Dollar Soars as its Global Reserve Currency Status Returns to the Forefront

The U.S Dollar gained about 1% versus the EUR and Canadian and New Zealand currencies Thursday after the U.S. government reported more job losses than expected, renewing concerns about the economy and enhancing the greenback’s safe-haven appeal. U.S. employers cut 467,000 jobs in June, far more than expected, while the Unemployment Rate rose to 9.5%, the government said in the report. The Dollar also benefited from a Chinese Foreign Ministry official’s comments, which dampened speculation about diversification of currency reserves.

It is important to take into account that yesterday’s data raised the risk aversion of investors, which also helped push the Yen higher vs. the USD. The Dollar finished trading at 95.95 Yen, from 96.60 Yen on Thursday. However, this week, the Dollar has advanced over 0.5% against the Yen.

The greenback faces some risks though. Analysts said that the weak U.S jobs report reinforced a trend already in place in the forex market prior to the release that the Dollar was oversold. Traders are still favoring foreign currencies over the U.S Dollar, and the sentiment remains to sell the USD in the short-medium term. With a light U.S. economic calendar today, currency investors may focus instead on the USD’s detriment, such as U.S. fiscal deficit and inflation.

EUR – EUR Tumbles on Interest Rate Decision

The common European currency weakened against the U.S Dollar and Yen yesterday after the European Central Bank (ECB) kept its benchmark Interest Rate unchanged at 1% as expected. The ECB also stuck with the amount of covered bond purchases in its plan. The EUR declined amid speculation that ECB policy makers will say today that they don’t see a need for additional measures to revive the Euro-Zone economy.

Analysts said that demand for the EUR fell after European Central Bank President Jean-Claude Trichet stated that Euro-Zone activity would likely remain weak for the rest of the year, and recovery may not start until the middle of 2010. The EUR traded at $1.3980, from $1.4115 yesterday. Against the Yen, the EUR declined to 134.15 Yen, from 136.53 Yen. The Europe’s 16-nation currency may drop to the lowest level in more than 2 months against the Dollar in the coming week, as risk aversion increased after a report showed that U.S. employers cut more jobs than forecast in June.

JPY – Yen Benefits from Safe-haven Status

The Japanese Yen advanced against all 16 major currencies on Thursday after a U.S. government report showed employers cut more jobs last month than economists forecast. This prompted investors to sell higher- yielding assets. The Yen rose for a second day against the EUR as Asian stocks fell on concern that the global recession will be prolonged, spurring demand for the safe-haven JPY.

The Yen advanced to 134.21 per EUR from 136.33 yesterday in New York. Against the Dollar the Japanese Yen rose to 95.95 Yen from 96.60 Yen. The Japanese currency typically strengthens in times of financial turmoil, as Japan’s trade surplus makes the currency attractive due to the nation not having to rely on overseas lenders. Additionally, the Dollar is bought as it is the world’s main reserve currency.

Crude Oil – Crude Hits 1 Month Low on Rising U.S. Unemployment

Crude Oil prices tumbled about 4% Thursday, reaching its lowest level in a month. Crude also recorded its 3rd weekly loss in a row, as a disappointing jobs report rekindled concerns over U.S economic recovery. Also weighing on Crude prices was the USD’s strength against most of its crosses. Furthermore, the oversupply of Oil in the market helped weaken Oil prices, and if the situation continues, OPEC is unlikely to increase output in the group’s next meeting on September 9th.

Analysts stated that the disappointing U.S jobs numbers raised concern about the strength and timing of a U.S. and global economic recovery. The report confirmed what we saw earlier in the week with the lower U.S. Consumer Confidence figures. In turn, this reinforced the outlook for weak Crude Oil demand, and will continue the downward pressure on Crude prices into next week’s trading.

Technical News

The EUR/USD pair plummeted yesterday to as low as the 1.3927 level. According to the chart’s 4-hour Stochastic Slow, the pair seems to be oversold, and an upward movement today seems to be imminent However, the chart’s daily Stochastic Slow and 4-hour MACD support the downward trend to continue today. Going short with tight stops could be the opportunity to make big profits today.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the hourly chart’s MACD. Going long with tight stops may turn out to pay off today.
The USD/JPY has gone increasingly bearish in the past 2 days, and currently stands at the 95.86 level. The daily chart’s oscillators seem to be misleading when it comes to this pair. If we look further, the weekly chart’s RSI supports this currency cross to fall further today. However, the chart’s 4-hour Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.
This pair has been range trading for the past 3 days between the 1.0700 and the 1.0910 levels. The chart’s hourly MACD indicates that USD/CHF seems to be running out of steam, and that today’s trading will witness a bearish reversal. This is also supported by the chart’s 4-hour Stochastic Slow. Going short with tight stops may turn out to be the wise strategy, as today’s trading day gets under way.

The Wild Card

Silver has seen a dismal week, dropping more than 50 pips, as the commodity now stands at the 13.45 level. However, the daily chart’s oscillators support an impending bullish reversal today. This is also supported by the chart’s 4-hour and weekly Stochastic Slow. Going long with tight stops may turn out to be a good strategy today, as forex traders seek to make some end-of-week profits.

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