Dollar Strengthens Amid Global Deceleration

Positive USD positions were supported by a series of events which started after the release of poor Euro-Zone fundamental data. Another help for the greenback was a drop in Oil prices as Hurricane Gustav slowly passed without causing any major damage to energy facilities in the Mexican Gulf.

Economic News

USD – Strengthening Dollar Awaits ADP Non-Farm Employment Change Figures.

The greenback saw mixed results during yesterday’s trading session, and continued it advance against a basket of major currencies. Positive USD positions were supported by a series of events which started after the release of poor Euro-Zone fundamental data. Another help for the greenback was a drop in Oil prices as Hurricane Gustav slowly passed without causing any major damage to energy facilities in the Mexican Gulf.

Yesterday, U.S. Factory Orders showed a better than expected rise of 1.3% in July, sending the EUR/USD pair to its lowest level since January at 1.4485 before tumbling even further to 1.4383. Against the JPY the USD fell 0.5% to 108.12.

The USD has continued to gain support over the last few weeks and continues to benefit from global economic worries. This is due to investors who are looking to avidly push long greenback positions rather than other currencies whose countries were further behind in terms of economic readjustment in the wake of the global credit crisis. Tomorrow the ECB and the BoE will issue separate interest-rate decisions and both are expected to keep rates on hold; This will likely contribute to more USD momentum.

Looking ahead for today, we will see a batch of US data headlined by the very important ADP Non-Farm Employment Change (NFP). Other scheduled events include: Unemployment Claims, ISM Non-Manufacturing PMI, and Crude Oil Inventories. ADP estimates the results of NFP, which measures the estimated change in the number of employed people during the previous month excluding the farming industry and government. ADP’s results are expected to be negative at -30K from a previous 9K in the last month and could halt some of the USD’s bullish momentum. It is important to note that ADP has been inaccurate for the last several months in their estimation of real NFP figures. The Unemployment Claims report, one of the most influential USD indicators, is forecasted by analysts to show a 3K decrease of jobless Americans from last weeks mark of 425K. ISM is expected to slightly decrease to 49.4 from 49.5 in the last month and will likely latch onto the previous indicators in the direction it provides for the greenback. Crude Oil Inventories is expected to remain positive and could add to the continuous bearish trend of prices. If US economic data can get through the day with no surprises, it is likely to continue to push the dollar up ahead of Friday’s big news day.

EUR – On the Path to Recession; the EUR Hits 8-month Low versus USD.

Yesterday the EUR underwent bearish trading sessions against most of its major currency rivals. The Euro plummeted to an eight-month low against the dollar after an unexpected 0.4% drop in regional retail sales which placed the European currency at its lowest levels of the year. The economic data released confirms the EUR economy shrank 0.2% in the second quarter and could reflect Q3 as well. This reinforces the possibility that the economy may be heading towards a recession.

There is a growing expectation about the ECB rates decision to be announced today. The ECB has been alarmed about how inflation has gained ground and has announced that they will act by tightening policy if prices remain high. For now rats will remain untouched.

Today, the German Factory Orders are due at 10:00 GMT; they are expected to improve by 0.4% after last month’s 2.9% drop. Later we expect the ECB meeting about the rate decision where no changes are predicted to come to the 4.25% rate currently in use. The EUR might finally see some signs of strengthening for the first time since the beginning of the week when ECB President Jean-Claude Trichet is likely to make some pretty hawkish statements. The conference will be open to press questions, which usually leads to heavy market volatility. Traders should follow today’s news very closely, as the market is expected to fluctuate excessively during the interest rate statement.

JPY – The Yen Looks Forward to Rising Figures as the EUR Weakens.

Yesterday the JPY underwent bullish sessions against most of its major currency rivals. The JPY’s most notable surge was against the EUR, as the pair fell by 100 pips testing the level of 156.00.

Yesterday, indicators describing the state of Japan’s economy were not made public.
The low yielding currency has remained strong against its foreign counterparts after investors came to the conclusion that the European Central Bank will not increase interest rates anymore. As a result, foreigners buying Japanese goods will look to buy Yen, which in the long term will help strengthen the Japanese currency.

The only news event to be published today from the Japanese economy will be quarterly Capital Spending, estimated to grow at 1.2%. This is a substantial change from the 3% drop in Q1 spending. As it seems like both the USD and EUR are expecting high volatility today, the JPY could benefit from the overall risk in the market. Traders should keep a close look on the news coming from the US and Euro-Zone as both will be the deciding factors in the Yen’s movement for Thursday.

Oil – Despite Cuts in Production, Oil Prices continue to Plummet.

World oil prices held steady in the face of Hurricane Gustav as its impact was less than expected. Despite a 95.8% cut to oil production and a 91.6% cut to natural gas production in the Gulf of Mexico, oil prices have continued their steady decline. A testament to OPEC’s stance that oil supply was not as big a factor in pricing than geopolitics and a weakened US dollar. With a line of storms brewing farther out to sea, there is concern growing among traders. However, with the increasing strength of the US dollar and the recent decrease in demand, oil prices remain under a downward pressure.

Hovering at $109.07 per barrel, the price of crude oil has dropped only a fraction of a dollar since yesterday. The dollar’s recovery will help continue the steady drop in oil prices. With Gustav out of the way, investors are shifting their focus back to the weakening demand for energy, and other commodities.

Technical News

After touching the low of 1.4383 yesterday, the pair now consolidates around 1.45 level again. On the 4 H chart we notice that the bearish trend is running a head. The volatility is very high and the EUR USD is not in a consolidation stage, especially after the pair has broken the 1.4400 support level. The price should continue to move downwards in a range of 1.4500 to 1.4300. As it seems, the bearish pressure will continue to gather momentum on the EUR/USD also today till the weekend
The cable is in a bearish configuration. The volatility has decreased. The pair moves without trend and swings around exponential moving average (EMA 50 and 100). The Bollinger bands have tightened and the 4H chart’s Elliott pattern implies a continuation of the bearish pressure.
Both the dailies and the hourly charts indicate that the bearish trend will probably continue which might take this pair to the 107.00 level during the day. Both momentum and RSI are sloping downwards supporting an imminent bearish trend. A short position may keep risk tight at the current levels
The pair is floating in a relatively wide range for several days now, as can be seen on the 4 Hour chart. No significant break through the 1.1200 range has occurred, and the hourly chart continues to deliver mixed signals. The daily chart is giving a moderately bullish sentiment with a bit more room to run.

The Wild Card

The bearish trend continues with full steam and Oil is now traded at 109 level. The daily chart reveals that there is still more room to run. The 4 Hour RSI is floating at 50 which provides forex traders with a great opportunity to get in the trend at still quite a high bearish momentum.

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