Dollar Awaiting Release of U.S. Pending Home Sales

The U.S. Pending Home Sales is the primary publication today, and is set to determine the level of the USD when it is released at 14:00 GMT. The other main releases that are set to dominate forex trading today, especially for currencies such as the Dollar, EUR and GBP are the publications of German Retail Sales and the British Manufacturing PMI. Traders may find good opportunities to enter the market following these vital announcements.

Economic News

USD – Dollar Strengthens on the Release of US Manufacturing Data

The dollar rose against most of its major currencies on Monday due to growth in U.S. manufacturing and doubts about Greece’s ability to honor a pledge for drastic wage cuts in return for an aid package. By yesterday’s close, the USD rose against the EUR, pushing the oft-traded currency pair to 1.3190. The dollar experienced similar behavior against the JPY and closed at 94.60.

Yesterday, government reports showed that the U.S. ISM Manufacturing PMI expanded in April at the fastest pace since 2004, propelling a U.S. recovery that’s getting a bigger lift from consumer spending. The figures show American consumers, whose spending accounts for 70% of the economy, are gaining confidence in the recovery. Their purchases in the first quarter rose at a 3.6% annual rate, the fastest in three years.
Factories in the U.S. have benefited from stronger global economies and domestic demand that’s been supported in part by government stimulus. As a result, it has benefited the U.S Dollar, reviving its safe heaven appeal.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Pending Home Sales at 14:00 GMT. Traders will be paying close attention to today’s announcement as a stronger than expected result may continue to boost the USD in the short-term. Traders are also advised to follow Treasury Sec Geithner’s speech at 14:00 GMT. This speech is very likely to impact Dollar volatility.

EUR – EUR Falls on Greek Bailout Doubts

The EUR slipped against the U.S dollar yesterday on fears that a 110 billion EUR bailout of Greece will face stiff political challenges, while fresh steps by China to cool its economy added to near-term uncertainty. As a result, the 16 nation currency fell nearly 1% against the USD and closed at 1.3190.

The emergency aid for Greece, the most ever for a country, alleviated some fears of a near-term sovereign debt default, but the package still has to obtain parliamentary approvals and left open the question of which fiscally vulnerable country in Europe might be next. Market reaction reflected the view that promised spending cuts and tax increases by Athens worth 30 billion Euros over three years, on top of belt-tightening measures already taken. Investors were hardly cheering as a result.

The single currency has lost more than 12% since November as Greece’s debt crisis has escalated. Investors have feared it could spread to other fiscally weak euro zone members such as Portugal and Spain, or spill over into commercial debt markets.

JPY – Yen Falls against the Majors

The Japanese Yen appears to be returning to a bearish posture, especially following yesterday when it finished the day somewhat down versus all of its major rivals. Hitting the 144.30 level against the GBP, and even dropping to the 124.95 level against the EUR, the Japanese currency is a little worse for wear considering its latest movements.

Many economists point out that the banks in Japan being closed in celebration of the greenery day play a significant role in this latest downtrend. The thinly traded JPY will likely appear weak until the Japanese markets come back online early Wednesday. In other Asian news, the currencies of the south Pacific (Australia and New Zealand) appear to be gaining heavily against most of their currency rivals. Traders would be wise to note the upward movement of these pairs and trade accordingly.

Crude Oil – Crude Oil Rises Above $86 a Barrel

Crude oil rose to a 3-week high as U.S. manufacturing expanded in April at the fastest pace since 2004, signaling increasing fuel demand in the world’s biggest energy-consuming country. Crude oil rose 4 cents to settle at $86.12 a barrel during yesterday’s trading session. Prices are up nearly 3% in the past week, and they are more than 72% higher than they were this time last year.

Expectations that consumers may once again want more oil when the recession bottoms have partly fueled the rally, with traders watching the stock market for economic telltales. There is a reasonable possibility that oil prices will continue to be bullish for the rest of the week, providing that the economic situation of the leading economies continues to rapidly improve.

Technical News

Practically all technical indicators show this pair trading in neutral territory. While this usually means that there will not be any drastic price shifts in the near future, traders may still want to pay attention to this volatile pair. A wait and see approach is advised for today.
The Relative Strength Index (RSI) on the 4-hour chart currently shows this pair trading in oversold territory. This is usually an indication that an upward correction is possible in the near future. Most other indicators show the pair in neutral territory. Traders may want to go long with tight stops today.
The Relative Strength Index (RSI) on the daily chart indicates that this pair is currently in overbought territory, meaning that a downward correction is possible today. This theory is supported by the Bollinger Bands on the 8-hour chart. Going short is likely the best option for traders today.
As a further indication of low volatility in the market place, most technical indicators are not showing a clear direction for this pair today. Traders are advised to keep an eye on the pair though, as these situations usually mean erratic price movements could occur. A wait and see approach is advised for the day.

The Wild Card

SPI 200 (ASX)
The Stochastic Slow on the daily chart is showing a cross below the lower support line, indicating upward movement is likely to occur today. This sentiment is supported by the Bollinger Bands on the hourly chart. With the price ticks at or below the lower support line, CFD traders can bet that bullish movements are likely to happen in the near future. Going long with tight stops is advised.

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