Dollar Goes Bullish Ahead of Advance GDP Release

The Dollar has gone bullish since the beginning of yesterday’s trading, and ahead of the release of today’s release of Advance GDP figures at 13:30 GMT. Results better than the forecasted -5.4% is likely to make the dollar go from strength to strength as the trading weak comes to a close.

Economic News

USD – Dollar Rises on Safe-Haven Status

The USD may further extend its gains against the EUR today; on speculation that growing evidence of a global slowdown will increase the appeal of the U.S currency to traders as a safe-haven. The Dollar closed at $1.2889 per EUR from $1.3120, rising over 230 pips, the biggest gain in three weeks. The Dollar was broadly supported on Thursday as risk aversion came to the fore and optimism rose over the latest U.S. monetary and fiscal stimulus measures, which pushed the U.S currency higher.

The greenback also advanced after the Federal Reserve made its announcement about buying Treasuries to help boost the U.S economy. On Wednesday the Fed kept Interest Rates near zero as widely expected, and said it was prepared to buy long-term Treasury debt if that would help improve credit conditions. Moreover, a separate report revealed sales of new U.S. homes plunged 14.2% last month to a record low, further dulling the appeal of higher-risk currencies and assets such as stocks and boosting safe-haven flows into the Dollar. Apparently, bleak U.S. economic data and falling share prices kept investors wary of risk, even as countries embraced further monetary and fiscal stimulus to boost their economic growth.

Against the JPY however, the dollar was down 0.7% at 89.73 Yen yesterday. The greenback’s decline came as a result of the Federal Reserve unwillingness to provide more information about buying Treasuries, fueling speculation investors will favor Japan’s currency over the USD. The Dollar and Yen have been viewed as safe-haven currencies amid the global financial crisis, and both of these currencies often fluctuate depending on perceived shifts in investors’ tolerance for risk.

EUR – EUR Falls on Weak Economic Data

The European currency retreated from gains made earlier in the week against its major counterparts. Against the USD it was down about 2% at $1.2889, after hitting a session low of $1.2875, and versus the Japanese currency, the EUR was down over 2% at 115.18 Yen. The EUR currency slipped on comments by European Central Bank (ECB) President Jean-Claude Trichet, who said that the ECB could cut key Euro-Zone Interest Rates below the current 2%, in addition to more unconventional measures.

The weak economic figures which came out of the Euro-Zone reversed any significant gains that the EUR made against the Dollar in recent days. The underlining weakness in the European economy was data showing that German unemployment posted its biggest increase in nearly four years in January. In addition, the European Commission said its index of executive and consumer sentiment declined to a record in January. The index fell to 68.9, the lowest level since it was started in 1985. Analysts say that for many investors, the strategy appears to be simple: to avoid risk; which means funds are flowing out of the EUR and back into the Dollar and the Yen. The slowing economic growth of the Euro-Zone has prompted investors to repatriate funds from higher-yielding assets that might cause the EUR to decline further.

Looking ahead to today, there are 2 important economic data releases coming out of the Euro-Zone. The CPI Flash Estimate and the Unemployment Rate figures are set to be published at 10.00 GMT. If these figures are better than expected, then the EUR may reverse some of yesterday’s declines. However, if the figures are in line with forecasts or worse, then the EUR may make additional losses today vs. the Dollar, Pound, and Yen. Forex traders are advised to pay attention to GDP figures coming from the U.S., and Consumer Confidence data coming from Britain later today, as this may determine the Euro’s strength against the GBP and USD into the middle of next week.

JPY – Yen to Rise Further Due to Government Insufficiency

The Japanese Yen may rise further through the end of the country’s fiscal year on March 31, as exporters buy the currency to hedge revenues, and money managers bring funds home amid the global slump. Analysts forecast that the market should expect even further Yen appreciation as the Japanese fiscal year comes to a close, as both corporate hedging and investor repatriation flows support the currency. The Japanese currency closed at 89.34 per Dollar from $89.68 yesterday. The Yen has gained 1% against the greenback this month, following a 23% rally last year. The JPY may continue to strengthen as investors unwind so-called carry trades, where they borrowed in the currency to invest in nations where benchmark Interest Rates exceeds Japan’s 0.1%.

Recently, some important market players have called for more aggressive government measures to halt the Yen’s rise. It’s important to note that the strong Yen has significantly hits exporters profits. Even though the world is currently in a deep recession, it seems the Japanese government’s policies are totally insufficient, according to many leading industrial leaders. Japan’s Finance Ministry is unlikely to shield the country’s exporters from a rising currency by ordering the Bank of Japan to intervene and sell the Yen. Some analysts predict that the structural Yen appreciation has yet to run its course as there remains scope for investors to unwind more carry trades, and they believe that JPY will appreciate further versus the USD, possibly to the 84 Yen within 3 months.

OIL – Crude Oil Floats on Weak U.S Economy and Strong Dollar

The Crude Oil prices failed to strengthen on Thursday, due to the release of another round of gloomy U.S. economic data, the world’s top energy consumer. The failure of Oil to reverse recent losses was also owed to a strong U.S. Dollar in yesterday’s trading. This came about largely due to reports showing U.S. unemployment rose to a record peak in mid-January, while new orders for long-lasting manufactured goods fell for a 5th month. The deepening U.S. economic recession has cut demand for fuel and contributed to the biggest 4-month buildup in U.S. crude stockpiles since 1990. Prices for Crude has dropped more than $100 since its peak last summer, ringing alarm bells for the Organization of Petroleum Exporting Countries (OPEC) nations dependent on Oil revenues. This has resulted in OPEC cutting output by 4.2 million barrels per day since September.

Crude Oil prices, however, were little changed yesterday, after settling at $41.56 a barrel. This was largely due to the fact that OPEC Secretary General Abdullah al-Badri said that the group would not hesitate to act again if the Oil price remained low, when speaking at the World Economic Forum in Davos, Switzerland. Oil producing nations are foresee that Oil will add to this weeks losses by the end of next weeks trading, as Thursday saw a potential U.S. Oil refiner strike and traders are speculating that a potential strike could affect supplies of refined products.

Technical News

The price of this pair appears to be floating in the over-sold territory on the hourly chart’s RSI indicating an upward correction might be imminent. The upward direction on the 4-hour chart’s Momentum oscillator also supports this notion. Going long with tight stops might be the right choice today.
The typical range trading on the 4 hour chart continues. Both the hourly RSI and Slow Stochastic are floating in neutral territory. However, there is a fresh bearish cross forming on the daily chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. In that case traders are advised to swing in after the breach takes place.
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 Slow Stochastic fluctuating at the neutral territory. However, the Hourly Chart’s RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

The Wild Card

The bullish trend is loosing its steam and the price is consolidating around the $906 for an ounce. The daily chart’s RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

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