Dollar Declines to 2-Month Low after Trichet’s Speech

The U.S currency declined against the EUR on Thursday after European Central Bank President Jean-Claude Trichet calmed investors’ concerns about European bank stress tests and the central bank’s liquidity programs. Positive employment data in the U.S. also encouraged investors to move away from the safe havens of the dollar, Japanese yen and gold and into equities.

Economic News

USD – Dollar Falls after Jobless Claims Data

The U.S dollar dropped against most of its major counterparts as the International Monetary Fund raised its global growth forecast and U.S. initial jobless claims dropped last week, spurring demand for higher-yielding assets. Initial claims for unemployment benefits in the U.S. decreased to 454k in the week ended July 3 from 475k in the previous week, the Labor Department reported.

Against the yen the greenback rose to 88.20 yen, up 0.6% on the day and edging further off a seven-month low of 86.96 yen hit at the start of the month, as yields on U.S. Treasuries rose, making them a bit more attractive to Japanese investors.

Today, a lack of news events will likely lead to a low liquidity situation in the marketplace. Traders are warned that in situations like these, erratic price movements can occur for seemingly no reason. With the USD fairly bearish at the moment, expect price changes to work against the greenback.

EUR – EUR Hits Session Highs

The European currency touched a 2 month high against the U.S dollar on Thursday as U.S. and Australian economic data restored faith in the global economic recovery and boosted appetite for higher-yielding currencies.

A report in the United States showing a drop in weekly jobless claims also helped support the euro-zone single currency and other riskier assets. The EUR climbed to as high as $1.2700, its highest since mid-May, and was last up 0.3% at $1.2672.

The EUR also appreciated on speculation that stress tests for European banks were assuming smaller losses on Greek bonds than some investors anticipated. European Central Bank President Trichet said that the publication of stress tests should be followed by action where needed. He also emphasized that the ECB is still providing unlimited liquidity to the financial system. Analysts said that a move to $1.30 in the EUR may hinge upon the results of the stress tests for the European Banks, but Trichet’s encouraging words should provide support for the currency in the next few days.

JPY – Risk Appetite Pushes the Yen Lower

The yen was one of the day’s biggest losers as gains in European and U.S. stocks prompted investors to shed long positions in Japan’s currency. Lower-yielding currencies like the yen tend to fare poorly when investors show a greater appetite for risk, seeking higher-yielding currencies and assets like stocks and commodities.

The yen traded near a 2 week low against the EUR as renewed signs the global economy is weathering Europe’s debt crisis sapped demand for the relative safety of the Japanese currency. The yen is set for its biggest weekly drop against the Australian dollar since December as Asian stocks extended a global rally after the European Central Bank President said the economic recovery is gaining momentum. Japan’s currency was at 77.57 against the Australian dollar from 77.52 yesterday, and is set for a 4.9 % drop this week.

Crude Oil – Oil Rises Above $75 a Barrel

Crude prices rose nearly 2% Thursday as positive sentiment about the global recovery dominated the market and an inventories report included a surprisingly large decrease in crude stockpiles. Crude oil gained $1.37 to settle at $75.44 a barrel. It was oil’s first rise above $75 a barrel in a week as markets were responding to an overall positive mood across most assets on Thursday.

The optimism stemmed from a positive read on the job market and a boost for global growth expectations from the International Monetary Fund, as well as comments from the European Central Bank soothing fears about bank stress tests.

Nevertheless, while the general trend for crude is bullish, the unleaded gas markets numbers continues to show lackluster demand and might put pressure on the entire energy complex in the days to come.

Technical News

The price of this pair appears to be floating in the over-bought territory on the daily chart’s RSI indicating a downward correction may be imminent. The downward direction on the 4-hour chart’s RSI also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 4-hour Chart’s RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. Going short with tight stops might be the right strategy today.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. Going long with tight stops may turn out to pay off today.

The Wild Card

This pair’s sustained upward movement has finally pushed its price into the over-bought territory on the 8-hour chart’s RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

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