Forex News

Forex Weekly Trading Forecast - 09.27.10

2010-09-25T10:55:00.004+02:00

US Dollar at Risk of Declines as Fed Hints at Fresh Quantitative Easing

Fundamental Outlook for US Dollar: Bullish

- US Federal Reserve hints at further Quantitative Easing, Sinks US Dollar
- Home Sales data remains near record-lows, bodes poorly for economic outlook
- Positioning and signs of reversal nonetheless warn of potential US Dollar recovery

The US Dollar finished sharply lower against all major forex counterparts on a week of mediocre economic data and a noteworthy shift in rhetoric from the US Federal Reserve. The highly-anticipated Federal Open Market Committee (FOMC) interest rate announcement and statement forced sharp moves across financial markets. Officials strongly suggested that they stood ready to restart Quantitative Easing (QE) measures if the need presented itself, and an especially dovish tone on inflation implied that such a move could come sooner than later. Given that the US Dollar fell precipitously on the first wave of QE, the prospect of QE Part 2 could spark continued USD weakness against major counterparts.

Market focus on the Fed’s next moves will make US economic data especially market moving, and a relatively busy calendar in the week ahead could bring sharp US Dollar volatility. Second revisions to Q2 Gross Domestic Product data may be the highlight of the coming days of trading, but traders should likewise watch for surprises out of earlier-week Consumer Confidence figures and end-of-week ISM Manufacturing data.

Market reactions will likely be linked to implications for the Fed’s next monetary policy moves. US Dollar moves on Consumer Confidence and GDP results should subsequently be straightforward; disappointments should force USD declines while positive surprises would likely see the Greenback rally. This should also roughly prove true for market reactions to ISM Manufacturing data, but any particularly large shifts in the “Prices Paid” index could blur implications for the Dollar. Consensus forecasts for all of these economic releases point to deterioration in economic conditions. Such bearish expectations leave plenty of room for positive surprises, but continued disappointments in US economic data hardly inspires confidence in prospects for the week ahead.

Short and medium-term momentum favors US Dollar declines, but the threat of sharp upward corrections grows as sentiment hits further USD-bearish extremes. Our most recent FX Options and Futures weekly report underlines the fact that many speculators are betting on further Greenback weakness. Said traders are usually in the right direction of the trend, and we have accordingly called for USD weakness. Yet traders should be careful of chasing US Dollar declines amidst high risk for corrections and monitor position risk accordingly.

Euro Rally Increasingly Suspicious as Fundamentals Remain Anchored

Fundamental Forecast for Euro: Neutral

- European Union members continue to issue debt at exorbitant rates; but investors ignore this concern
- Germany’s IFO Business sentiment survey provides the euro temporary fundamental footing
- How far can EURUSD run? After forging four-month highs, overhead resistance has lightened up

For those that follow the macro trends behind the currency market, it is difficult to reconcile the euro’s remarkable climb to new highs with the lingering financial and economic troubles that this economy continues to face. Nonetheless, the currency managed a week-end rally against its benchmark counterpart (the US dollar) Friday to close at its highest level in five months. Now, with EURUSD standing just below the highly visible 1.3500 psychological level (and 50 percent Fibonacci retracement for you technical traders), there is a distinct bite of speculative momentum to the otherwise remarkable two-week bullish bias the market was already touting. However, traders are a flippant crowd; and considering the euro is leveraging much of its performance on the sentiment of the crowd, forging further ground when the unit is already at such extraordinary highs will carry with it exceptional level risk.

There are a few primary drivers that can sustain or undermine the euro’s performance going forward. One uncertainty that seems to have lost much of its potential influence over future price action is the financial predicament individual EU members and the region as a whole faces going forward. Though there are few scenarios going forward where the euro-region will find itself unscathed in its fight against budget deficits balanced against slowing economic activity, market participants are proving to defer to the here-and-now rather than concern themselves with what lies further down the road. This is fortunate for bulls as it diverts attention away from lingering concerns over Portugal’s lack of progress on cutting its own budget gap (the government recently upgraded its deficit assessment) and Ireland’s liability in preventing Allied Irish from sinking its entire financial system. Helping to remove an otherwise consistent threat, there are few scheduled sovereign debt sales by the most troubled EU member economies. Italy has penciled in three consecutive days of auctions and Spain is on the books for one.

