9.08.2010

Dollar Rallies on Weak German Data

Less than expected German factory orders and worries over the Irish fiscal situation ‎had traders bidding equities lower and buying into safe haven assets as USD/JPY and ‎the EUR/CHF fell to new lows.‎



USD - Greenback Rises on Safe Haven Buying

The dollar put in a strong showing for a second day versus most of the major ‎currencies. Traders were quick to buy the dollar following a Wall Street Journal article ‎that highlighted European banks' exposure to risky government bonds that were ‎previously not reported in this summer's European banking stress tests. While the ‎article did not bring to light any new information that was not previously known in ‎the FX market, it did refocus the spotlight on weakness in the European financial ‎system.‎

Less than expected German factory orders hurt risk sentiment in the market. The ‎change in the in the total value of new purchase orders from manufactures fell by ‎‎2.2% over the previous month. Expectations were for an increase of 0.6%.‎

The lone data release from the US will be the Fed's Beige Book, set to be released at ‎‎18:00 GMT. The Fed's analysis of the markets helps the central bank set policy ‎decisions and interest rate levels. ‎

The EUR/USD has declined for the past two days, pulling back into the symmetrical ‎triangle pattern that had formed. Support is found at the rising lower leg of the ‎triangle pattern at a price of 1.2660 followed by 1.2580.‎

EUR - European Banking Fears Drops Euro

A lack of economic data from the US had traders looking to Europe for signals on the ‎direction of the major currencies. A Wall Street Journal article influenced traders and ‎reignited fears of the European fiscal crisis. Also weak German factory orders did ‎little to calm traders' nerves about the state of the euro zone economy. ‎

Fiscal troubles in Ireland also hurt the euro. The Irish Finance Minister said he does ‎not expect Ireland to seek emergency loans from the EU and Ireland will resume its ‎regular capital raising activities from the public debt markets. However, the market ‎reaction did not emphasize this statement. The spread between Irish government debt ‎and safe haven German debt rose to an all-time high.‎

Further signs of traders' aversion to risky assets were apparent as the DAX was down ‎‎0.6% and the euro was lower versus the major currencies. The EUR/USD fell to ‎‎1.2680, from an opening day price of 1.2806. The EUR/CHF fell to a fresh all-time ‎low at 1.2808. ‎

Significant data releases are on the British economic calendar for today. Traders will ‎be looking at the Halifax HPI and the monthly manufacturing production numbers. ‎Better than expected data may help support the weakening pound. Support and ‎resistance levels for the GBP/USD are found at 1.5320 and 1.5490.‎

JPY - Interest Rate Decisions from Japan and Australia

As expected, both the Bank of Japan (BOJ) and the Royal Bank of Australia (RBA) ‎left interest rates steady at 0.10% and 4.50% respectively. ‎

The BOJ stated the bank is continually monitoring the outlook for economic activity ‎and did not change its economic forecasts. The BOJ also sees a continued moderate ‎economic recovery in the Japanese economy.‎

The RBA also held its base rate steady while the accompanying rate statement ‎indicated that policy is appropriate for the time being but it did highlight some ‎uncertainty in the market. Also newly elected Prime Minister Julia Gillard successfully ‎formed a minority government. ‎

Continued European banking worries touched off a bout of safe haven buying. The ‎yen was one of the benefactors in yesterday's trading. The USD/JPY dropped to a 15-‎year low at 83.50 before finally closing at 83.79. Should safe haven buying continue, ‎the USD/JPY could push its all-time low at 79.70.‎

OIL - Recovery Fears Weaken Spot Crude Oil

The price of spot crude oil fell during yesterday's trading following renewed concerns ‎over the global economic recovery. This time around it was Europe that sparked fears ‎of a weakened banking system and fiscal concerns in Ireland. ‎

Spot crude oil prices fell to $73.80, after opening the day at $74.04.‎

Also affecting the price of spot crude oil was a strengthening dollar. As the dollar ‎appreciates, this makes it more expensive for holders of foreign currencies to by crude ‎oil. ‎

Traders may have been influenced by an explosion at a Mexican government owned ‎oil refinery near the US Mexico border. This sparked worries over short term supplies ‎and helped to reduce the overall drop in spot crude oil prices.‎

The weekly crude oil inventories release from the US Department of Energy ‎Administration is scheduled for Thursday due to the shortened holiday week in the ‎US. Expectations are for an increase of 300K barrels.‎
Support and resistance for spot crude oil prices come in at $71 and $75.70‎

Technical News

EUR/USD

The pair has recorded much bearish behavior in the last 2 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. An upward trend today is ‎also supported by the RSI. Going long with tight stops may turn out to pay off today. ‎

GBP/USD

The cross has been dropping for the past month now, as it now stands at the 1.5380 ‎level. However, the daily chart's RSI is already floating in the oversold territory ‎indicating that a bullish correction might take place in the nearest future. Going long ‎with tight stops may turn out to be the right choice today.

USD/JPY

The USD/JPY has gone increasingly bearish yesterday, and currently stands at the ‎‎83.47 level. The daily chart's Slow Stochastic supports this currency cross to fall ‎further today. However, the hourly chart's Stochastic Slow signals that a bullish ‎reversal will take place today. Entering the pair when the signs are clearer seems to be ‎the wise choice today.‎

USD/CHF

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

Oil

Crude Oil is displaying significant bearish signals after yesterday's failed breach of the ‎‎$75 price level. The hourly chart has the pair trading in the overbought zone on the ‎pair's Relative Strength Index, indicating a possible move lower. The chart also shows ‎a bearish cross has formed on the Slow Stochastic Oscillator that may support this ‎downward move. Forex and commodity traders may want to be short on Crude Oil ‎today as a significant price move may be in the making.

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Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
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List of most popular currencies on the Forex market

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