Jeddah Oil Summit Sets the Tone for a Big Trading Week

The USD saw a significant swing in momentum last week as it saw losses versus most of its currency rivals. The dollar was affected in large part due to the rekindling of economic worries in the US that has put the potential Federal Reserve (Fed) rate hike in jeopardy. Fed Chairman Ben Bernanke and his constituents have been adamant lately about the intention of raising rates if inflationary behavior continued. The oft traded EUR/USD pair saw its biggest weekly jump in over 3 months, after the US currency previously spent weeks recovering versus the very same EUR.

Last week’s US fundamental data was stable as the key calendar events came back either even or positive. Most of what drove greenback bullishness over the last few weeks were inflationary scares that pushed talk of a Fed rate hike. However, as the week progressed rising Oil concerns and big losses from mutual funds in the US sparked the bearish reversal in the USD which led to its trading week closing of 1.5626 vs. the EUR.

One of the major news events which look to set the tone for this week’s Forex market was the Jeddah Oil Summit, held on Sunday in Saudi Arabia. The summit was put together by Saudi Arabia to discuss Oil prices with major oil producers, oil companies, heads of state, and oil ministers. The summit produced an expected range of conclusions as Oil producing countries pledged that the amount of oil being produced was enough to supply world demand; whereas western leaders challenged the capability of Oil nations to keep up with the growth in demand throughout the world. The Saudi’s committed to raising production to 9.7 million barrels a day coming ever so close to a 28 year high.

On tap for the rest of the week in the US, we should expect a relatively light load of news highlighted by the all important Interest Rate decision on Wednesday. Also on Wednesday the USD will see Core Durable Goods Orders m/m, New Home Sales Crude Oil Inventories and a FOMC Statement. Expect the dollar to trade within its current ranges until then. Today the US is absent from the news calendar and will likely move according to the response by traders to the Jeddah Summit.

The Euro spent most of last week making steady gains versus its currency rivals as a combination of positive fundamental data and a possible Interest Rate hike helped the cause. Even amidst talks of the Interest Rate hike, the European Central Bank President Jean-Claude Trichet has kept with his hawkish stance. The ECB reckons that a slower economy will not be enough to stop prices rising. Although European output has been surprisingly resilient so far, most forecasters expect a slowdown in the second half of the year.

From the fundamental point of view, in what was a somewhat quiet week for the EUR, a batch of data came back with mixed results. During the last week, Core CPI and German PPI came back with positive marks, pushing the European currency higher against its Dollar counterpart. On the contrary, the German Consumer Confidence index posted its lowest mark in 15 years. The Confidence numbers could prove to be crucial this week as the ECB gages how the possibility of an Interest Rate hike and rising inflationary pressures will effect European growth.

This week’s Euro zone data will be interesting as it will likely take a back seat to Wednesday’s US Fed decision regarding the Interest Rate. Some of the more important events on tap this week will be German Consumer Confidence, French Consumer Spending and German Preliminary CPI, as well as two key speeches by ECB President Trichet. If the news returns positive, the EUR should continue to see gains versus the US dollar. Today is a full day for the EUR, as we expect to see German Manufacturing PMI, German Ifo Business Climate and Expectations Index, Manufacturing PMI, and Services PMI. With the absence of the USD from the news today, look for the EUR to make up some more ground versus the greenback.

The JPY seems to have taken on a new identity in the past week or two. The Asian currency no longer seems to respond with nearly as much correlation to the movement in US stock markets. Forex traders do not have to look back too far in order to find a heavy correlation between carry trading (one of the main facilitators in JPY movement) and the Dow Jones. After hitting the 108.40 level last week, the JPY recovered some 100 pips by the end of the previous trading week and looked to continue the same tendency when markets reopened yesterday.

Lately, The Japanese have been careful while dealing with monetary policy as they combat the rising issues of energy and food prices worldwide. With the USD and EUR shifting their positions nowadays and the expected rate hikes still waiting to take place, the JPY can use some positive data to push the currency at least until Wednesday’s Fed decision.

This week will be a busy one for Japan as Forex traders can expect Trade Balance, CSPI, Core CPI, Overall Household Spending, Industrial Production and Retail Sales. Positive results, similar to last week can be important in solidifying any run made by the JPY in response to outside data. Overnight the release of BSI Large Manufacturing Conditions showed that large Japanese companies have seen sentiment deteriorate in response to rising production costs. The mark will hopefully be one of the few negative numbers this week fro the JPY as it looks to spark Forex traders into solid short positions. The JPY will give way to the EUR as today’s market maker as it is absent from the day’s calendar. Expect range trading until the next piece of Japanese fundamental data is announced on Tuesday.

Technical News

The hourlies show that this pair is continuing its bearish rally and indications are that there is still steam left in the downtrend. The 4 hour chart’s Slow Stochastic is showing a bearish cross which implies that the move will indeed be bearish. Traders are advised to wait for the move to initiate, and swing with it.
We are now at the beginning of a very tight bullish channel on the 4H chart. Indicators on the hourlies and the daily charts are mixed. Therefore this pair should remain within a tight range today. Preferred strategy today will be to buy on lows and sell on dips.
This pair has through a relatively choppy trading session of late and seems to be unable to pick up a sustained trend. Bollinger bands are widened indicating increased volatility. Indications on the 4H are giving a bullish signal and this pair should target the 108.50 level today.
On the hourlies, the pair is in the beginning of the uptrend correction initiated at 1.0303. The RSI and Momentum are still positively sloped indicating that there is still plenty of steam left in this bullish move. The oscillators show that a negative breach is quite unlikely, and the daily charts are also showing a beginning of a mild bullish momentum. Going long might be a preferable strategy.

The Wild Card

There is a very distinct downwards channel forming on the 4 hour chart as the pair now floats around its upper level. The RSI and slow stochastic are floating in the mid section which indicates that the next move would be towards the bottom of the channel. This could be a great opportunity for forex traders to enter the market with a short position with a chance that a bearish break beyond the channel will unleash an even stronger move.

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