Dollar Rises Broadly vs. Majors

The U.S. Dollar firmed against most major counterparts, with the gains especially strong against the EUR, amid continued worry about Greek debt and further signs that Germany’s economic recovery may be losing momentum.

Economic News

USD – The Dollar Turns Positive after TIC Data

The U.S. Dollar traded higher on Wednesday vs. the European currency as worries over Greece’s fiscal problems increased. The U.S currency has strengthened on optimism the U.S. recovery will outpace that of other nations, increasing demand for Dollar denominated assets. The Dollar appreciated against most of its major counterparts as the outlook for Europe’s economy discouraged demand for risk.

The U.S Dollar got a boost after Treasury data showed net capital inflows to U.S. assets rebounded in November. It was last up 0.6% at 91.21 yen well off an earlier 4 week low of 90.32 following news that Japan Airlines would file for bankruptcy protection from some $25 billion in debt.

The greenback also rose 0.7% against its Canadian counterpart to C$1.0325 after the Bank of Canada held rates steady and slightly lowered its growth outlook, saying a strong currency remains a risk to recovery.

EUR – EUR/USD Hits 4 Month Low on German Sentiment

Europe’s single currency declined to its weakest level in 4 months against the U.S Dollar on Wednesday as markets worried about a decline in German investor sentiment and Greece’s public finances. The EUR was trading below $1.43 its lowest level since Dec. 23 as the ZEW Center for European Economic Research said its index fell in January to 47.2 in its 4th consecutive drop.

The EUR also fell to its lowest level in 5 months against British Pound after Kraft Foods agreed to buy British chocolate-maker Cadbury Plc increasing demand for Pound. The single currency fell as far as 86.985 pence, its lowest since late August.
The EUR weakened vs. GBP as investors sold the common European currency on concern that Greece will struggle to contain its budget deficit.

The Pound extended gains today after a report showed U.K. inflation accelerated in December by the most since records began in 1997, fanning speculation the Bank of England will start considering when to raise Interest Rates. Analysts said that the GBP is being bought against the EUR as investors remain concerned over the region’s economic recovery. The Pound is benefiting from Greece’s fiscal crisis, and traders may see an acceleration of Sterling’s rally in the coming days.

JPY – The Yen Strengthens vs. Majors

The Yen gained against the U.S Dollar, hitting a 4-week high after Japan Airlines filed for bankruptcy protection as expected, owing more than $25 billion. Traders said the bankruptcy of JAL may lead to Yen repatriation as the company may have to liquidate some of its dollar-buying derivative contracts or repatriate overseas assets, helping the currency.

The Japanese Yen also advanced against the EUR and Australian Dollar after the People’s Bank of China guided its benchmark one-year bill yield to the highest level in 14 month as it seeks to curb record loan growth and prevent bubbles in the nation’s property and stock markets. Japan’s currency jumped 0.6% to 83.63 per Australian Dollar and was 0.3% higher at 129.65 per EUR, the lowest since Dec. 21.

Crude Oil – Crude Rises as U.S. stocks Rally

Crude Oil prices were trading higher for the first session in six on Tuesday, helped by a surge in U.S. stocks that offset a rise in the U.S. Dollar on concerns about European growth prospects. Wall Street gains boosted Crude prices as investors bet a Massachusetts Senate race could derail President Obama’s healthcare reform plan, which had been seen as a threat to profits in the key sector.

Last week, Oil prices fell nearly 6%, as forecasts of warmer weather dimmed the outlook for demand. A relatively high level of Oil supplies and decreased expectations that cold weather would require more heating fuel have also been weighing on Crude, analysts said. A stronger Dollar may also add some pressure to Oil prices, with the EUR falling to a 4-week low against the Dollar. Rise in the value of the Dollar often discourages investor interest in Dollar denominated commodities such as Crude Oil.

Technical News

The hourly, 2 hour, 4 hour and 8 hour RSI are floating in the oversold territory while the daily and 4 hour charts’ Slow Stochastic exhibiting a bullish cross. Furthermore, there is a breach of the lower Bollinger Band evident on the 4 hour, 8 hour and daily charts. Going long for the day may be a good choice.
The pair seems to be exhibiting some mixed signals. While the hourly and 2 hour RSI are floating in the oversold territory and a bullish cross is evident on the hourly Slow Stochastic, the daily RSI is floating near the overbought territory and the Slow Stochastic exhibiting a bearish cross. Waiting for a clearer direction may be advised today.
A bearish cross is evident on the 4 hour Slow Stochastic with the 2 hour RSI floating in the overbought territory. Going short for the day may be advised.
The hourly, 2 hour and 8 hour RSI are floating in the overbought territory with a bearish cross evident on the daily and 4 hour charts’ Slow Stochastic, a breach of the upper Bollinger Band is evident on the 4 hour and 8 hour charts. Going short on the day may be advised.

The Wild Card

A breach of the upper Bollinger Band is evident on the 2 hour and 4 hour charts while the RSI is floating in the oversold territory on the hourly chart. Furthermore, a bearish cross is evident is evident on the 2 hour and daily charts. Forex traders are advised to go short for the day to take advantage of the impending correction.

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