If we want to ascertain the euro’s bearing and pace, the best place to look is the dollar. Or, more specifically, we should be looking at EURUSD. Though the shared currency has shown significant progress against many of its counterparts (positive sentiment arguably helps this particular currency the most because investor concern was the cause of its deterioration), a considerable share of its strength can be ascribed to the outflow of capital from the greenback. Investors are moving out of the dollar (or more precisely Treasuries and other dollar-based assets) for fear that the extraordinarily loose monetary policies the Fed has adopted will devalue the nation’s assets. For bulk investment funds and reserve assets, liquidity is essential. Naturally EURUSD being the most liquid currency pair and considering Europe maintains one of the most open markets in the world, it is a natural destination for capital.

As for scheduled event risk, the docket is loaded with notable market-movers and subtle backdrop performers. If we are looking for short-term volatility, the German GfK consumer confidence survey, CPI and unemployment change figures all have a level of prestige. If we want to follow long-term trends, we will look to the M3 figure as an objective inflation gauge and EZ sentiment readings for growth potential.

Japanese Yen Could Strengthen On Safety Flows Despite Active BoJ

Fundamental Forecast for Japanese Yen: Neutral

- BoJ Intervenes for Second Time?
- All Industry Activity Index Rises 1.0% as Expected
- Technicals Point Toward Continued Yen Strength

Reported BoJ intervention during Friday’s Asian session generated a brief bout of across the board yen weakness, but the move was quickly retraced as cautious markets were favoring safety. The Asian currency would ultimately lose ground against several counterparts, as a positive U.S. durable goods orders report generated broad based risk appetite. A disappointing U.S. new home sales report would add to the prevailing outlook for additional QE from the Fed, the potential for additional stimulus only added to support for equity markets, and succeeding where the central bank failed. However, the dollar continued to be punished by the prospect of FOMC purchases, causing it to remain flat on the day against the Yen.

The Yen’s strength against the dollar has raised concerns amongst policy makers with Governor Masaaki Shirakawa stating in an interview that the central bank needs to monitor risks to Japan’s economy, exports, and corporate profitability. Board member Ryuzo Miyao also expressed concerns in a speech stating that “We’re entering a situation where we need to pay more attention to downside risks.” He would also acknowledge that the buying of Japanese Government bonds is one policy action that the central bank will consider at their next meeting. It could be an interesting meeting considering the recent activity of the central bank, especially since today’s Yen weakness has also been attributed to the possible resignation of Governor Masaaki Shirakawa. The monetary authority head is scheduled to speak on September 25th and 27th which could present event risk for the yen if he sheds light on his status, intervention or QE.

Continued risk appetite could be the best case scenario for policy makers as it will lead to flows out of the safe haven currency as traders look for higher yields. However, the potential for growth concerns to re-emerge is high considering central banks are beginning to lean toward additional stimulus. The fundamental calendar is full of key gauges that will provide insight into the economy, despite their lack of market moving potential. The prospect of action from the central bank may give additional weight especially the CPI report. Signs that deflationary pressure are growing could force the central bank’s hand, especially if the Tankan readings point toward slower activity. Early forecasts are for consumer prices to remain unchanged at -0.9% with manufacturers becoming more optimistic. A lower jobless rate, higher retail trade, plus improvements in industrial production and housing starts are expected. If a rosier growth picture emerges, then the monetary authority could stay on the sidelines, leaving the yen at the mercy of broader trends.

British Pound Rally Could Falter As Economic Outlook Deteriorates

Fundamental Forecast for British Pound: Neutral

- Mortgage Approvals By Major U.K. Banks Expand Less-Than-Expected
- Public Sector Borrowing Rises At Record Pace in August
- BoE Votes 8-1 to Maintain Current Policy, Andrew Sentance Dissents

The British Pound advanced to a fresh monthly high of 1.5815 on Friday and the exchange rate may continue to trend higher going into October as it breaks out of a narrow range. The GBP/USD cleared the 38.2% Fibonacci retracement from the 2009 low to high around 1.5700, and the pound-dollar may work its way back towards 1.6000 as it pares the decline from August. However, as the economic docket is expected to reinforce a weakening outlook for the region, the developments could curtail the recent strength in the sterling as investors weigh the prospects for a sustainable recovery in the U.K.

The final 2Q GDP reading for the U.K. is expected to show the economy expanding at an annualized rate of 1.7%, while total business investments is projected to contract 1.6% from the first three-months of the year. In addition, separate reports by the Bank of England are anticipated to show a GBP 2.9B decline in housing equity withdrawals, while mortgage approvals are forecasted to increase 47.0K in August after expanding 48.7K in the previous month. The data could spark a bearish reaction in the British Pound as growth prospects deteriorate, and an unexpectedly downward revision in the growth report or a smaller-than-anticipated rise in mortgage lending could stoke a reversal in the GBP/USD. If we see a retracement unfold over the following week, we would expect an initial test of the 38.2% Fib at 1.5700, but a sharp decline could lead the exchange rate to fall back towards the lower bound of its recent range around 1.5300.

