Retail Sales Figure Leads to Dollar Gains

Investors took positive US retail and core retail sales figures, both released yesterday, as further evidence of growth in the world’s biggest economy. As a result, the USD/JPY shot up to 82.83 during the afternoon session, a fresh 11-month high for the pair. Today, a speech from Fed Chairman Bernanke is likely to be the highlight of the trading day. While no major announcements are expected during the speech, any hint that US interest rates could go up earlier than expected may help the dollar extend its recent bullish trend.

Forex Market Trends

Daily Trend down down up up down down
Weekly Trend down down up up down down
Resistance 1.3269 1.5827 83.45 0.9363 1.0667 0.8417
1.3193 1.5765 83.32 0.9297 1.0610 0.8381
1.3146 1.5726 83.15 0.9256 1.0575 0.8358
Support 1.3070 1.5663 82.98 0.9191 1.0518 0.8322
1.3024 1.5624 82.84 0.9150 1.0483 0.8299
1.2948 1.5562 82.59 0.9084 1.0425 0.8262

Economic News

USD – Bernanke Speech Set to Generate Volatility

The US dollar saw another bullish day yesterday, following the release of positive US retail sales and core retail sales figures which signaled additional growth in the US economy. Following the news, the USD/JPY spiked to an 11-month high to peak at 82.83 for the day. Against the euro, the combination of positive US indicators and general investor pessimism in the euro-zone economic recovery, led to significant dollar gains. The EUR/USD dropped as low as 1.3050, before staging a slight correction during the evening session.

Turning to today, traders will want to pay attention to a speech from Fed Chairman Bernanke. While it is not yet known what the Fed Chairman will say, his speeches have been known to generate significant amounts of market volatility. Any indication that the US could raise interest rates earlier than expected could help the dollar extend its recent bullish run. At the same time, if Bernanke once again maintains that US interest rates will remain at their current levels through 2014, the greenback may give up some of its recent gains.

EUR – EUR Tumbles despite Strong German Data

The euro was once again down against its main currency rivals yesterday, despite a significantly better than expected German ZEW Economic Sentiment figure. Investor confidence in the euro-zone economic recovery is still extremely low, as the prospect of the debt crisis spreading to other countries in the region is still very likely. Analysts are warning that Portugal, Spain and Italy are susceptible to many of the same troubles as Greece, and that there is still significant work that needs to be done to get the euro-zone back on track.

The EUR/USD dropped close to 140 pips yesterday, reaching as low as 1.3050 during the afternoon session. Against the British pound, the euro fell as low as 0.8328, down close to 100 pips, before staging a slight upward recovery.

Turning to today, traders will want to note the British Claimant Count Change figure, as well as the speech from Fed Chairman Bernanke. The British figure is forecasted to show a slight drop in the number of people claiming unemployment benefits last month. If true, the pound may extend its gains against the euro. Similarly, the dollar could see additional gains today, if Bernanke’s speech points to continued growth in the US economy.

JPY – JPY Moves Up vs. Euro

The Japanese yen made gains on Tuesday following an announcement from the Bank of Japan indicating that there would be no further steps to increase quantitative easing. The JPY remained bullish throughout most of the morning, and saw gains against the euro and greenback. While the yen remained strong against the euro, the USD was able to bounce back during the afternoon session, to stabilize around 82.74. This was preceded by news of positive economic growth in the form of increased retail sales numbers from the U.S.

Heading into today, we may see a possibility for the JPY to continue its bearish trend against the dollar. The big news for today will come in the form of a speech from Fed Chairman Bernanke. The chairman will indicate the overall state of economic recovery in the U.S. and this could boost the USD even further up on the yen.

Crude Oil – Crude Oil Drops Slightly

Crude oil dropped slightly on Tuesday following gains made the previous day. The commodity traded around $106.20 for most of yesterday which marks a slight drop from the $106.37 level reached during trading on Monday. Investors are keeping an eye on crude oil given the recent gains made by the USD on Monday and Tuesday.

Others indicators in the market are contributing to the most recent slump in the price of crude. For example, the recent news out of China regarding its shrinking manufacturing sector and overall weakened growth rate has pushed down demand for crude oil. Countries across Europe have also been reporting a shrinking demand for oil, which could inhibit any further rise.

Heading into today, traders will want to pay close attention to how the market reacts to a speech given by Fed Chairman Bernanke. Any continuation of the bullish trend in the USD following the speech could lead to a further decline in the price of crude oil.

Technical News

The Relative Strength Index on the daily chart has dropped into oversold territory, indicating that upward movement could occur in the near future. That being said, most other long-term indicators place the pair in neutral territory. Taking a wait and see approach for the pair may be a wise choice.
While the Williams Percent Range on the daily chart has entered the oversold zone, which means that upward movement could occur, most other technical indicators are inconclusive at this time. Traders will want to keep an eye on indicators like the Slow Stochastic and Bollinger Bands on the daily and weekly charts, as a more defined trend may present itself in the near future.
Following the spike the pair saw to close out last week’s session, technical indicators now show that downward movement could occur in the coming days. The Slow Stochastic on the daily chart has formed a bearish cross, while the Relative Strength Index on the weekly chart has entered overbought territory. Going short may be the wise choice for this pair.
The Bollinger Bands on the weekly chart have begun to narrow, indicating that a price shift could occur in the coming days. The Relative Strength Index on the daily chart, which has crossed into overbought territory, shows that this shift could be downward. Traders may want to go short in their positions.

The Wild Card

The daily chart’s Slow Stochastic has formed a bearish cross, indicating that this pair could see downward movement in the near future. At the same time, the Williams Percent Range is approaching the overbought zone. Forex traders will want to watch the indicator. If it crosses above the -20 level, a bearish correction could occur.

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