European Woes Continue, Dollar Rises

US Dollar strength continues into the new week of trading as events surrounding Ireland and Greece push FX traders into safe-haven positions on the greenback.

Forex Market Trends

Daily Trend down down down up down no
Weekly Trend down down up up no down
Resistance 1.3740 1.6145 84.00 0.9965 0.9945 0.8555
1.3685 1.6105 83.55 0.9915 0.9905 0.8525
1.3650 1.6075 83.25 0.9875 0.9875 0.8500
Support 1.3570 1.6015 82.60 0.9810 0.9810 0.8450
1.3530 1.5975 82.15 0.9775 0.9770 0.8410
1.3500 1.5935 81.85 0.9740 0.9725 0.8375

Economic News

USD – Strong Data Helps Dollar

The dollar was supported not only by resurgence of the European fiscal crisis but also due to the release of better than expected US retail sales data yesterday. Traders were seen posting strong bids for the dollar following the retail sales reports. The report posted an increase from October of 1.2% on expectations of a rise of only 0.7%. This is the fourth consecutive rise in the report and the largest gain since March.

The September numbers were also revised upward to 0.7% from a previous 0.6%. Leading the data in the retail sales reports were strong auto sales and parts along with a rise in building materials.

At the close of the trading day, the EUR/USD was trading lower at 1.3586, down from an opening day price of 1.3690. The GBP/USD was lower on the day at 1.6050, after opening the day at 1.6112. The USD/JPY was trading higher at 83.10, following an opening price of 82.52.

Today traders will be eyeing more economic data from the US. The most important releases on the day will be US PPI and TIC Long-Term Purchases. This inflationary data is too early to show the effects of the Fed’s second round of quantitative easing, but should go a long way to give both economists and traders a basis for judging future inflation expectations. The TIC report may also show recent inflows of US asset purchases.

Support and resistance for the EUR/USD come in at 1.3500, the 50% Fibonacci retracement from the September to November move, along with yesterday’s high of 1.3750.

EUR – European Fiscal Crisis Returns

Tensions are rising in the European Union (EU) as Greece and Ireland continue to struggle with their debt loads. Yesterday, Greek Prime Minister George Papandreou struck out at Germany’s stance that private investors should suffer the consequences of a future bailout of Greece. The Greek Prime Minister is of the view that this would create a situation of higher interest rates for those nations that are already cash strapped resulting in an unnecessary burden on those states.

The Prime Minister’s statements reflect two different positions in Europe over how a default by an EU member nation should be handled; should the EU use taxpayer euros to bail out other member states that cannot finance their debt’s, or should private investors bear the burden of a haircut on the bonds they hold, or at worse a flat out default?

The euro continues to weaken on the backdrop of EU fiscal troubles and is trading lower versus the dollar, and also against most of the other majors. The EUR/GBP is down at 0.8460, down from an opening day price of 0.8489. The EUR/CHF is lower at 1.3370 after trading as high as 1.3468. The EUR/JPY is also down at 112.89, following an opening day price of 112.97.

Significant economic data will be released today with the German ZEW economic sentiment. The report is expected to come in at -5.9. However, estimates could be on the low side and a worse than expected report may lead to further losses in the euro.

JPY – Q3 GDP Comes in Above Expectations

Yesterday the Japanese received some surprising economic news; Q3 GDP rose 0.9% while the market had only expected growth of 0.7%. The major driver of growth was consumer spending. However, the positives may mask other difficulties as net exports did not contribute to the overall calculation. Also many of the consumer goods that were purchased have government subsidies attached to them, helping to ease the burden on consumers.

For the past week the yen has experienced a bit of respite as the dollar gained ground against a basket of currencies. This has allowed for the USD/JPY to rise to a level not seen since early October.

Yesterday the USD/JPY ended trading at 83.00 up from an opening day price of 82.52.

Traders will want to follow the major data releases from the US and Europe for direction of the Japanese pairs. The next target for the USD/JPY may be the pre-intervention high at 85.90.

Crude Oil – Crude Oil Falls from 2-Year High

Spot crude oil prices were quiet today, trading in a tight range and finishing the day relatively unchanged. The commodity was unable to make a move in either direction as conflicting economic reports held spot crude oil prices in check.

The price of oil finished the day at $84.80, up from an opening day price of $84.61. Prices are off of last week’s high when the price of spot crude oil climbed to its highest level in two years.

Earlier in the trading day, the US released positive retail sales numbers that had traders putting in solid bids for crude oil. However, traders were dissuaded from placing too large of positions with the release of a worse than expected Empire State Manufacturing Index.

Today traders will be looking to the TIC Long-Term Purchases report along with the German ZEW Economic Sentiment report for direction. Wednesday will bring the release of the weekly US crude oil inventories report.

Support and resistance levels for spot crude oil come in at $80.40 and the high from November 11th at $88.62.

Technical News

A falling momentum oscillator on the weekly chart points to further weakness in the pair. Traders may want to target the rising trend line from the June and September lows. Short term support may come in at 1.3500, the 50% Fibonacci retracement from the September to November move.
The pair is finding support at the rising trend line from June 8th and the September low as well as the 20-day simple moving average. Traders should be long with a target at the swing high of 1.6300
A bullish trend is developing on the daily chart and momentum is increasing now that the pair has closed above the pivot from mid-September. The next short term target may be the 100-day simple moving average at 83.85, followed by the pre-intervention high at 85.90.
A nice bullish uptrend has developed with 8 consecutive days of gains for the pair and a close above the 50-day simple moving average. A rising momentum oscillator hints at further gains in the pair. The next target rests at the November high of 0.9970.

The Wild Card

Crude Oil
Spot crude oil looks to have found support from the 20-day simple moving average. Forex traders can use this to their advantage by going long with a target on the swing high on the daily chart at $88.60 and a stop below the moving average line.

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