Another Volatile USD Session Ahead

The Greenback traded with mixed results last week as the turbulent relationship between the USD and the EUR grows even stronger. The oft traded pair saw record highs towards the end of the month of April. Since, the pair has faltered by just under 4%. The 1.6019 mark set on April 22nd saw it largest drop off in the middle of last week, when the pair dropped to the 1.52 support level. Forex traders looked prime to ride dollar bullishness, even as the progress halted going into Friday’s market closing.

The US dollar reacted mainly to investor interest, as the economic data from America was mixed last week. Forex traders have regained some much needed confidence in the USD even amidst ongoing US economic concerns. The futures market is posting bullish trends by traders for the first time since late 2005 in regards to the US dollar. To add to the current positivity surrounding the greenback, the Chicago Board of Trade is showing an 80% chance that the Federal Reserve will leave the 2% interest rate as is. While investors are enjoying being on the positive side of the dollar, they must still be wary of a shaky US economic picture.

This week on the US economic calendar, we will be seeing data, which will likely contribute to liquidity and volatility in the Forex market. Core Retail Sales, Core CPI Empire State Business Conditions Index, Unemployment Claims, TIC Net Long-Term Transactions, Industrial Production, Philadelphia Fed Manufacturing Index Housing Starts and Consumer Sentiment highlight a heavy week from the Greenback’s home. If mediocre forecasts hold true, the dollar will have to fight hard to have a positive week, especially against its most traded currency rivals.

Today, the US is absent from the economic calendar. Expect the dollar to trade mostly off of investor speculation and in response to outside news events and Oil pricing. Forex traders are ready to continue to ride a bullish dollar; however the US economy will have to hold up, as investors cannot blatantly ignore important economic data.

Last week saw volatile sessions within Euro pairs. The EUR\USD first peaked to 1.5548, but later on made a straight downfall to 1.5311, to finish the trading week at the rate of 1.5482. Regarding other currencies, the Euro grew bullish momentum against the GBP, but underwent bearish trend vs. the JPY.

Amazingly enough, Jean Claude Trichet, President of the European Central Bank, remained hawkish once again during a speech at an ECB Press Conference. Amidst fears of economic slowdown within the Euro-Zone, Trichet signaled toward leaving interest rates for the EUR unchanged, stating in to be the leading key to control euro zone inflation pressures.

Skepticism grew last week over the bearishness of the EUR recently and the affect it was having on the EUR/USD pair. Economic data from the region though better than the week before was still bad enough to give Forex traders second thoughts about how much the EUR could see profits this week.

Today, Trichet is expected to deliver another speech, and traders should expect it to be the main volatile catalyst for today.

The JPY rose across the board, pushing its higher yielding counterparts lower. By selling these currencies, investors unwound positions where they borrow low-yielding currencies like the JPY to fund purchases of higher-yielding assets. Rise in risk aversion prompted by sagging stock markets and the jump in Oil prices to an all time high also helped bolster the Japanese Yen. Overall the USD/JPY traded yesterday with a low of 102.53 and a high of 103.46 before closing the day at 102.60 in the New York session

In the previous week the Japanese economic calendar was extremely light following the completion of the Golden Week holidays. This week’s calendar is also expected to provide relatively few fundamental events. Yesterday’s Money Supply released at 1.9%, down from last month’s figure of 2.2%. This indicator measures the value of all currency and liquid cash assets held by the public. The commonly held theory is that elevated currency levels spur growth and have an inflationary effect, leading to higher Interest Rates. Meanwhile, the BoJ officials remain reluctant to increase liquidity in fears of fueling further inflation.

Nevertheless, it seems like the JPY rally is going on fairly independent from the Japanese News releases and pushed by an intense unwinding of the carry trades. Towards the end of the week traders will also follow the Core Machinery Orders and the GDP printings.

Risk trends will remain the primary driver of the Japanese Yen. With carry trades unwinding, we should see the JPY fluctuations being dollar centered today.

Technical News

There is a very interesting bearish channel forming on the 4 hour chart as the pair now moves down within the channel. The Slow Stochastic is showing a strong bearish cross, as the RSI confirms. It appears that the pair is heading 1.5310 and going short might be a preferable strategy today.
The cable is floating at the bottom section of the bearish channel on the daily chart. The Slow Stochastic has a bullish cross forming which indicates an upcoming potential reversal move. Going long with very tight stops might be the right way to go today.
The attempt to breach through the bottom section of the bullish channel on the daily chart has failed. The 4 hour chart is showing fresh bullish momentum on the Slow Stochastic and RSI. Hourly Oscillators are indicating that the Momentum is now bullish and that going long might be wise today.
The 4 hour chart is showing that the pair is floating in a range after the strong bullish momentum from the channel break was done. The daily chart is showing moderate bullish momentum, and traders should wait for a stronger signal before jumping into the bullish trend.

The Wild Card

Crude Oil
Oil is showing violent bullish behavior for the past 2 weeks, and today is no different. Fresh all time highs are being breached on a daily basis and Oil is now floating at 125.60. The RSI is showing that the bullish momentum is still quite bullish and forex traders have a great chance of enjoying the additional momentum still left for the commodity.

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