Dollar Edges Up Against EUR, Crude Falls with Stocks

The Dollar took a break from its bullish run versus the EUR yesterday, but the long term trend could continue today. Driving yesterday’s reversal were losses in U.S. equities and stronger manufacturing data from the U.S. Today’s trading will be highlighted by key data releases from Europe and Britain, perhaps returning the EUR/USD to its bullish streak.

Economic News

USD – USD Profits as Stocks Sell Off

The U.S. Dollar held small gains late Thursday as pessimism about the strength of the economic outlook put selling pressure on stocks and higher-yielding currencies. The currency had been lower earlier with stocks rising after the Federal Reserve Bank of Philadelphia’s index on manufacturing jumped far more than forecast this month.

The U.S Dollar also traded higher against the Yen at 91.21, up from 90.84 yen Wednesday. The Dollar sank to a seven-month low against the Japanese currency on Wednesday. The Dollar’s slide against the yen picked up pace after Japan’s Finance Minister Hirohisa Fujii said a strong yen had advantages for the nation’s economy.

The Dollar has been on the ropes in recent weeks, with the Dollar index losing 2.41% this month. Pressure has been tied in part to rising risk appetite, which has seen investors shun the greenback’s safe-haven status in favor of equities and other assets.

Still analysts expect the U.S Dollar to resume its more traditional relationship with economic data, rising with positive economic news and falling when the outlook for the U.S. turns gloomier.

EUR – Euro Hit 1-year Peak vs. the U.S Dollar

The European currency held onto gains to hover near a 1-year highs against the U.S. Dollar on Friday, as equities and commodities advanced on expectations of economic recovery, putting pressure on the greenback. It advanced a 3rd day to $1.4716 and yesterday reached $1.4737, the strongest level since last September. The EUR has gained more than 2.5% this month, riding improved investor confidence and expectations that U.S. rates are likely to stay at rock bottom for some time.

The EUR also traded near a 4 month high versus the Pound before a German report today that may show the pace of decline in producer prices slowed, providing more evidence the 16-nation region’s economy is emerging from the recession. The pound traded near its lowest since May as a report yesterday showed the jobless rate in the U.K. rose to the highest since 1995.

The 16-nation currency rose above 98 pence for the first time on Dec. 30. It advanced a third day to $1.4716 and yesterday reached $1.4737, the strongest level since Sept. 25, 2008. The Sterling is likely to weaken in the coming months as the government needs to rein in spending and its central bank is likely to retain an expansionary monetary policy, analysts said.

JPY – Yen Gains after BOJ’s Shirakawa Comments

The Japanese yen had gained after Japan’s new finance minister said currencies were not moving rapidly and that he opposed currency intervention as long as market moves were moderate. The Yen rose to the day’s high against the Dollar pushing the U.S. currency down more than 0.2% on the day to around 90.60 yen. The pair traded around 90.90 yen before the comments.

The yen also got a boost after Bank of Japan (BOJ) Governor Masaaki Shirakawa said a stronger yen would push down prices in the near term but might support the economy in the longer run. The Japanese currency jumped versus the EUR, which trimmed earlier gains and slid to the day’s trough of 133.54 yen, down slightly on the day.

OIL – Crude Oil Trades Lower as USD Firms

Crude Oil finished slightly lower after a volatile session Thursday, as the U.S Dollar firmed and traders digested upbeat economic news and a bigger-than-expected drop in U.S. stockpiles in the previous session. Crude earlier rose to a high of $73.16 a barrel and fell to a low of $70.40 a barrel.

On Wednesday, Oil rose more than 2% after the Energy Department reported a bigger-than-expected drop of 4.7 million barrels in U.S. stockpiles of the commodity in the week ended Sept. 11. Oil remains unable to top the upper end of its trading range at $73 a barrel without a new trigger, analysts said.

Oil has tracked equities markets closely in recent months as dealers look to stocks as a leading indicator of an economic recovery that could boost ailing energy demand. What happens to the Dollar, stock market and Gold are now driving the Oil market on a daily basis. A weaker Dollar can fuel purchases of Oil and other Dollar-denominated commodities, as they become relatively less expensive to non-Dollar holding investors.

Technical News

Yesterday’s respite in the pair’s bullish streak looks to have some legs in it. The daily chart displays a bearish cross has formed on the Slow Stochastic Oscillator, indicating the potential for a downward correction. The daily chart also shows the pair trading in the overbought zone on the Relative Strength Index, indicating the pair may be overpriced from the previous weeks rally. Traders may look to be short on this pair today.
The Cable may be due for some short term strengthening against the Dollar today as the hourly chart shows the pair trading in the oversold range on the RSI. This suggests upward pressure for the currency pair. On the 4-hour chart the current bar has begun at the lower border of the Bollinger Bands, indicating the potential of the pair to rise from the lower border all the way to its upper border. A long position looks to be the right play.
The hourly chart’s Bollinger Bands continue to tighten, indicating the potential for a violent breach of the pair’s borders. The weekly chart also shows a fresh bullish cross has formed on the pair’s Slow Stochastic, indicating the potential for long term upward movement. Traders could profit today by being long on this pair.
While the pair remains in a bearish streak, the daily chart shows us that this downward movement may be coming to an end. The daily chart displays a bullish cross has formed on the pair’s Slow Stochastic Oscillator, indicating the potential for a change in direction. The pair is trading well below the lower level of the Relative Strength Index, indicating the pair is oversold. It may be the right time to go long.

The Wild Card

The hourly chart is showing buy signals today as a bullish cross has appeared on the chart’s Slow Stochastic, hinting towards an upward correction. The chart’s RSI is also showing upward momentum as the pair is trading in the oversold zone. Going long could be the profitable way for forex traders to go today.

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