Return to Risk Aversion over Negative U.S Data

The USD and JPY regained their status as safe-haven currencies after the release of worse than forecasted economic data from the Empire State Manufacturing Index and TIC Long-Term Purchases reports and a subsequent return to risk aversion. The two currencies gained against most of their major currency pairs amidst a volatile trading day. Today’s trading is expected to be volatile as well with major news releases from the U.S and Euro-Zone including the U.S Building Permits and the PPI releases at 12:30 GMT, the German ZEW Economic Sentiment at 9:00 GMT and Britain’s CPI at 8:30 GMT.

Economic News

USD – Empire State Manufacturing Index Release Boosts Dollar

The Dollar was boosted yesterday by the publication of the Empire State Manufacturing Index and TIC Long-Term Purchases. The results were worse-than-forecasted, helping the Dollar climb against virtually all of its major currency pairs in yesterday’s trading, as the USD’s safe-haven status returned to the forefront. The Dollar was also boosted by a number of other factors, such as Russian Finance Minister Alexei Kudrin stating that the USD will be the world’s reserve currency for some time. The poor economic figures from the U.S. also led to a tumbling U.S. and global stock market, further favoring the USD.

The USD rose by over 150 pips vs. the EUR to close at the 1.3793 level. This came about as the European Central Bank (ECB) warned that banks in the Euro-Zone may face up to $300 billion of further losses by the end of 2010. The USD rose about 80 pips against the GBP yesterday to close at 1.6275. This was considerably moderate as Britain is on her way to quicker-than-expected economic recovery. Against the JPY, the Dollar actually fell 130 pips to 96.99. This dramatic movement is owed to the Yen returning as the number 1 safe-haven currency amidst Monday’s market volatility.

Looking ahead to today, the market is likely to be volatile, as it still continues to move on yesterday’s economic news. As the U.S. market opens, several important publications will be released simultaneously at 12:30 GMT. The most important of these being the publication of Building Permits and the PPI (Producer Price Index) releases. Forex traders are advised to follow information surrounding President Obama’s economic recovery plan, as this tends to help increase market volatility. Therefore, directly impacting the Dollar and its major currency crosses.

EUR – European Central Bank Warning Hits the EUR

Shock waves hit the global markets yesterday as the European Central Bank (ECB) revealed that it expects losses of Euro-Zone banks to reach $283 billion by the end of next year. This was one of the main factors that led to a bearish EUR throughout yesterday’s trading. Additionally, weak U.S. data led traders to ditch the EUR for the safe-haven USD. Additionally, German Chancellor Angela Merkel received criticism yesterday due to Germany’s tight fiscal policy. Opponents in Germany point out that she should be more flexible, and follow her British and American counterparts.

The EUR plummeted by over 150 pips vs. the USD to close at 1.3793. The news from the U.S. also helped global stock markets plummet, further helping push down the EUR/USD exchange rate. The EUR/GBP rate finished lower on Monday by 30 pips at the 0.8487 level. This marks further bearishness in the pair as the British economy has faired far better than the troublesome Euro-Zone economy in recent months. Against the JPY, the EUR tumbled a massive 350 pips to close at 133.85. This comes about as the economic uncertainty led the JPY’s safe-haven status to become dominant again.

Today, there are plenty of economic data releases that are likely to greatly affect EUR trading. Amongst these are the German ZEW Economic Sentiment at 9:00 GMT, and the publication of Britain’s CPI (Consumer Price Index) at 8:30 GMT. It is also advisable to follow statements coming out of the European Central Bank throughout the day. In addition, it is advisable to pay attention to the economic news from the US., as the EUR/USD rate will be greatly affected upon the release of this data.

JPY – JPY Safe-Haven Status Returns to the Forefront

The JPY climbed against its major currency pairs yesterday, as its safe-haven status returned to the forefront. This was in response to the release of worse-than-forecast U.S. Empire State Manufacturing Index results, and Japanese and global stock markets falling yesterday. Thus risks for the financial system led to a cut in risk appetite, resulting in traders selling-off stocks, commodities, and bonds, and buying-up safe-haven currencies, such as the JPY and USD.

The JPY climbed against the Dollar by about 130 pips to close at 96.99. The JPY rose to a 2-week high against the EUR, to finish higher by a massive 350 pips at the 133.85 level. The GBP/JPY rate fell by nearly 400 pips, marking a correction to the pairs several week bullish run. The Yen’s behavior yesterday reminds investors that you can never underestimate the Yen. The JPY is set to move today on the release of data from the U.S. and Europe.

Crude Oil – Crude Oil Slumps on Release of Poor U.S. Data

The price of Crude Oil slumped by over 50 cents a barrel yesterday, to finish trading at $70.78 a barrel. This was due to several important factors, initiated by the release of poor U.S. economic data upon the opening of the U.S. market. As a result, the U.S. and global stock markets tumbled dramatically, leading to the sell-off of commodities such as Crude. The black gold was unable to recover thereafter.

In today’s trading, all eyes will be looking to economic events coming out of the US. and Europe. However, the release of U.S. data is likely to have a higher impact on Crude Oil. It’s a wise choice for traders to start opening-up their positions in Crude Oil prior to market volatility kicking-in as the trading day kicks in.

Technical News

After yesterday’s downward movement, the price of this pair appears to be floating in the over-sold territory on the RSI of the 4-hour chart, signaling that there is still room for an upward correction. The recent bullish cross on the 4-hour chart’s Slow Stochastic supports this notion. Going long to ride out the remainder of the bullish correction may be a wise choice today.
The price of this pair has been range-trading within a bearish channel since last week and has yet to create a significant breach. Yesterday’s upward movement has put the price near the upper border of its current channel, however. If the price succeeds in breaching through, forex traders may see a strong bullish movement. If it fails to breach, the movement will correct downwards within its current channel. Traders may want to wait to see if the breach occurs before setting positions today.
This pair has seen a drastic downward movement over the last 24 hours which has pushed the price into the over-sold territory on the RSI of the hourly and 4-hour charts and generated bullish crosses on the Slow Stochastic on these charts as well. However, the price has just broken through a significant support level and the next target level is near 95.45. Going short with tight stops might be preferable today.
After forming a clear double-top, or M formation on the hourly chart, this pair is responding typically by dropping in price directly afterwards. The downward movement appears to have room to run considering there is a fresh bearish cross on the 4-hour chart’s Slow Stochastic and the price currently floats in the over-bought territory on the RSI as well. Going short may be a wise choice today.

The Wild Card

There appears to be a volatile breach of the upper border on the 4-hour chart’s Bollinger Bands, signaling downward pressure. The price also sits in the over-bought territory on the 4-hour chart’s RSI. With a fresh bearish cross on the 4-hour chart’s Slow Stochastic, the downward movement appears to be confirmed. Forex traders can profit from this predictable downward movement by entering short positions early, and at a great entry price.

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