Cautious Optimism Returns to Markets

The Dollar declined slightly against most rivals in today’s early trading, as concerns over Dubai’s debt repayment problems eased, boosting demand for higher yielding currencies and commodities.

Economic News

USD – Dollar Declines as Concerns over Dubai Ease

The Dollar declined slightly against higher yielding currencies in today’s early trading as concerns over credit losses in Dubai eased and better than expected economic data signaled the global economy is on the way to recovery, boosting demand for riskier assets. The Dollar weakened to $1.5013 per EUR from $1.5005 yesterday in New York. The greenback lost 1.9% in November overall. The Dollar was at Y86.45 from Y86.75 yesterday.

Investors also appeared hesitant ahead of this week’s U.S. and Euro-Zone economic data as well as interest-rate decisions by several major central banks, therefore limiting their risky positions. Throughout the economic crisis, the U.S. Dollar has tended to fall on improved economic outlook and equity gains. The Federal Reserve’s policy of near-zero interest rates has which the U.S. Dollar one of the lowest yielding currencies in the world also adds to the negative pressure on the Dollar against riskier, higher yielding currencies such as the EUR. Giving a lift to sentiment Monday and weighing on the USD, the Chicago PMI showed more businesses in the Chicago region were expanding in November. The business activity index rose to 56.1% this month, the highest since August 2008.

Looking ahead to today investors should follow the release of the ISM Manufacturing PMI and Pending Home Sales due to be released at 15:00 GMT. A continuation of the optimistic data will likely continue putting pressure on the greenback.

EUR – EUR Boosted by China’s Manufacturing Data

The EUR was little changed against the Dollar following a report that showed China’s manufacturing growth maintained its fastest pace in 18 months. The EUR was at $1.4990 from $1.4955 late Friday and at Y130.50 from Y129.71. Expectations that German Retail Sales expanded in November also helped boost risk appetite.

This week investors will be weighing in on key economic data from Europe and the U.S, including today’s release of Euro-Zone Manufacturing data and Friday’s U.S. Non-Farm Payrolls. The European Central Bank will announce today whether it will raise its key interest rates. While The ECB is not expected to change rates, investors will be paying attention to any comments regarding the timing and exit strategy of the current monetary policy.

JPY – Yen Steady against the Dollar

The Yen fell for the first time in six days against the EUR on optimism regarding Dubai World debt issues. The safe haven Yen also remained up against the Dollar, despite the cautious move back to riskier assets.

The move to safety followed the news of a payment freeze on the $60 billion debt of Dubai World. The Yen traded at 86.44 per Dollar from 86.41. The Yen was at 129.77 per EUR from 129.64. The Yen seems to be able to hold on to the gains it makes during flights to safety by investors during days of poor financial sentiment.

Crude Oil – Crude Prices Up on Improved Economic Outlook

Crude for January delivery rose $1.23, or 1.6%, to end at $77.28 a barrel on the New York Mercantile Exchange Monday. Further boost to Oil prices came after the Institute for Supply Management Index for the Chicago area climbed to 56.1, the highest level since August 2008. Furthermore, China’s manufacturing growth maintained the fastest pace in 18 months in November.

The Oil market was also supported by tensions with Iran, as the country announced over the weekend its intention to build 10 uranium-enrichment plants. Iran is the world’s fourth-biggest Oil producer.

Technical News

The pair currently sits near the upper border of the 4-hour chart’s RSI, suggesting a downward correction may be imminent. The downward direction on the weekly chart’s RSI also supports this notion. 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 USD/JPY cross has experienced a bullish trend yesterday, and currently stands at the 87.30 level. The daily chart’s Slow Stochastic supports this currency cross to rise further today. However, the hourly chart’s RSI signals that a bearish 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, the pair currently sits near the bottom border of the weekly chart’s RSI, 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.

The Wild Card

Gold prices rose significantly in the last month and peaked at $1178.60 an ounce. However, the daily charts’ 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 forex traders to enter the trend at a very early stage.

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