Dollar Rebounds on Stronger than Expected Manufacturing Data

The U.S dollar rose on Monday, spurred by strong U.S. and Chinese manufacturing data, as investors awaited mid-term U.S. congressional elections and more monetary easing from the Federal Reserve in the days ahead.

Economic News

USD – Dollar Rises on Positive Manufacturing Data

The U.S dollar rose against most of its major currency pairs on Monday after stronger-than-expected U.S. manufacturing data, though gains were fleeting as markets braced for more monetary easing from the Federal Reserve this week. By yesterday’s close, the USD rose against the EUR, pushing the oft-traded currency pair to 1.3895. The dollar experienced similar behavior against the CHF and closed at 0.9910.

The Fed is likely to announce on Wednesday a fresh round of quantitative easing under which the U.S. central bank would buy bonds and essentially flood the economy with dollars in an attempt to revitalize it. That should push Treasury yields lower and diminish the allure of some U.S. assets, forcing investors to seek higher returns elsewhere.

The dollar has lost 7.5% against major currencies since September in anticipation of Fed easing. Most economists expect the Fed to buy $80 billion to $100 billion in assets per month, with total purchases seen at anywhere from $250 billion to $2 trillion.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.

EUR – EUR Falls To Session Low vs. Dollar

The EUR fell to a session low against the dollar on Monday after the dollar strengthened on earlier data showing business activity in the U.S. manufacturing sector came in stronger than expected in October. After yesterday, the 16 nation currency fell sharply against the USD, pushing the oft-traded currency pair to 1.3895.The EUR also saw bearishness against the JPY and closed at 111.90.

The EUR surrendered gains against the U.S. dollar on Monday, falling to session lows, as riskier assets such as U.S. stocks pared gains. Analysts also said investors felt uncomfortable pushing the EUR higher given the huge amount of bearish trades on the dollar, which suggests a near-term recovery in the U.S. currency is on the horizon.

There will be only one data release from Euro-zone today as the Manufacturing PMI will be announced during early trading. This indicator tends to have a relatively small impact on the market. A rising trend will have a positive effect on the nation’s currency. In addition, traders should pay close attention to the response of equity market to determine how to continue with EUR positions. Investors should pay close attention to the news and place their transaction accordingly with the developments throughout the day.

JPY – Yen Gains against Most Major Currency Counterparts

The Japanese Yen experienced a bullish trading session yesterday, as it appreciated against most of its major currency pairs. The Yen extended gains versus the EUR on Monday, to trade at about 111.90 amid a broad sell-off in the EUR. The JPY also saw bullishness against the GBP and closed at 129.20.

The JPY’s trends will be affected by the rallies of its primary currency pairs today. It seems that the USD and EUR are expected to continue a volatile trading session today, especially against the Japanese currency. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY’s movement today. It is also advisable for traders to follow any unexpected comments coming from key Japanese governmental figures, as this is also likely to lead to further JPY volatility.

Crude Oil – Crude Oil Rises above $83 a Barrel

Crude oil prices ended nearly 2% higher on Monday, boosted by comments from the Saudi Arabian oil minister that an oil price between $70 and $90 a barrel was comfortable for consumers.

Countries in the OPEC oil-producing cartel, including Saudi Arabia, Nigeria, Venezuela and Iran, have the power to restrict output and push up prices or rein in prices by producing more.

In addition, Oil has risen in recent months on the weak US dollar, as investors turn to the commodity as an alternative asset.

As for today, traders are advised to watch carefully after the leading stock markets and the major economic indicators which will be published from the U.S, Britain and Euro-Zone in order to predict the next movements in oil prices.

Technical News

The EUR/USD has gone increasingly bearish yesterday, and currently stands at the 1.3895 level. The weekly chart’s Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart’s 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.
The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the daily chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short with tight stops may turn out to be the right choice today.
The price of this pair appears to be floating in the over-sold territory on the weekly chart’s RSI indicating an upward correction may be imminent. The upward direction on the daily chart’s Slow Stochastic also supports this notion. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The pair has recorded much bullish behavior yesterday. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s RSI signals that a bearish reversal is imminent. Going short with tight stops might be a wise choice.

The Wild Card

This pair’s sustained upward movement has finally pushed its price into the over-bought territory on the 8-hour chart’s RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

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