Dollar Falls as Investors Turn to Riskier Assets

The rally in global stock markets has led to a sell-off of the safe haven currencies and pushed investors to higher riskier assets as many see the global recession coming to an end. The encouraging global economic data has also been helping push Crude Oil to the $69 price level.

Economic News

USD – USD Depreciates, Consumer Confidence Growing

The steady improvement to risk appetite over the previous week has helped push the EUR/USD above 1.4200 at the start of this week’s trading. While the greenback has been trading relatively flat versus the other major currencies, it is nonetheless accelerating towards intense volatility at the start of this week. The rally in global stock markets has helped convince investors to pull away from the safety of the dollar in exchange for riskier assets. In the forex market, this means a diversification towards the EUR, CAD and even AUD.

A sudden surge in the Asian stock markets at the end of last week has helped reduce demand for safe-havens like the USD and JPY, but their attraction has remained steady enough to prevent vast drops in value. Confidence may be climbing the world over, but investors may not yet be brave enough to jump whole heartedly back into riskier investments. A demand for safe-havens remains despite the boost in optimism.

Looking ahead this week, we’ll complete another part of the picture for the US housing market with the New Home Sales report expected later today at 14:00 GMT. A more intricate look into American optimism will be delivered on Tuesday with the CB Consumer Confidence report, and week’s end will provide traders with a look into the first portion of this year’s second quarter GDP, which tends to have the most impact of the 3 reports released on this figure. These reports will no doubt put the USD at center-stage for the duration of the trading week and investors would be unwise to skip over this week’s news events surrounding the US economy.

EUR – EUR Strengthens as GBP Sinks; Risk Appetite Climbing

The spectacular results from last week’s PMI and German Ifo Business Climate report helped push the EUR higher against most of its currency pairs. However, the British Pound suffered heavy losses at the end of last week’s trading due to worse-than-forecasted GDP results. Climbing back above the 1.42 level against the USD, and even spiking upwards of 0.8650 against the Pound Sterling, the EUR’s gains were unmatched last week.

Precisely opposed to the value of the EUR, as pertaining to risk appetite, the Euro-Zone currency indeed strengthened due to the perception that its regional economy is stabilizing. This belief has helped stoke the notion that recovery is on the way by the end of this year. The subsequent return to riskier assets helps devalue safe-havens such as the Dollar, while pushing more diverse currencies, such as the EUR, higher against the other currencies.

No doubt the devaluation of the Pound also led to a boost in the value of the EUR by the sheer weight of regional competition. As the wave of risk appetite took hold last week, the GBP may not have offered investors the necessary level of security, which also helped boost the gains made by the EUR.

While economic releases from the Euro-Zone led the market last week, and also helped revive demand for the EUR, this week’s trading will see no such thing. The EUR is surprisingly absent from this week’s calendar as the US economy takes the wheel. If US data can encourage the recent return to risk appetite, then the EUR’s rally may continue this week.

JPY – JPY Anticipating European Market Opening

The recent rise in risk appetite has helped the mild return of the Yen-denominated carry trade. With the JPY climbing modestly against most pairs, the gains seem to be muted as investors weigh the JPY as a safe-haven or carry-trade, and the balancing act has led to a series of consolidation trends in the JPY crosses.

It appears the Japanese Yen has leveled-off versus almost all of the major currencies in anticipation of a rather large impending movement. If the rally in Asian stocks continues from last week, investors may see the JPY lose value as the carry-trade returns with full force. For the time being, it appears as if traders the opening of the European markets to weigh in on positions placed at the end of last week. If expectations are correct, forex market participants could see a sharp drop in the value of the Yen in today’s early trading hours.

Crude Oil – Oil Reaching $70 as Market Optimism Surges

As the US Dollar has declined over the last few trading days, the value of a barrel of Crude Oil has been appreciating. The steady climb back towards $70 a barrel has helped boost the GDP of many oil-producing Arab countries. The downside is the ever-present and growing connection between Middle Eastern economic growth and fluctuations in the price of oil, which has wrought havoc on these countries over the past few months despite efforts to diversify investment and industry.

Market optimism has helped return many investors away from the USD and into riskier assets. This helps boost the demand for commodities as a method of portfolio diversification. While the current price range of Crude Oil may not be justified by recent supply and demand levels, it nevertheless reflects the value derived by speculation of future growth. The surge in market optimism helps bring about the purchase of Crude Oil as investors anticipate industry growth world-wide. If this week’s news events continue to boost this optimism, Crude Oil may easily climb above $70 in the days ahead.

Technical News

The price of this pair appears to be floating in the over-bought territory on the daily chart’s RSI indicating a downward correction may be imminent. The downward direction on the hourly chart Slow Stochastic also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The 4-hour chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the hourly chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.
The typical range trading on the hourly chart continues. The 4-hour chart Slow Stochastic is floating in neutral territory. However, the daily chart’s RSI is already floating in the overbought territory, suggesting a downward correction may be imminent. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

The Wild Card

Crude Oil
Oil prices rose significantly in the last week and peaked at $68.80 per barrel. However, daily charts’ RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

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