U.S Unemployment Claims on Tap

The Dollar began a strong rally during yesterday’s session, which dropped the EUR/USD pair as low as the 1.3900 level. Today, The U.S Unemployment Claims appears to be capable of shifting the momentum into the opposite directions as analysts forecast negative figures.

Economic News

USD – Dollar Optimism High Following Fed Statements

The USD has begun a rather strong rally during yesterday’s early morning trading hours after the Federal Open Market Committee (FOMC) stated that it may not buy-up further Treasury securities. After climbing to as high as 1.4139 against the EUR the pair now sits near the 1.3950 price level, and seems to have leveled-off. Against the British Pound traders witnessed similar behavior to that of the EUR/USD with a steady climb towards 1.6600 followed by a steady decline back towards 1.6400.

This behavior was likely brought on by a low level of confidence going into the FOMC meeting yesterday which caused a sell-off for the USD. However, with an unexpected show of confidence in the future recovery of the US economy, and statements describing a slowing of the economic contraction, traders viewed the greenback as a solid investment for this turbulent period. As such, the value of the Dollar has been on the rise against almost all the major currencies.

On the other hand, today’s economic calendar is filled with events capable of shifting the momentum into the opposite direction. If the unemployment claims report shows that jobs are still being lost in substantial numbers, and if the Final GDP figures come out worse than expected, this market optimism could suffer a devastating setback. Federal Reserve Board Chairman Ben Bernanke is also due to testify on the acquisition of Merrill Lynch by Bank of America to Congress at 14:00 GMT which will no doubt cause a stir in the forex market directly after his opening statements.

EUR – Euro-Zone Weakens on Poor Data, EUR sees Mixed Results

The EUR began today’s trading session with mixed results against its major currency rivals. Losing ground to the greenback as the US Federal Open Market Committee (FOMC) announced it would not purchase additional Treasury securities, which aroused a surge in the value of the Dollar, the EUR/USD fell this morning towards 1.3950. Contrary to this, however, the EUR witnessed a sharp spike against the Swiss Franc as the Swiss National Bank (SNB) decided to de-value the CHF out of fear of deflation. The pair now trades above 1.5300, up from 1.5000 yesterday.

This week has proven to be a painful trading week for the European currencies as financial data has shown a deepening contraction of the economies in the region. European Central Bank (ECB) President Jean-Claude Trichet warned about budget deficits on Monday while the World Bank declared that the global economic contraction may be worse than conventional forecasts. Tuesday was fraught with a series of poor manufacturing and production reports from Germany and France, and yesterday’s Current Account report only validated Trichet’s earlier estimation that budget deficits were becoming a more looming problem.

From the above information comes a panel of valuations for the EUR which may appear confusing. Against other European currencies, the EUR was largely flat, except for the CHF which was intentionally de-valued. And against the JPY, the EUR has climbed, as the island currency loses strength across the board. Today’s trading will no doubt be dominated by the US Dollar considering its recent surge may come to an end if today’s data proves disappointing. If this is indeed the case, the EUR may find itself on the rebound. Whatever the outcome, today will be a great day for short-term traders as the volatility is certain to be intense.

JPY – Yen Pares Gains as Traders Turn Westward from Europe

After climbing towards important psychological barriers against a number of currencies, the JPY apparently failed to breach on all fronts and is now positioned to lose strength against all of its currency counterparts. Hitting the 95.00 price level against the USD, the pair has now entered an uptrend as the Yen loses out to the Dollar’s recent surge. Against the EUR and GBP traders can see very similar behavior to that of the USD/JPY with a strong uptrend for the JPY followed now by a small, corrective down-tick.

With little news affecting the island currency today, there is a chance that this turn of events was brought on by the relative safety of other assets. With confidence declining across Europe, but gaining strength in the US, measurements of risk aversion and risk appetite appear muted and confused. The aversion to risk throughout the Euro-Zone may have pushed investors into safe-havens, but the strength of the greenback pulled most investors westward to the States instead of Japan. With a number of important manufacturing and inflationary figures being released at the end of Thursday’s session, we may yet see a growth in volatility for the JPY. Traders stay tuned to your calendars today!

Crude Oil – USD’s Surge puts Rising Price of Oil on Hold

The price of Crude Oil was expecting further support yesterday as the USD was being sold off by most investors. The build-up towards the FOMC statement yesterday had many investors anticipating an increase to the purchase of US Treasury securities. When this was not forthcoming, a surge in confidence for the Dollar put Crude Oil’s rebound on hold. The price leveled off around $68.50 a barrel and appears to be standing firm.

The Organization of Petroleum Exporting Countries (OPEC) and the European Union (EU) have recently called for further regulation of the energy market to prevent another bubble from forming in the price of Crude Oil. While stating that recent oil prices are not yet a threat to global economic recovery, the fear of a speculation bubble still looms large in the minds of producers and consumers alike.

With crude inventories in the US shrinking more than anticipated, there is a chance that prices will continue to rise as demand climbs from market optimism and economic growth, and OPEC has even declared that a price range near $80 a barrel is preferable. These factors point to the notion that Crude Oil’s price may stumble across more support in the near future and continue to rise.

Technical News

After reaching the 1.4130 level, a technical correction took place today, and the pair is currently traded around the 1.3950 level. However, a bullish cross is taking place at the 4-hour chart’s Slow Stochastic, suggesting that a bullish movement could be initiated. Going long with tight stops might be the right strategy today.
The cable’s bullish momentum was halted as the pair reached a very strong support level at the 1.6590 level. Currently, a double doji formation seems to be taking place at the daily chart, indicating that a sharp move is expected. As all oscillators on the 4-hour chart are pointing up, it appears that the uptrend could be extended.
After the “M” formation on the daily chart was completed, the pair has resumed bullish activity and has breached the 96.00 level. It seems that the next strong resistant level is placed at the 97.20 level, which may give traders another opportunity to join the bullish trend.
The pair saw a remarkable jump yesterday, as it rose over 300 pips in 1 day! However a bearish cross on the 4-hour chart’s Slow Stochastic suggests that a bearish correction might take place today, which could take the pair towards the 1.0850 level.

The Wild Card

Gold has resumed its bullish trend this week and is currently traded for $935 per ounce. A very distinct bullish channel is formed on the 1-hour chart, and a bullish cross is taking place at the 4-hour chart’s MACD. It seems that this might be a great opportunity for forex traders to join a very popular trend.

Written by: Forexyard.com