Nevertheless, members of the BoE may change their tone towards future policy as inflation continues to hold above the government’s 3% limit for inflation, and hawkish comments from U.K. policy makers could stoke a rise in interest rate expectations over the coming months. MPC board member Andrew Sentence argued the central bank should gradually normalize monetary policy “soon” as the recovery takes hold, while his former colleague Kate Barker said the scope to increase quantitative easing looks “less certain” given the stickiness price growth. As the risks for inflation become an increased concern, members of the MPC may heed to Mr. Sentence’s call in order to give the central bank increased flexibility in managing monetary policy over the medium-term.

Canadian Dollar Underperforms and Outlook Remains Bearish

Fundamental Forecast for Canadian Dollar: Bearish

- Canadian Retail Sales disappoint markets
- Technical studies suggest Canadian Dollar may lose further

Pronounced US Dollar weakness meant that the Canadian Dollar finished the week higher against its namesake, but the Canadian currency underperformed all other G10 counterparts and relative weakness suggests risks remain to the downside in the week ahead. Relative disappointments in Canadian Retail Sales and Consumer Price Index data affected market expectations for the future of domestic interest rates. Overnight Index Swaps now price in a 20 percent probability that the Bank of Canada will raise interest rates at their next meeting—down from a 50 percent chance at the end of last week. Bearish US Dollar momentum suggests that the USDCAD could fall further, but the Canadian Dollar’s inability to capitalize on Greenback weakness raises risks of upward correction in the USDCAD.

A relatively empty week of Canadian economic event risk means that the USDCAD will likely trade off of US economic developments and moves in very highly correlated Oil prices. A potential exception comes in the form of monthly Canadian Gross Domestic Product data due the morning of the 30th. Though the month-on-month GDP figures are not known to move currencies, recent focus on Canada’s economic fundamentals may make any surprises market-moving. On the US economic docket, a slew of end-of-month economic data could potentially alter forecasts for US growth and affect financial markets.

The Canadian Dollar previously rallied against the Greenback and other major currencies on evidence that it was decoupling from a slowed US economy and showed solid growth prospects. Yet more recent economic data reminded markets that Canada remains fairly sensitive to economic developments in its southern neighbor. Disappointments in US economic data would likely force the USDCAD lower, but any especially strong surprises would likely mean that the Canadian Dollar could continue underperforming against other major counterparts.

As it stands, it is difficult to call for substantial US Dollar recovery against any major currency. Yet the Canadian Dollar may continue to underperform more broadly as markets digest a relative slowdown in Canadian economic recovery. Such underperformance would likely mean that the USDCAD continues to trade in a wide range through the foreseeable future.

Australian Dollar: Trends Higher But a Reversal May Be On the Horizon

Fundamental Outlook for US Dollar: Neutral

- Australian Dollar 9650 Is Resistance
- Australia Ready to Raise Rates if Growth Trends Hold, RBA Minutes Show

The Australian dollar has rallied against the U.S. dollar this week, climbing some 2.36 percent, and finishing as the sixth best performing G-10 currency through Friday’s close. The economic docket in Australia was relatively light this week but the RBA’s minutes from September suggests that policy makers may hike rates twenty five basis points at its next rate decision meeting on October 4th. At the same time, the single currency is benefiting from a change in sentiment as concerns of another downturn in the global economy fade (for now).

The minutes from the Reserve Bank of Australia this past week showed an aggressive stance towards further tightening by the central bank. The RBA stated that they see slightly stronger domestic conditions versus the previous month, and went onto add that higher rates are likely if growth trends continues its course. The increase in borrowing costs will ensure that inflation remains consistent the bank’s target, RBA said. In turn, the Aussie rallied against the struggling U.S. dollar as traders’ priced in an increased chance that policy makers will raise its key overnight lending rate next month. According to the Credit Suisse overnight index swaps, traders believe that there is a 60 percent chance of a rate hike to 4.75 percent from its current level of 4.50 percent. It is also important to look at the Sino-Australian relations due to the fact that China is Australia’s largest trading partner because of China’s demand for iron ore, natural gas, and coal. Though China is not ready to tighten policy, the economy looks to be heading the right direction as growth continues to be supported by its exports market, which has climbed 34.4 percent in August. However, disappointing Chinese PMI manufacturing and leading index reports may weigh on the Yuan in addition to the Aussie. Strength in the Australian dollar is not solely due its domestic strength, but is also attributed to optimism in the global economy as fears of a double dip recession dissipate.

