforced as the price is trading in the undervalued zone on the chart’s Relative Strength Index. This could be a good opportunity for forex traders to get out in front of the pair’s correction.

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