Are the USD Bulls here to Stay?

With Non Farm Payroll on Tap Will EUR/USD test 1.55?
Yesterday was an amazing trading day for the USD. The USD saw bullish trends against all its currency counterparts. The increase in the greenback’s value was most notable against the EUR as the cross feel from above 1.57 to under 1.56 and against the GBP as the cross fell from the midd 1.99’s to under 1.98. The Dollar’s rally was sparked by the better than expected S&P/CS HPI Composite-20 and Consumer Confidence Index. Simultaneously, the Crude Oil prices fell sharply, which also helped the USD gain strength.

The two economic releases that were announced yesterday both helped the bullish trends by the USD. The S&P/CS HPI Composite-20, which measures the change in the price of single-family homes in 20 metropolitan areas did drop but less than expected. More assurance was sparked by the Consumer Confidence Index which was forecasted to be lower than the previous reading, but was actually higher at 51.9.The greenback also took advantage of the drop in Crude Oil prices that occurred because of beliefs that record prices are eroding the world’s thirst for energy. The strength in the American economy was shown by the Dow Jones and S&P 500 gains of over 2% yesterday.

On tap from the US today, all eyes will be on the very important ADP Nonfarm Employment Change. This estimate by ADP, which measures the estimated change in the number of employed people during the previous month, excluding the farming industry and government, was off last month and was valued at a very low -79K. Today’s release is expected to be negative, but not as low as the previous reading and should help strengthen the USD. The other impactful release today will be the Crude Oil Inventories, which are expected to remain negative, but not as low as last week, which will be very interesting for the Crude Oil prices that are on a continuous bearish trend.

Volatile Leads Trading To Major Sell off For EUR
The Euro lost grounds to most of its currency counterparts, besides the CHF in yesterday’s trading. It was an interesting day for the EUR, as the only economic data that was released was the German Prelim CPI, which rose and beat the forecast. As the USD saw bullish trends based on its data releases, the EUR took a hit. Adding to the bearish trend of the EUR that was based on its rivals’ bullishness was news that came from Slovenia. Slovenia’s Economy Minister said on Tuesday the adoption of the euro in 2007 made an important contribution to a rise in the country’s inflation which reached a 6-year high in June. Vizjak also noted that rounding up of prices after euro adoption and the difficulties people had in making the transition to the new currency contributed a lot to inflation. As the EUR has been adopted in most of Europe, it was alarming for trades to hear these negatives words coming from one of the new Euro members.

Today should be a quiet trading day for the Euro as there is only one economic release expected to come out of the Euro-Zone. The Consumer Confidence is expected to continue declining as the mood of consumers in regard to economic conditions seems to be weakening in the Euro-Zone. Another important factor for the Euro will be the Crude Oil price, which should see volatility based on the American Crude Oil Inventories and the ADP’s effect on the USD’s value.

Manufacturing PMI on Tap
Besides the bearishness against the USD, the JPY saw bullish trends against all of its other major currency counterparts. The USD was unstoppable because of its economic data and like the Dollar’s other crosses, the JPY lost grounds against it, but the JPY showed its strength against its other crosses. The export based Japanese economy took advantage of the drop in Crude Oil prices, which should help lower the transportation prices of the Japanese goods across the world. The only data release that was announced yesterday was the Prelim Industrial Production, which saw a bigger than expected decline in June as makers of cars and semiconductor chip processing equipment cut production to deal with rising inventories and slowing demand.

There will only be one data release from Japan today as the Manufacturing PMI will be announced during late trading. There is no official forecast for this measure and a rising trend will have a positive effect on the nation’s currency. Besides the JPY’s crosses’ trading trends, the Crude Oil will be the other major influence and the Yen will need the bearishness of the Black Gold to continue in order for the JPY to keep strengthening.

Oil Drops Over Shrinking Demand
Crude Oil prices eased in US trading yesterday ahead of a weekly US report on energy stockpiles expected to reinforce worries over shrinking demand. New York’s main contract, light sweet crude for September delivery, was 42 cents lower at 121.77 dollars a barrel after slumping 2.54 dollars to 122.19 Tuesday on the New York Mercantile Exchange. The Oil dropped mainly because of a strengthening U.S. dollar and signs that gasoline demand may extend declines.

Oil market’s bearish mood has also prompted some investors to move their funds out of oil. Prices have dropped about 17% since they touched record highs above 147 dollars a barrel on July 11th.

The US Department of Energy is expected to release today its weekly report on energy stockpiles in the country. The inventory data will probably continue to show a demand slowdown in the US and will likely add to the worries over a slackening oil demand.

In addition to a slowing demand, the supply is also growing. The EIA says Saudi Arabia, the world’s largest producer and home to the world’s biggest oil reserves, produced 10.6 million barrels per day in 2006, little changed from 1980 production of 10.3 million barrels. The kingdom recently announced its intention to increase production capacity to 12.5 million barrels per day by mid-2009. Its ability to do so will be watched closely by those experts who contend that Saudi oil fields either have reached or will reach peak production in this decade.

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 pair is in the middle of a very strong downtrend and is testing fresh lows on a daily basis. The support level of 1.5600 has been breached and a bearish cross on the 4 hour cart’s Slow Stochastic suggests further bearish move is impending. Going short might be preferable today, as the next target price might be around 1.5500.
There is a very distinct bearish channel forming on the hourly chart. The Slow Stochastic and the RSI on the hourlies support this bearish notion indicating there is more room in this movement. As well all the oscillators on the daily chart point to this bearish conception. Thus going short might be a preferable strategy for today.
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.
The Slow Stochastic on the 4 hour chart formed a bearish cross in the overbought territory. Yet this bearish cross is around the 85 Slow Stochastic zone, indicating that the pair can go in either direction in the next few hours. As such investors are advised to wait for clearer signals before entering the market.

The Wild Card

The Slow Stochastic on the 4 hour chart points towards a current bullish momentum. The daily Slow Stochastic strongly supports this notion. This might be a great opportunity for forex traders to join a very promising bullish trend.

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