Dollar’s Strength Set to Determine Oil Prices Today

Whilst the Dollar declined in yesterday’s trading against most of its major currency pairs, Oil prices recorded considerable gains. Thus lately, there has been an inverse relationship between the greenback and the black gold. Therefore it is important to follow economic news releases from the U.S. closely today, as a weak U.S. economy is likely to lead to bearish Oil prices. On the other hand, strong U.S. economic data and a strong Dollar are likely to lead to higher Oil prices later today.

Economic News

USD – Dollar Foresees a Bearish Trading Session

The U.S currency continued to slip against the EUR yesterday, dropping 1.1% to as low as 1.3150. It also lost ground against many of its other major currency pairs as investors continue to worry about the depth of the U.S. recession. Analysts anticipate the Dollar to slip further and to make a correction against the major currencies in the short-medium term as many forex traders believe that the USD is overvalued.

The release of the U.S. Existing Home Sales Report yesterday added to downward pressure on the USD. The report showed that sales of U.S. existing homes fell by 3% in March to a 4.57 million-unit annual rate. This data confirms that the U.S. housing market is still weak. Another report showed the number of Americans filing first-time claims for unemployment insurance rose by 27,000 last week to 640,000 as forecast, while total benefit rolls reached a record, indicating the continuous deterioration of the U.S. labor market.

Later today, there are several important economic data releases coming out of the U.S. The most important of these publications is the Core Durable Goods Order indicator at 12:30 GMT. The release is expected to be lower than the previous figure, meaning the USD could continue its bearish behavior today. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.

EUR – EUR Soars vs. the Dollar

The EUR rallied yesterday against the Dollar as encouraging news about the European economy and banking system sparked hope that the 16-country Euro-Zone may be emerging from the depths of recession. The EUR touched a one-week high versus the Dollar and closed at 1.3150. The European currency finished 100 pips higher against the JPY to finish yesterday’s trading session at the 128.00 level.

The Euro-Zone’s manufacturing and services sector recorded their best performance in 6 months, while industrial orders fell by less than analysts had anticipated. The survey showed a significant improvement, thereby boosting hopes that the rate of decline in the Euro-Zone economy is now moderating after a particularly torrid 4th quarter of 2008 and 1st quarter of 2009. The reduced contraction in manufacturing activity in April suggests that the sector is starting to benefit from the massive de-stocking that has taken place.

Today, there are many news events coming out of the Euro-Zone and Britain. From the Euro-Zone, investors are advised to follow the French Consumer Spending and German Ifo Business Climate figures that are set to be released at 6:45 and 8:00 GMT respectively. Britain is also set to release Retail Sales figures at 8.30 GMT. The results of these data releases are likely to set the pace for the EUR and Pound in today’s trading.

JPY – Yen Declines as the Japanese Economy Plummets

Japan sank deeper into recession in the 1st quarter since Toyota, Honda and Nissan, Japan’s three biggest automakers, slashed production last month. Japanese automakers have pared production as the global recession and rising unemployment sap demand for vehicles worldwide. Having reduced inventory, and with governments taking steps to revive demand, some carmakers, including Toyota and Nissan, are now planning to ease cuts.

As a result of negative economic news that came out of Japan yesterday, the JPY finished yesterday’s trading session lower against several of its major currency pairs. This was seen against the EUR, pushing the EUR/JPY pair to 128.55. Also, the Yen fell against the GBP, as the pair closed at 0.8960.
Looking to today, the Yen may continue its downward slide against its major currency pairs as Japanese investors seek short-term profits from the Japanese stock market.

OIL – Crude Oil Eyes $50 a Barrel

Crude Oil rose 1.6% yesterday as the Dollar dropped against its major currency pairs, bolstering the appeal of commodities. In addition, Oil’s gains came despite swelling U.S. crude inventories, which hit a fresh 19-year high last week. Prices rose around $1 to $49.70 per barrel, but have dropped from last week’s high of above $52 a barrel. The Energy Information Administration (EIA) stated that
Crude Oil supplies rose by 3.9 million barrels in the week ending April 17, marking the sixth weekly gain in a row.

Over the past four weeks, Americans consumed on average of 18.5 million barrels a day of petroleum products, a decline of 6.5% from the same period a year earlier, despite the dramatic plunge in Oil prices from peaks above $147 a barrel in July 2008. If demand of Crude continues to decline, then this will lead to continuing downward pressure on the price of Crude in the short-medium term.

Technical News

The price of this pair appears to be floating in the over-sold territory on the hourly chart’s RSI indicating an upward correction might be imminent. The upward direction on the 4-hour chart’s Momentum oscillator also supports this notion. Going long with tight stops might be the right choice today.
The typical range trading on the hourly chart continues. Both the hourly RSI and Slow Stochastic are floating in neutral territory. However, there is a fresh bearish cross forming on the 4 chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. In that case traders are advised to swing in after the breach takes place.
The pair has finally ceased range-trading and has recently moved downward; however, the price currently floats in the over-sold territory on the hourly and 4-hour chart’s RSI, signaling an upward correction may be imminent. Going long with tight stops might be the right choice today.
The bearish momentum the pair has shown since the breach of the channel on the daily chart continues. The 4-hour chart’s Slow Stochastic is showing the continuation of the trend, and the hourly studies also confirm the bearish notion. Going short might be the right choice today.

The Wild Card

It seems that the bullish momentum is still relevant, and that Silver is heading up with plenty of room to run. The Bullish correction which took place 4 days ago seems to have larger potential as all oscillators on the daily and the hourly charts are showing a continues upward momentum. forex traders have a great opportunity to join the bullish move at a very early stage and with a great entry price.

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