Yen Strengthens on Chinese Bank Regulation

The US Dollar was little changed against the EUR but fell significantly against the yen during Tuesday’s trading session after the People’s Bank of China increased the amount of reserves Chinese banks must hold in order to slow the growth of credit.

Economic News

USD – Dollar Lower Against Yen

The US Dollar was trading lower against the EUR yesterday as traders stayed away from riskier assets such as equities and crude oil, opting for the safety of the Yen. In addition to the new banking restrictions in China, concerns over the sovereign debt of Greece did little to increase traders’ risk appetite.

At the end of the trading day, the EUR/USD traded at 1.4472 from an opening price of 1.4482.

An absence of significant data releases on the economic calendar had trades being driven on the most recent key data, last Friday’s U.S. Non-Farm Payrolls report. The lack of job creation in the U.S. economy may eventually become a stumbling block for the USD to overcome. However, at this time the economies of Europe, Great Britain and Japan don’t appear to be improving much either.

Today’s trading may be influenced by the release of the U.S. Federal Budget Balance. The deficit is expected to be -84.9B dollars. This is a major contention for fundamental traders regarding the value of the USD. The US government has not been able to reduce the budget deficit due to two major wars and an economy that is on life support.

Much of the recent U.S. economic growth is due to government surplus money. This situation cannot go on forever. When the government begins to be more fiscally responsible, we could see a drop in the value of the USD.

EUR – EUR Weakens on Greek Sovereign Debt Worries

The EUR had mixed results against the major currencies yesterday after Greek sovereign debt once again looms over the EUR. Comments made yesterday by the Greek Finance Minister helped to support the EUR. In a statement, the Finance Minister said Greece had emptied all the skeletons out from its closet and is in the midst of a program to clean up its financial situation, and cut its national deficit.

The threat of default by Greece on its sovereign debt would create havoc in the Euro-Zone as EU banking officials have stated the European Central Bank (ECB) would not bail out Greece and help the struggling member nation to meet its debt payments.

Yesterday’s trading had the EUR trading lower against both the GBP and the yen, with the EUR/GBP ending the day at 0.8960, after opening trading at the 0.9012 level.

Traders looking at the European currencies today will want to follow the release of the Manufacturing Production monthly numbers from Britain. This economic indicator is a key to identifying the health of the British economy. Recently this economic data has proven to be difficult for market economists to predict as the British economy attempts to stabilize after emerging from an economic recession. Traders should eye this data piece when entering into the market today.

JPY – Yen Shows Bullish Strength across the Board

The yen was trading higher across the board yesterday after China stepped up its restrictions on required Chinese bank reserves. The move surprised the market and pushed traders to drop short yen positions as the currency strengthened for the 4th consecutive trading session. While this move by China can be seen as a negative for Asian economic growth, the step may be needed to slow the fast-paced Chinese economy.

The USD/JPY fell 1.01% and is currently trading at the 91.05 level after opening the day at 92.18. The pair accelerated its gains after crossing the significant 92.25 support line. The yen also had significant gains against the pound and the EUR. The GBP/JPY is trading at 147.09 from an opening day price of 148.34. The EUR/JPY is currently trading at 131.80 after opening the day at 133.53.

The USD/JPY hit a low of 91.00 during today’s trading session. If the pair breaks this key support line, we could very well see the pair retrace its path to the next major support line near the 89.60 level.

Crude Oil – Spot Crude Oil Prices Plunge below $80 a Barrel

Spot crude oil prices fell for the second consecutive day. Causing this drop were positive weather forecasts and the Chinese decision to require its banks to carry higher levels of reserves. This comes just two days after data showed a large rise in Chinese imports. The Energy Information Agency (EIA) also released its price expectations for this year and 2011.

Crude oil prices were trading lower by 2.5%, at a price level of 79.83 after opening the day at $81.87.

Colder than normal weather may have been a factor in the recent run up of crude oil prices. An expected pause in the cold weather for the U.S. may help explain the abrupt about-face crude oil prices have taken the past two days.

A report released today by the EIA contained the government agency’s price estimate for crude oil. U.S. crude oil is forecasted to average $79.83 this year, an increase from the previous expectation of $78.67. In 2011 the agency expects prices to average $83.50.

Today the EIA will also release the weekly crude oil inventories report at 15:30 GMT. Crude inventories are expected to grow by 1.4M barrels. This report could provide the fundamental support crude oil prices need to bounce above the $80 price level once again.

Technical News

The price of this pair continues to float in a range-trading pattern between 1.4550 and 1.4450. With the hourly RSI floating near the over-sold territory this pair is giving an indication that it may experience an upward movement within its current range. Buying on lows and selling on highs within this range-trading pattern may be a wise tactic today, but be on the lookout for a breach of this range pattern as it may signal a stronger movement.
Most indicators on this pair are showing a neutral position, but in an upward slanting direction. As this pair approaches a significant resistance line at 1.6200, there is a chance it will face strong downward pressure. On the other hand, if it breaks through this level we could see this pair climb as high as 1.6250 in the hours following the breach. Waiting for this pair’s reaction to its current resistance line may be a good idea in today’s early trading.
After yesterday’s steady downward movement, the pair has begun to show signs of correcting back upwards. The hourly RSI already entered and exited the over-sold territory, signaling the shift to bullishness. The 4-hour Slow Stochastic also appears to have made a fresh bullish cross. Going long on this pair may be a wise decision.
This pair continues to float in a tight range between 1.0150 and 1.0200. As it maintains a somewhat bullish posture, there is a chance that the 1.0200 resistance line could be breached today and we may see a stronger upward move. As no indicators support this notion, however, we may have to wait and see how this pair reacts at that significant level.

The Wild Card

The price of Gold appears to be giving off moderately strong buy signals today. In the short-term, the hourly RSI shows this commodity being highly over-sold, suggesting upward pressure. On the 4-hour chart, the Slow Stochastic seems to have created a fresh bullish cross, and the RSI also floats in the over-sold territory. Today may be a good day for forex traders to branch over to commodities and take advantage of a short upswing in Gold prices.

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