USD-Negative Market Reversal Due this Week?

Many forex traders witnessing the strong bearish trends across the USD pairs and crosses have been wondering when it will come to an end. As last week’s U.S. housing market data and unemployment figures proved worse than forecast, mixed with a boom in confidence for Euro-Zone economies such as Germany, the USD went negative. However, this week’s data forecasts could create the rumblings of a reversal for the greenback. This exciting volatility is where money is made in the forex world; don’t miss out!

Economic News

USD – Dollar Drops on Poor Data

The American Dollar saw an extremely bearish session during last week’s trading as it dropped in value against all the major currencies. The EUR/USD actually rose to the 1.4000 level for the first time in 5 months!

It appears that two main economic indicators have initiated the USD’s downfall on all fronts throughout last week. For starters, the U.S Building Permits report revealed that hopes for an improvement in the U.S housing sector are currently unrealistic, as only 490,000 new residential building permits were issued during April. Many analysts have assumed that the first significant step in pulling out of the recession will be shown from the housing sector. The reason is very simple, it was the mortgages crisis that caused this gloomy economic condition, and a real improvement in the housing sector would have shown that both investors and the major banks have regained confidence in American real-estate, which should be a sign for all others that the economy is recuperating.

In addition, on Thursday, the weekly Unemployment Claims showed that 631,000 individuals have filed for unemployment insurance for the first time, making it the 16th week in a row on which over 600K people have done so. The combination of these two publications had a very clear effect on the Dollar, and its drop in value was only a matter of time.

As for the week ahead, a bundle of data is expected from the U.S economy, and traders should take notice of all of the major indicators. The Consumer Confidence report is expected on Tuesday, and analysts predict that the best result in six months may be published. This has the potential effect of reversing trends in the forex market, as it will show that people are regaining their confidence in the US economy, and in their government to improve the situation in the near future. The New Home Sales on Thursday will probably steal all of the attention on a busy news day, as the housing sector seems to have the biggest impact on the USD for the moment.

EUR – The EUR Soars amid Positive German Data

Last week the EUR saw bullish trends against most of its major currency counterparts, as its most significant appreciation was against the USD. The EUR/USD rose to over 1.4000, marking a 5-month record.

Last week’s trading was highly impacted by the positive signals from the German economy. Germany is the biggest and strongest economy in the Euro-Zone, and thus has the most influence on the region’s currency. On Tuesday, the German ZEW Economic Sentiment report was published with an amazing 31.1 mark. The Economic Sentiment is a diffusion index based on surveyed institutional investors and analysts. The 31.1 figure was the most positive figure seen since June 2007. What was so incredible about this result was that it followed a series of negative publications and was really “out of the blue.” This had an immediate reaction on the EUR and a strong bullish trend, especially against the USD, took place. Later on last week, the German Manufacturing Purchasing Managers’ Indices were release, both with better than expected figures, further strengthening the EUR.

Looking ahead to this week, the most important data expected from the Euro-Zone will be published later on today, at 08:00 GMT. The German Ifo Business Climate, which is derived from about 7,000 businessman who are asked to rate the level of current business conditions, has proven before to have a significant impact over the EUR, especially when analysts forecast that the positive signs from Germany will continue with a 85.1 figure. If the real result will be similar, another bullish trend might take place for the EUR, and the EUR/USD may hit as high as 1.4200 this week.

JPY – JPY Provides Mixed Results against the Majors

The Yen saw mixed results during last week’s trading. While rising sharply against the USD, the JPY dropped against the EUR and underwent a volatile session against the GBP.

It seems that the negative results coming from the Japanese economy are the main reason for the Yen’s volatile behavior. Last week it was released that the Japanese Preliminary Gross Domestic Product (GDP) had dropped by 4.0% in March, making it 4 consecutive months on which the value of all goods and services produced by the Japanese economy dropped. The Tertiary Industry Activity, which measures the change in the total value of services purchased by businessman, has also decreased by 4.0% in March. In addition, the Bank of Japan (BoJ) has decided to leave Interest Rates at 0.10% as it cannot drop it farther and is unwilling to raise it at the moment. On normal conditions, all this should have led to a significant drop for the JPY against every major currency; however, the bearishness of the Dollar was the leading force in the forex market last week, and thus even the weak Yen rose against the USD.

As for the week ahead, a batch of data is expected from the Japanese economy. The Trade Balance scheduled for Tuesday will be one of the most impacting publications as the Japanese economy relies greatly on its exports, and this report is one of the best ways to estimate this nation’s economic condition. Traders should also consider the Retails Sales and the Household Spending indicators which could possibly dictate the Yen’s movements later this week.

Crude Oil – $60 a Barrel Might Be a Solid Price for Crude Oil

Last week was a relatively calm week for Crude Oil. A barrel of oil was traded within the $59 to $62 price range, and wasn’t too affected from the large fluctuations of the leading currencies.

Recent Notifications suggest that the Organization of Petroleum Exporting Countries (OPEC) desires to see Crude Oil reaching $70 a barrel; however, it is currently reluctant to cut supplies as demand for oil still hasn’t shown real signs of recovery from the current world-wide economic crisis. In spite of OPEC’s will, it appears that investors are pretty cautious on putting their faith in Crude Oil. Even in a week like the last one, on which the Dollar dropped on all fronts, Crude Oil barely rose by $2 a barrel. This could be interpreted as a clear sign of investors that for now the price around $60 a barrel correctly reflects the market value.

Technical News

The Bollinger Bands on the hourly chart for this pair appear to be tightening in expectation of a volatile price movement. With a recent bearish cross on the 4-hour chart’s Slow Stochastic, and a brand new bearish cross on the daily chart’s, this pair may be due for a strong downward correction. With the RSI of the 4-hour chart floating in the over-bought territory, going short may indeed be a wise choice today.
There appears to be a fresh bearish cross on the daily chart’s Slow Stochastic, signaling a bearish correction may take place this week. As the price floats in the over-bought territory on the daily chart’s RSI, and the 4-hour chart’s Slow Stochastic shows fresh bearish crosses, going short with tight stops throughout the day may be a solid move.
The technical oscillators on this pair primarily indicate neutrality as a clear direction is refusing to reveal itself. However, the price does appear to be floating near the over-sold territory on the daily chart’s RSI. Longer-term pressure may be upward and going long with tight stops may therefore be a good decision.
The price of this pair is apparently floating in the over-sold territory on the 4-hour chart’s RSI, signaling upward pressure. With a fresh bullish cross on the daily chart supporting this notion, going long may indeed be a wise choice today.

The Wild Card

There appears to be a “head-and-shoulders” formation taking shape on the hourly chart. With the price in the over-bought territory on the 4-hour and daily charts’ RSI, and a fresh bearish cross on the daily chart’s Slow Stochastic, the subsequent movement once the “head-and-shoulders” is completes will likely be a volatile downward correction to the recent upward movement. Forex traders should try not to miss out on this impending move and join the new trend at an early stage!

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