Dollar Under Downward Pressure as G8 Summit Takes Its Toll

U.S. Dollar came under much downward pressure on Thursday as the main developing countries led by China increased talk on replacing the USD as the global reserve currency. This helped the greenback plummet against its main currency pairs throughout Thursday’s trading. The Dollar also went bearish as traders returned to risk appetite, as U.S. Unemployment Claims rose less than expected; Britain kept here Interest Rates unchanged, and global equity markets rallied.

Economic News

USD – USD Falls on Sudden Return to Risk Appetite

Thursday’s trading session saw a reversal of the recent risk aversion sentiment that followed last week’s weak U.S employment data. The Dollar Index fell for the first time in six days, losing 1.1% to 79.85, as risk appetite revived and investors moved back into equities, riskier currencies and commodities. Yesterday, the Dollar fell sharply against the Pound, Yen, and EUR.

The market was little changed after the release of the U.S. jobless claims data, which showed claims for state unemployment benefits unexpectedly tumbled last week to their lowest level since January. With a relatively light week in terms of economic data releases investors turned primarily to the stock markets for direction.

Traders should follow the release of the U.S. Trade Balance at 12:30 GMT, as well as the Prelim UoM Consumer Sentiment and Treasury Secretary Timothy Geithner’s speech at 14:00 GMT. These news events are set to give insight to the health of the U.S economy. Worse than expected results may reverse yesterday’s trend and push investors back to risk aversion. It is also advisable for traders to follow the last day of the G8 Summit, as any more negative talk of the Dollar, could lead to another bearish day for the U.S. currency.

EUR – EUR Gains as European Equity Markets Rally

The EUR was at $1.3974 Thursday, up from $1.3894 in yesterday’s opening. The EUR also gained against the Yen to close at 129.90 Yen, up from 129.41 Yen. The Pound climbed as much as 1.9% to $1.6380 against the Dollar, the biggest intraday gain since June 9th.

With a revival in risk appetite Thursday, the Dollar retreated sharply against the EUR and the Pound. China’s intent to pursue its discussion about developing alternative reserve currencies to the Dollar put further pressure on the Dollar against the EUR. The Pound’s extensive rise came after the Bank of England voted to keep its Interest Rate unchanged at 0.5%, and made no change to the scope of its asset purchase program, despite market expectations of expansion.

However, the EUR has been facing difficulties maintaining its gains versus the Dollar in the past few weeks. Despite a light news day from Britain and the Euro-Zone today, traders should follow the French Industrial Production release at 6:45 GMT and the British PPI Input at 8:30 GMT. Better than expected results may intensify the recent return to risk appetite.

JPY – Yen Tumbles as Global Financial Crisis Eases

The Yen declined against most of its major currency counterparts Thursday, as concerns over the pace of the global economic recovery eased. The JPY traded at 92.93 per USD Thursday. The Yen finished trading at 129.90 from 129.41 per EUR, after declining 1.1% yesterday. However, it reached 127.02 on July 8, the strongest level since May 18.

The Yen weakened as traders returned to risk appetite, pushing the EUR and GBP higher. The Yen typically rises during times of financial trouble since Japan’s trade surplus reduces the nation’s reliance on overseas assets, which lends the currency its safe haven status. In light of the recent bounce in risk appetite, it appears that the Yen’s recent rise may have been exaggerated as there is no real data to support it. Therefore, the Yen’s losses are likely to continue throughout today as well.

Crude Oil – Crude Oil Holds Above $60 a Barrel

Crude Oil prices managed to climb hold above $60 a barrel after dropping to a 7 week low of $59.25. Oil prices were fairly stable yesterday, as the Dollar weakened against most major currency counterparts. This in turn spurred demand for commodities. Oil prices also received a boost after the release of the initial U.S. jobless claims report showing a drop in new jobless claims to the lowest level since January, and another report showed car sales in China surged.

It is expected global Oil consumption will fall in 2009. Thus hopes for recovery in demand are starting to shift to China, particularly its auto market, which according to reports rose 36% from last year. This puts the country on track to overtake the U.S. as the world’s biggest auto market this year. Nonetheless, with U.S. stockpiles of gasoline and distillate fuels continuing to climb, according to the Energy Information Administration and an expectation for China’s Oil demand to also fall this year, it is possible the drop in Oil prices has not yet reached its end.

Technical News

The EUR/USD pair has experienced much bearishness in the past week. However, it seems that this trend may be coming to an end, as the pair experienced a bullish correction yesterday. The daily chart’s Slow Stochastic and weekly chart’s RSI support this upward trend to continue. Going long with tight stops may turn out to be a good strategy today.
The cross has declined significantly in the past 2 weeks. Thursday’s trading did see a reversal to this trend. The pair now stands at the 1.6304 level, but the chart’s oscillators are showing mixed signals. The daily chart’s Slow Stochastic indicates that yesterday’s upward trend will continue. This is also supported by the chart’s weekly MACD. Entering this popular trend now may turn out to be a wise choice today.
The pair has been bearish for the past week. Yesterday saw this trend continue, but at a slightly slower pace. The chart’s oscillators are showing mixed signals. On one hand, the hourly chart’s RSI supports this bearishness to continue. On the other hand, the daily chart’s RSI and Stochastic Slow support a bullish reversal to possibly take place in today’s trading. Entering the pair when the signals are clearer may be a wise choice today.
The USD/CHF cross has been range trading between the 1.0750 and the 1.0950 levels in the past several days. However, the pair went through much bearish behavior yesterday. The daily chart’s Slow Stochastic signals this trend may continue today. However, the daily chart’s MACD signals that a bullish correction could occur anytime soon. When the upward breach occurs, going long with tight stops may turn out to pay off today.

The Wild Card

The price of Silver and other commodities has continued to slide in the past 2 weeks. However, a weaker Dollar has led to the price of this commodity stabilize in the past day. The chart’s 4-hour MACD and the daily chart’s Stochastic Slow indicate that the bearish trend may be coming to an end. Entering the commodity at an early stage may turn out to give forex traders great returns in the coming days.

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