Taking a look at price action, the AUDUSD has rallied to the highest level since 2008. In turn, the exchange rate continues to trade in overbought territory, which is indicative of a correction to the downside. However, traders should not overlook a period of consolidation followed by another rally as recent developments points to additional gains. For example, my user defined the Parabolic SAR crossover signaled for an advancement in the pair on September 1st, and has yet to reverse course, while our speculative sentiment index now stands at -3.7, pointing to further increases in the pair.

New Zealand Dollar Unable to Join Rally as Rates, Growth Dim

Fundamental Forecast for New Zealand Dollar: Bearish

- New Zealand growth sharply underperforms, drives the kiwi dollar lower
- NZDUSD advance can’t surpass resistance. Is this technical ceiling too much too conquer?

Risk appetite was ramped up this past week; and many assets capitalized on the improved sentiment. However, there was a distinct performance difference between those assets that rallied in the face of fundamental concerns and those that are natural optimism bedfellows due to their investment status. The former crowd marked true breakouts and showed an effort to jump start new trends while the latter struggled to extend their performance. The kiwi dollar has its feet in both pool; but that doesn’t mean the currency comes out with a net benefit. Against the worst performing unit though the period (the US dollar), the commodity currency has found itself walled in by 0.74 resistance. Heading into the new weeks, speculative interests have already passed the breakout phase and are now going to have to stir up momentum. Will the New Zealand unit find enough of a risk current to carry it to its own rally?

First and foremost, the concern for the kiwi is the intensity of risk trends. The remarkable breakout from the S&P 500 and EURUSD was perhaps the best catalyst the broader FX market could have asked for in terms of speculative leverage. Missing the opportunity to produce a critical break on NZDUSD through this momentum is a significant oversight. From here, speculative interest will be responsible for carrying optimism to new heights; and considering there are few legitimate sources for positive sentiment, the conviction that does develop will lack. Furthermore, we see that the relatively high-yield currency is sliding fast against the fundamentally-unstable euro, the pound and even the low-yield Japanese yen. If there isn’t a spark of demand from one of this pairs, there certainly won’t be a wave of kiwi buying across the broader market.

Another interesting assessment of the kiwi can be made in its comparison to the Aussie dollar. Both are investment currencies; but we have seen the RBA maintain a hawkish bias whereas the RBNZ this past week threw the breaks on its hawkish commentary. Furthermore, growth in Australia is still running at a robust pace as the gas station to China while New Zealand has seen its growth pace slashed. Yield isn’t the only concern for the markets at this point. The demand is for those investments that can produce the highest yield or have the greatest potential for appreciating from depressed levels. Why establish a yield position with the kiwi when the Aussie is more stable and maintains a higher yield? And, why go long the New Zealand dollar when it is already at marked highs and currencies like the euro are still significantly depressed. In the absence of overwhelming momentum for yield and risk, the kiwi may flounder.

Gold Likely to Extend Gains Amid Uncertainty, $1300 Looms Ahead

Fundamental Forecast for Gold: Bullish

- Gold Vulnerable as ETF Holdings Lag Price Gains
- Dovish FOMC Pushes Gold to New Record High

Gold prices continued to edge higher last week, touching a new record high of $1300 in Friday’s trade. The yellow metal seems to reflect the shaky climate prevailing across financial markets more than any other trading instrument. Indeed, short-term correlation studies show only tenuous links between gold and most other benchmark assets as investors bank on its store-of-value properties amid continued uncertainty about global growth and inflation trends. In fact, gold ETF holdings rose to a record-high 67.2 million ounces last week.

Looking ahead, next week’s economic calendar promises plenty of scheduled event risk to keep markets engaged in the debate about the depth of the likely slowdown on tap in the second half of the year and its implications for the recovery at large. US releases remain of central concern as the health of the world’s largest consumer market remains a proxy for worldwide performance. The final revision of second-quarter GDP figures is expected to confirm previous estimates of a 1.6 percent annualized increase in the three months through June, but timelier indicators offer a mixed picture. Personal Income is set to tick higher for the second month while Personal Spending matches the largest increase in four months in August. However, it’s tough to feel sanguine about such results considering Consumer Confidence is due to decline in September having advanced in the preceding month, hinting the gains in income and spending may not prove lasting. On balance, September’s ISM outcome may prove to define the trading week, with the report set to show US manufacturing growth has faded to the slowest pace in 10 months.

