Dollar Falls on Fed Official’s Rate Comments

The EUR advanced on the U.S dollar Wednesday, but failed to reach the $1.50 mark as investors zeroed in on a Fed official’s comment suggesting key interest rates could remain low until 2012. Federal Reserve officials were quoted saying that the Fed could keep short-term fed funds rates at near-zero until early 2012. The ultra-low rates weigh on the U.S dollar, as investors use the buck to fund investments in higher-yielding assets.

Economic News

USD – Dollar Retreats after 3 Week’s Rally

The U.S dollar advanced against the EUR Thursday on speculation U.S. investors are bringing back overseas funds toward year-end and traders cut bets the greenback will weaken. The U.S. currency also gained on speculation traders trimmed short positions after it failed to weaken beyond $1.50 per euro, according to analysts.

The Dollar rose to $1.4938 per EUR from $1.4963 yesterday. The greenback also climbed to $1.6714 per Pound from $1.6749.However the U.S. currency may weaken before a government report today forecast to show manufacturing in the Philadelphia region expanded for a 4th month, boosting demand for higher-yielding assets. The USD is unlikely to advance against the EUR until the Fed signals that it’s prepared to increase Interest Rates.

The Federal Reserve Bank of Philadelphia will report today that its economic index rose to 12.2 this month from 11.5 in October, according to economists. A positive reading signals expansion, and may support the Dollar further.

EUR – The EUR Pairs Gains after U.S Weak Data

The EUR pared some gains against the U.S dollar on Wednesday after data showed tame underlying U.S. inflation and a decline in housing starts last month, suggesting a U.S. recovery will be a slow one.

Slow economic growth in the U.S could stall a global recovery, and that can prompt investors to pare risky trades in higher-yielding currencies and assets. The European currency dipped briefly to $1.4839 from about $1.4850, though it remained 0.5% firmer on the day on the view that U.S. Interest Rates will remain low into 2010.

The British pound depreciated for the first time in 5 days against the EUR, weakening 1% to 89.38 pence. The Pound also dropped vs. the U.S dollar 0.4% to $1.6744 today.
The Sterling fell for a 3rd day versus the U.S dollar after the Daily Telegraph said U.K. lenders are in a worse state than those elsewhere, citing the world’s largest credit-checking company.

JPY – Yen Advances on Investors’ Demand for Safety

The Japanese yen rose against all 16 of its major counterparts as signs that Japan’s largest banks are facing pressure to raise funds spurred investors to bring back earnings on assets abroad. Japan’s currency strengthened as Asian stocks slipped.

The JPY strengthened against the EUR on speculation European banks will disclose more credit losses, boosting demand for the relative safety of the Japanese. The Yen climbed to 133.10 per EUR from 133.64 yesterday. It advanced to 148.90 per Pound from 149.58, after earlier rising to 148.78, the highest level since Nov. 12.

Crude Oil – Oil Rallies for a 3rd Day on Weak Dollar

Crude Oil prices rose for a third consecutive session, as government data showed a surprise drop in U.S. crude inventories and as the U.S. dollar turned lower, lifting dollar-denominated commodities prices.

Crude inventories fell modestly last week as imports declined and demand ticked up, the Energy Information Administration’s (EIA) petroleum data showed Wednesday. The weekly EIA data also showed U.S. crude imports fell 0.9% to 8.58 million barrels a day, and total petroleum demand rose 1% to 18.5 million barrels a day. While demand was higher than a week ago, it’s still down by more than 2% from a year ago.

Also supporting Oil prices, the U.S dollar weakened after a report showed new U.S. home construction slowed much more than forecast last month, while consumer prices rose more than expected. Crude oil prices are denominated in U.S. dollars, so a weaker dollar makes the commodity less expensive for investors holding other currencies. In addition, commodities have benefited from a dollar carry trade, whereby investors borrow cheap dollars to invest in hard assets.

Technical News

The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the hourly chart’s RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
There is a fresh bullish cross forming on the 4-hour chart’s Slow Stochastic indicating a bullish correction might take place in the nearest future. The upward direction on the hourly chart’s Momentum oscillator also supports this notion. Going long with tight stops might be the right strategy today.
The typical range trading on the hourly chart continues. The 4-hour chart’s RSI is floating in neutral territory. However, the weekly Chart’s RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops may turn out to be the right choice today.
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. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.

The Wild Card

Gold prices rose significantly in the last month and peaked at $1141.25 for an ounce. However, the daily chart’s 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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