As the debate on international imbalances intensifies, China’s monetary policies are coming under direct pressure and could have significant impact on the US bond market, which may be partially behind the USD’s decline since yesterday evening.
Forex Market Trends
USD – Differing Monetary Policies in US and Europe Drags on USD
The divergence between the monetary policies of Europe and the United States has begun to cause reactionary movements in the foreign exchange market. The US dollar, recently gaining ground on positive fundamentals and rising risk aversion, now appears on the defensive as risk appetite returns.
Much of these losses may be attributed to a return of confidence in regards to the euro zone as a few analysts have begun to forecast something resembling an end to the region’s debt woes. The EUR/USD, in today’s morning hours, felt some sharp reverberations as traders shifted back into EUR positions. This has pulled down on the dollar, moving the pair back towards 1.4500. Whether or not the dollar will fall beneath this support line is anyone’s guess, but for the moment the G7 meetings appear to have produced favorable results for the European currencies.
As with yesterday’s economic calendar, today’s market events are almost exclusively American. Most important today will be the publication of the Consumer Price Index (CPI) and the University of Michigan’s (UoM) Consumer Sentiment report. Both are expected to show stability and growth, respectively, and may help the USD regain some of yesterday morning’s glory before closing out for the weekend.
EUR – G20 and IMF Meetings May Affect EUR Sharply
The euro’s return into a dominantly bullish posture in yesterday’s late trading hours is largely explained by two market forces. The first are the G20 and IMF meetings taking place since yesterday, which have been discussing the Japanese nuclear crisis in more depth, but also addressing the direction of the Chinese Yuan.
As rhetoric on international imbalances intensifies, China’s monetary policies are coming under direct pressure and could have significant impact on the US bond market, which may be partially behind the USD’s decline since yesterday evening.
The second market force boosting the EUR is a return of risk appetite as many analysts have begun to believe that Europe is handling its debt crisis effectively and may in fact raise rates once more in the immediate months ahead. Adding into the euro’s rise is also a policy of euro-buying by US reserve managers, according to a report by BNP Paribas.
European inflationary figures on the consumer side are set to be released today and may help traders gauge how effectively growth rates are maintaining throughout the region. Europe’s trade balance will also be published, but this figure has historically had little impact on the EUR. Traders will want to watch any developments out of the G20 meetings today as any direct attacks on China could undermine US bond strength, thus pushing investors into the EUR en masse prior to the week’s close.
JPY – JPY Granted Reprieve as Investors Shift Focus; Turns Bearish
The Japanese yen was trading lower this morning as Japanese pension funds and a variety of importers began to purchase US dollars with yen amid a downturn in negative news regarding Japan. The reprieve from international skepticism helped alleviate international pressures on the JPY, allowing many investors to shift direction in their portfolios heading into the early Asian session today.
Discussions about a future intervention by the Bank of Japan (BOJ) have begun to crop up lately, but many maintain the sentiment that now is not the time for Japan to intervene simply due to the international climate surrounding the G20/IMF meetings.
Japan’s currency strength has traditionally hindered its exporting capability, but at a time of national reconstruction and emergency management the increased buying power is actually helping the Japanese economy for the time being. Traders should, of course, be on the watch for any news of an intervention, but shy of such a move the JPY should continue to trade near its present value.
Crude Oil – Oil Prices Supported by Stockpile Data and G20/IMF Meetings
A decline in US crude stockpiles initially supported the price of Crude Oil, but a sudden shift in risk appetite caused a sharp downturn in oil prices back towards $106 a barrel. As of this morning, however, the price of oil received a large injection of support from economic fundamentals favoring commodity buy-ins.
Traders have been eyeing the G20/IMF meetings begun yesterday for any news regarding major oil consumers, since volatile shifts in currency values could undermine growth. So far, though, the meetings have been positive for risk appetite and thus growth, and appear to be revealing stability in the commodity markets, though with reservations about China. Today’s meetings will likely be more impactful considering the topic of discussion and traders will want to keep an eye out for any comments emerging from the discussions.
The 8-hour chart is showing mixed signals with its RSI fluctuating at the 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 price of this pair appears to be floating in the over-sold territory on the 8-hour chart’s RSI indicating a downward correction may be imminent. The upward direction on the daily chart’s Slow Stochastic also supports this notion. Going long with tight stops may turn out to be the right choice today.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the 8-hour chart’s RSI. Going long with tight stops may turn out to pay off today.
The Wild Card
Crude oil prices rose significantly yesterday and peaked at $108.70 a barrel. 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.
Written by Forexyard.com