Crude at 1-Month Low on U.S. Demand Concerns

Crude Oil fell for a second straight session Thursday and ended 2% lower, to trade near $76 a barrel despite a drop in U.S. crude supplies as concerns over Chinese growth dampened appetite for riskier currencies and commodities.

Economic News

USD – USD Declines over Proposed Bank Regulations

The Dollar dropped sharply against the Yen Thursday as concerns intensified regarding the state of the global economic recovery with concerns of a possible slowing of Chinese growth as well as continued unease over Greek sovereign debt. The Dollar was also hit over proposed U.S. banking regulations by President Obama. The Dollar Index was at 78.395 from 78.369. It earlier hit 78.814, its highest level since Sept. 2.

The Dollar rose to its highest level against the EUR since July during Thursday’s early trading; however, the greenback retreated from its high to currently trade at a similar level to Wednesday after the announcement of the bank regulations proposed by the Obama administration. The bank regulation plan would force institutions to choose between commercial banking and proprietary trading for their own profit, while seeking to limit the size of mega banks. The Dow Jones Industrial Average sank after the release of the proposed regulation, losing more than 2% by late afternoon, further sapping risk appetite from the markets.

With no news releases today from the U.S, the Dollar movements will likely be determined by releases from Europe as well as movements in the equity markets.

EUR – EUR Falls over Continued Concerns of Greek Financial Crisis

The EUR fell for a sixth day versus the greenback, hitting a low of to $1.4029, its lowest level since July 30 as a slew of negative news came out of the Euro-Zone throughout the day and continued concerns over Greek sovereign debt. Despite the EUR afternoon rebound against the dollar, it remained sharply lower against the yen, losing more than 1%. The EUR is currently at $1.4129 from $1.4097 late Thursday in New York. The EUR was at Y127.27 from Y128.69. The U.K. Pound is currently at $1.6212 from $1.6195 yesterday.

Growth sensitive currencies like the EUR were under pressure today amid concerns Greece will fail to contain its budget deficit and the possibility of sagging Chinese growth. The continued Greek budget crisis seems to have a continued negative affect on the common currency.

While a slow news day is expected today, the release of the Industrial New Orders at 10:00 GMT might provide some support for the EUR with a better than expected result. Also the release of the British Retail Sales at 9:30 GMT should provide volatility to the Pound.

JPY – Yen Gains Broadly on Risk Aversion

The Yen rose to a 9 month high versus the EUR as President Obama’s proposal to restrict risk trading at financial institutions discouraged demand for higher yielding assets. The Japanese currency was set for a second straight weekly gain versus the EUR and advance to a 3 week high against the Dollar on declines in global equities and concerns over Chinese growth.

The Yen advanced to 126.89 per EUR from 127.37 in New York yesterday. The Japanese currency reached 126.56, the strongest level since April 28. It gained to 89.93 per dollar from 90.43 yesterday after reaching 89.87, the highest level since Dec. 18.

OIL – Crude Prices down over 2%

Crude Oil for March delivery finished down $1.66, or 2.1%, at $76.08 a barrel on the New York Mercantile Exchange Thursday. Currently Oil is trading at $75.84 a barrel.

Oil prices declined despite a reported drop in crude oil inventories of 500K barrels last week, as refiners reduced imports. The small drop was not enough to push Oil prices up as supplies remain high with refineries reducing their operating rate as U.S. Oil demand is showing little signs of a recovery. A recovery in Oil demand from the world’s biggest consumer of crude is seen as essential, however, despite several months of encouraging economic data, U.S. demand remains weak.

Pressure on Oil intensified following a broad sell off in U.S. stocks following the announcement of President Obama’s proposed banking reforms and renewed concerns about China’s tightening of monetary policy.

Technical News

The 4-hour chart shows us the pair has been unable to break the 20-day moving average on its Bollinger Bands since the previous week. This indicates a strong bearish trend is occurring. Traders who want to trade with the trend may find a good entry point when the price reaches middle line and enter into the market short.
The daily chart displays the potential for further downward movement. Yesterday’s close below the 10-day moving average indicates one reason to sell the pair. The MACD histogram is also trending down, indicating future price declines. The MACD lines are also in the process of forming a potential bearish cross which could indicate another price move lower. Traders may want go short on this pair today.
The long term bearish trend of this pair remains in full stride. The weekly chart shows the pair has crossed the middle line on its Bollinger Bands. This indicates the potential for the pair to fall to its lower limit of the Bollinger Bands. Traders may see an opportunity to go short with a limit order set at the level of 87.20.
The daily chart shows a bearish cross has formed on the pair’s Slow Stochastic Oscillator, indicating the potential for a downward price movement. The chart’s 7-day Relative Strength indicator also shows a double top formation may be occurring in the oversold region. This may indicate a potential drop in the price. Traders may want to wait for a break of the middle trough and then open a market entry sell position.

The Wild Card

Oil prices are once again dropping, and are currently being traded around $76.10 per barrel. However, the daily chart’s RSI is floating in an oversold territory suggesting that a recent downwards trend is loosing steam and a bullish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Written by