Market Holidays; High Oil Devalues the USD

Last week, rising Crude Oil prices highlighted a series of events that led to the third consecutive week of Dollar bearishness in the Forex market. The greenback spent the backend of April into the first week of May recovering strongly versus a basket of its most rivaled currencies. The most notable turnaround was a 4% gain against the EUR. These gains were made in large part by positive US economic data which revived investor confidence in the U.S. currency. Unfortunately, the US economy failed to produce the same set of news in the second half of May as most of the ground it made up against the major currencies has disappeared.

With Crude Oil prices catapulting in May, companies like Ford, American Airlines and General Motors have all reported planned cuts in production to try and combat rising Oil prices. Also contributing to the already tenuous US economic outlook was the revival of Housing slump scares. Existing Home Sales numbers for the month of April were down 1%, as Fridays’ report pushed the oft traded EUR/USD pair up by 60 pips. At the end of the trading session last week the EUR/USD pair closed above 1.5750, as the key psychological level of 1.60 once again looms. It will be interesting to see how the Fed responds to rekindled economic concerns and if it will cut Interest Rates yet again in 2008.

This week looks to be equally important for the US economy, as a basket of significant economic data is on tap. The week will cover nearly all of the relevant industries from within the US economy highlighted by New Home Sales, Core Durable Goods Orders, Preliminary GDP, and Chicago PMI figures. Also on the docket on Thursday is a speech by Federal Reserve Chairman Ben Bernanke, who will have a week worth of economic data at his disposal when addressing audience at the Risk Transfer Mechanisms and Financial Stability Workshop in Switzerland. Bernanke will likely be dealing with negative data, as forecasts have the USD experiencing another bearish trading week.

Today is Memorial Day in the US as well as Spring Bank Holiday in the UK. With no other relevant news from Europe or Asia on tap, Monday will likely provide little volatility. The USD should range trade in its major pairs and crosses throughout the day.

The EUR experienced another week of bullishness versus its major currency rivals, most notably the Greenback. With the Euro-Zone’s biggest rival seeing another week of bad data, European Central Bank President Jean-Claude Trichet kept with his hawkish monetary stance. The ECB and its officials have preached over the last month or so, that the slowdown in economic growth within the Euro-Zone was temporary and that no one needed to jump the gun. The strategy looks to have paid dividends as the ECB can now focus on inflationary scares within the region. Futures markets are showing that an ECB rate hike could be coming soon.

Euro-Zone data from last week produced solid numbers as the 15 Nation currency gained heavily against the USD. Economic stats from Germany, the largest EZ economy, which normally serves as a pre-cursor fro the rest of the EZ saw business confidence numbers rise in the month of April. The figures came back better than forecasted as they single handedly contributed to a 100 pip raise in the EUR/USD on Wednesday. PMI figures from Germany on Friday also helped push the EUR as the indices showed yet another month of expansion.

This week, it could be assumed that most EUR movement will come from US data, as the EZ lacks a set of significant events this week. The news week from the Euro-Zone will be highlighted by German Final GDP, German CPI, Consumer Confidence and German Retail Sales. A lion’s share of European data is expected to return positive as we should expect a good week from the EUR.

Today the EUR is absent from the economic calendar and will likely range trade for most of the day.

The JPY saw mixed results during last week’s trading session as a basket of global news data and stock movement were the main catalysts for the JPY’s liquidity. A slight division was made between the movement of the USD/JPY and the rest of the Yen crosses. Reacting for the most part to the movement in the Dow Jones, the USD/JPY experienced a near 150 pip swing on Thursday, as the pair leveled our to just over 103 to close the week. Other JPY crosses, saw similar movement throughout the week, but produced far more liquidity then the USD/JPY pair.

The JPY spent a good deal of last week absent from the economic calendar, but will be subject to much more local data this week. On tap this week from the Japanese economy is a slew of economic data, highlighted by Retail Sales, Core CPI, Unemployment Rate, and Industrial Production. The Asian powerhouse has an export-heavy economy that is greatly affected by the prices in Crude Oil. With the steady rise in Crude Oil prices, the low-yielding currency has become more and more susceptible to risk. Though inflationary scares are still evident, the Bank of Japan has kept to its hawkish stance on interest rates. It will be interesting to see how the BoJ’s Governor Shirakawa will react to JPY movement as he is due to speak at the 2008 International Conference hosted by the Institute for Monetary and Economic Studies, in Tokyo on Wednesday. His speeches often contribute to market volatility as he hints quite frequently at future monetary policy.

Today, the Japanese are alone on the event calendar as the US and UK celebrate holidays and the Euro-Zone has no news scheduled. The 23:50 GMT release of CSPI figures should do little to contribute to JPY volatility.

Technical News

The pair has been showing a consistent uptrend since May 8th, and appears that the momentum will probably continue uninterrupted. Last Wednesday the very important key resistance level of 1.5720 was breached and fresh bullish momentum has been injected. Oscillators show that the momentum is still bullish and a breach through 1.5820 will validate a bigger bullish move into the 1.5900 levels again.
The float within the wide bearish channel on the daily chart continues, as no significant breach has been made. The negative slope on the daily Slow Stochastic indicates the possibility of continuation of the bearish movement within the channel. Going short with tight stops appears to be the preferable strategy.
There is a bullish channel forming on the hourlies, as the pair now floats in the middle of it. All oscillators are showing bullish momentum, and the Bollinger Bands are getting tighter which also indicate an additional upcoming bullish move. Going long might be the right way today.
A wide bearish channel continues on the daily chart, however the hourlies are showing fresh bullish momentum, and a possible corrective move towards 1.0300. A reversal cross on the Slow Stochastic of the 4 hour chart indicates the possible continuation of the current bullish trend. Waiting for a clearer sign before entering the market might be the smart move today.

The Wild Card

Gold is in the middle of a corrective move that is now showing strong signs of a bullish trend. It appears that it might be able to breach through the 930.00 level which is a key resistance level. The bullish cross on the hourlies is strengthening the notion that forex traders might enjoy a great entry price for the upcoming bullish move.

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