Will the US Dollar Continue its Decline?

Yesterday’s trading was characterized with high optimism regarding global recovery. This optimism has boosted the European currencies, such as the euro and the pound, and weakened the relatively safer currencies – the US dollar and Japanese yen. As long as the leading economies continue to provide positive data, this trend has potential to remain. Today’s publications, especially from the US, are likely to determine whether the trend can continue today as well.

Economic News

USD – US Dollar Tumbles as Risk Appetite Rises

The US dollar fell against most of the major currencies during yesterday’s trading session. The greenback dropped about 120 pips against the euro and about 150 pips vs. the British pound. The EUR/USD pair is now trading near the 1.3180 level.

The dollar fell yesterday after a better-than-expected result was published about the US Manufacturing Purchasing Managers’ Index (PMI) report. The survey showed that manufacturing in the US expended to 55.5 in July, beating expectations for a reading of 54.2 points.

This has provided another signal that the US economy continues to recover and that global recovery may follow. As a result, investors turned to riskier assets such as the euro and the pound. For now it seems that positive data from the US is likely to depreciate the dollar, as it is interpreted as an indication for global recovery, and thus boosts risk appetite in the market.

As for today, a batch of data is expected from the US economy. The publication that looks to have the largest impact on the market is the Pending Home Sales figure. This report measures the change in the number of homes under contract to be sold that are awaiting the closing transaction. Analysts have forecast a 0.5% rise in July. If the end result will provide a positive figure, the greenback may weaken further. Traders are also advised to follow the Personal Spending and the Factory Orders publications.

EUR – Euro Traded Near 3-Month High against Dollar

The euro soared against most of the major currencies on Monday, gaining about 120 pips vs. the US dollar. The EUR/USD pair is trading near a 3-month high as a result. The euro gained about 100 pips against the Japanese yen as well.

The euro strengthened yesterday as positive signs regarding global recovery has boosted demand for riskier assets. The euro rose as global equity markets continued to advance.

In general, the recent positive data from the major economies such as the US, Japan and the European nations, is boosting optimism for global recovery. As a result, investors are looking for relatively riskier assets, such as the euro and the British pound. Both of these currencies rose significantly yesterday, and are likely to rise further as long as risk appetite remains strong in the market.

Looking ahead to today, many interesting economic publications are expected from the euro zone. Traders are advised to follow the European Producer Price Index (PPI) report. This PPI figure measures the change in the price of finished goods and services sold by producers. Analysts have forecasted that the indicator has risen by 0.4% in July. Such a result is likely to have a positive impact on the euro by further boosting risk appetite.

JPY – Yen Drops against Majors as Risk Aversion Decreases

The Japanese yen fell against most of the major currencies during yesterday’s trading session. The JPY fell to nearly an 11-month low vs. the euro and also dropped about 150 pips against the British pound.

The yen dropped against most of the major currencies following a report that measures the cost of insuring against losses in the Standard & Poor’s 500 Index fell to its lowest level since May. In addition, the recent positive data from the US and euro zone have boosted risk appetite in the market, and turned investors to look for riskier assets, such as the euro and the pound.

While the Yen is considered to be a relatively safe investment, in times of market optimism, the Japanese currency tends to weaken against the major currencies.

As for today, traders are advised to follow the Japanese equity markets. Traders should notice that the yen tends to drop while Japanese equities rises, as such rises usually indicate that the economy is recovering, and boosts demand for riskier assets as a result.

Crude Oil – Crude Oil Reaches $81.70 a Barrel

A barrel of crude oil was traded at $81.70 during yesterday’s trading. Crude oil breached the $80.00 level for the first time in 3 months, following a 300 pips gain on Monday.

Crude oil soared yesterday as expectations for an economic recovery have boosted global equities. Oil rose for the third day following a better-than-expected release of the US Manufacturing Purchasing Managers’ Index (PMI) survey. The survey reached 55.5 points, beating expectations for a reading of 54.2. In addition, companies such as HSBC Holdings Plc have reported higher than expected earnings.

The world-wide positive data creates speculations that global demand for energy will increase, and as a result boosts crude oil prices. It seems that for as long that the US and euro zone will continue to deliver positive data, crude oil might rise further as the dollar weakens.

Looking ahead to today, traders are advised to follow the leading publications from the US and the euro zone as these tend to have the largest impact on crude oil prices. Special attention should be given to the US Pending Home Sales report, which seems to be today’s leading publication. A positive figure is likely to support crude oil prices further.

Technical News

The pair has recorded much bullish 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 bearish reversal is imminent. A downward trend today is also supported by the 4-hour chart’s Stochastic (slow) indicator. Going short with tight stops may pay off today.
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 Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be the preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The daily chart’s Stochastic (slow) is providing us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction either. Waiting for a clearer sign on the hourlies might be a good strategy today.
The 4-hour chart is showing mixed signals with its RSI fluctuating in neutral territory. However, there is a fresh bullish cross forming on the daily chart’s Stochastic (slow) indicating a bullish correction might take place in the nearest future. Going long might be a wise choice today.

The Wild Card

Crude Oil
Crude Oil prices rose significantly yesterday and peaked at $81.70 a barrel. However, the 8-hour chart’s RSI is floating in the over-bought territory suggesting that the recent upward trend is losing steam and a bearish correction may be impending. This might be a good opportunity for forex traders to enter the correction at a very early stage.

Written by bforex.com