The Dollar and the Yen, the two strongest currencies of last week’s trading session, are likely to be shaken this week, as interest rates announcement from both the U.S. and Japan are expected. Any manipulation of rates by any of the two is likely to have a massive impact on the market. This could provide unique opportunities for high profits, and traders should use this extraordinary week in order to boost profits.
USD – Dollar Soars on Positive U.S. Data
The Dollar rose significantly against the major currencies during last week’s session. The Dollar corrected some of its losses from previous weeks, especially against the Euro and the Pound. The Dollar rose over 300 pips against the Euro and over 200 pips against the Pound, all in one week.
The Dollar’s bullish trend came as a direct result of the positive data from the U.S. economy. Last week began with a superb, unexpected Long-Term Purchases publication. The Long-Term Purchases report measured the difference in value between foreign long-term securities purchased by U.S. citizens and securities purchased by foreigners during November. The end result rose from $19.3 billion in October to $126.8 billion in November, beating expectations for a $30.3biliion result. The stunning figure came due to a record bond purchases by private investors. This showed that foreign investors have deep faith in the U.S. economy, which of course strengthened the Dollar.
Throughout the week, additional positive economic data was published, showing that the Building Permits issued during December for new residential buildings reached above expectations, and that the Producer Price Index continues to rise as well. As long as the cheering data regarding the U.S. economy continues to flow in, the Dollar’s bullish trend is likely to extend.
As for the coming week, the most intriguing economic publication from the U.S. will probably be the Federal Funds Rate on Wednesday. The Federal Funds Rate is in fact the Fed’s Interest Rates announcement for the following month. Currently the Fed is likely to keep rates at their low level. However, if the Fed will surprise and hike rates, it could boost the Dollar to levels not seen in months.
EUR – Euro Drops on All Fronts
The Euro fell significantly during last week’s trading session. The Euro saw bearish trends against most of the major currencies, including the Dollar, the Yen and the Pound. Its strongest drop was marked against the Yen, as the EUR/JPY pair dropped to the 127.00 level.
The week began with rather disturbing news from the German economy. The German ZEW Economic Sentiment fell from 49.8 points from December to 47.2 in January. The Economic Sentiment is a survey that attempts to rate the next 6-month economic outlook for Germany. This report is considered to be quite reliable, and tends to have a large impact on the market. Due to the fact the Germany holds the biggest and strongest economy in the Euro-Zone – the unfortunate figure was likely to weaken the Euro.
The German economy saw another disappointing data release last week, as the German Flash Services Purchasing Managers’ Index failed to reach expectations of 53.1 points result, as the end result showed 51.2. This means that the level of business conditions, such as employment, production and new orders have declined during December. The Euro is greatly affected by the German economy, and a series of disappointing data from Germany has weakened the Euro.
Looking ahead to this week, the German economy continues to be the main attraction for Forex traders. Traders should give special attention to the German Business Climate report on Tuesday. Following last week’s data, further negative publications from the German economy could continue damaging the Euro. However, if the end result will reach expectations for a 95.2 figure, it is likely to support the Euro.
JPY – Yen’s Bullish Trend Continues; Ahead of Interest Rates Announcement
The Yen continued to strengthen last week. The bullish trend which was initiated a couple of weeks ago, proceeds against most of the major currencies. The Yen’s sharpest rise was against the Pound, as the GBP/JPY pair fell to the 145.00 level.
What appears to impact the Yen the most lately are the statements delivered from the Japanese leadership, especially from the Bank of Japan (BoJ). Last week, the BoJ Governor Masaaki Shirakawa said on Monday that the BoJ is aiming to maintain an extremely accommodative financial environment in Japan. This has aroused speculations for greater investments in Japan, and has contributed to the Yen’s rising trend.
However, the Japanese Finance Minister Naoto Kan stated on Thursday that he would prefer to see a weaker Yen in the future. It is known that the Japanese leadership aims for a weak Yan as a resolution against the decline in Japanese exports. If this target will remain in-place, the Yen will eventually drop as a result.
As for the week ahead, the most impacting dada from the Japanese economy is likely to be the Overnight Call Rate on Tuesday. The Overnight Call Rate is the Japanese Interest Rates Announcement. Currently, expectations are that the BoJ will keep rates at 0.10%, the lowest in the industrial world. If this will indeed be the case, traders are advised to follow the BoJ statement which follows promptly, as these releases tend to have large impact on the Yen.
Crude Oil – Crude Oil Drops to $74.06 a Barrel
Crude Oil continues to decline sharply. With the beginning of last week, Crude Oil was traded at $78 a barrel, however as the week progressed, the prices of Oil fell, and a barrel of Crude Oil is now traded for around $74.50.
Two reasons led to Crude Oil’s downfall last week. The first reason is the strengthening Dollar. Crude Oil is traded in Dollars, and thus, whenever the Dollar rises, Crude Oil is likely to depreciate as a result. In addition, the American administration’s plan to bar banks from trading for their own accounts had a negative impact on stocks, which also contributed to the weak Oil.
As for the week ahead, traders are advised to follow the leading publications from the U.S. and the Euro-Zone’s major economies, as they are likely to impact Oil the most. In addition, traders should also follow the Crude Oil Inventories report on Wednesday, as it tends to have an immediate impact on the market.
The pair is currently trading in neutral territory, but traders will want to pay close attention as the 4-hour RSI chart shows the pair approaching overbought territory. This sentiment is supported by the RSI on the 2-hour chart. Still, traders may want to take a wait and see approach regarding this pair today.
The 8 hour RSI is floating in the oversold territory with the chart’s Slow Stochastic exhibiting a bullish cross. A bullish cross is also evident on the daily Slow Stochastic as well as the 2 hour MACD. Going long for the day may be a good option.
A bullis cross is evident on the 8 hour and 4 hour charts’ Slow Stochastic while the 4 hour and daily RSI are floating in the oversold territory. A bullish cross is also evident on the 2 hour MACD. Going long for the day may be advised.
The pair is exhibiting some mixed signals. While the hourly chart’s Slow Stochastic is exhibiting a bullish cross and the 4 hour RSI is headed towards the oversold territory, the daily chart’s RSI is headed towards the overbought territory and an impending bearish cross is evident on the 8 hour MACD. Going long with tight stops may be a good choice today.
The Wild Card
The pair’s 8 hour and daily RSI are floating in the oversold territory with the daily charts Slow stochastic exhibiting a bullish cross. Furthermore, a bullish cross is evident on the 4 hour MACD. Forex traders are advised to go long for the day.
Written by Forexyard.com