Beyond the States, the Tankan Survey of sentiment among Japan’s export-sensitive manufacturers will offer a reading on the vitality of global demand, with expectations pointing to relative optimism on the forward-looking Outlook gauge and a continued acceleration in capital expenditures. China’s Manufacturing PMI will serve much the same purpose, with forecasts calling for the pace of industrial-sector growth to rise for the second consecutive month in September. While seemingly encouraging, these outcomes may not prove to meaningfully underpin optimism considering the murky US economic landscape coupled with signs of European slowdown evidenced the last batch of PMI figures and the steady slide in the Baltic Dry Index – a measure of international trade activity – which finished last week at the lowest in over a month.

On balance, it seems the path of least resistance points toward a continuation of gold’s gradual ascent, with conflicting economic data flow seemingly assuring steady investment demand as markets remain wanting of trend-defining clarity on the medium-term path of global growth.

By David Rodriguez, Quantitative Strategist; John Kicklighter, Currency Strategist; John Rivera, Currency Analyst; Ilya Spivak, Currency Strategist; David Song, Currency Analyst and Michael Wright, Currency Analyst
Article Source - Forex Weekly Trading Forecast - 09.27.10

EUR to Benefit from American and Japanese Bank Moves?

2010-09-24T09:56:00.003+02:00

With rising fears about additional monetary easing by the Federal Reserve, speculators have begun to exit many of their USD positions in favor of higher yielding assets. Bank intervention in Japan also has many investors weary of entering yen positions in the near future, but poor fundamentals out of Europe have traders just as concerned about their investments in the euro zone, but have the added benefit of less government tinkering. The EUR's best bet for the moment could be to lie low and reap the benefits of a rapidly dropping USD and JPY.

USD - USD Stable despite Monetary Easing Speculations

The US dollar has been holding steady against most of its currency rivals, despite fundamentals showing a shift away from the safety of the greenback. A positive jobs report pushed the USD/CAD towards 1.0380, while conflicting reports out of Europe have the EUR/USD stalling at 1.3340 and the GBP/USD appearing to consolidate just below 1.5700.

With rising fears about further monetary easing by the Federal Reserve, speculators have begun to exit many of their USD positions in favor of higher yielding assets. A narrowing of the yield gap between the US and Japanese bonds also put pressure on the greenback as traders exited their carry trades, adding downward momentum to the dollar.

Today's durable goods orders out of the United States have a chance to add modest support to the USD if the figure is in line, or above, expectations. Rising durable goods orders is representative of increased demand for US manufacturing goods and services, which has a residual effect across the American economy.

EUR - EUR Gaining Amid Global Monetary Changes

The euro's rise continued in today's Asian trading sessions, but some analysts have begun to anticipate a softening of the EUR in the hours ahead. The EUR/USD saw a healthy 60 pip gain since the opening of the Asian session, currently trading at 1.3350. The EUR/GBP also rose modestly, sitting just above 0.8505.

Bank intervention in Japan has many investors weary of entering yen positions in the near future, but poor fundamentals out of Europe have traders just as concerned about their investments in the euro zone. Today's German Ifo Business Climate report could show a minor decline in economic sentiment in the region's largest economy. However, most analysts do not expect the Ifo report to carry much weight given the load of speculation emerging from the US and Japan.

With Japanese bank interventions and potential monetary easing by the US Federal Reserve, the euro's best chances of weathering the storm may be to lie low and do what it can to downplay its negative data releases. No news may be the best news for the euro zone's single currency for the moment.

JPY - JPY on Shaky Ground; Traders Awaiting Second Wave of Bank Intervention

The Japanese yen slumped against the US dollar and the EUR in today's early trading on speculation Japan is selling its currency after intervening in the market last week. The yen slid 1% to 85.22 per dollar from 84.38 in New York yesterday, however, it since stabilized back around $85.

Japan has yet to express satisfaction at the current value of its currency. This has led many speculators to anticipate a second wave of bank intervention sometime in the near future. The speculation alone has helped drop the yen against many of its currency counterparts. But should the Bank of Japan (BOJ) intervene in the market once more, traders are likely to see a very sharp drop in the value of the yen, primarily against the US dollar.

With no news expected out of Japan before the weekend's close, European and American reports will likely control today's movements, setting the pace for early next week. Traders would be wise to follow today's two leading events, the German Ifo Business Climate and the US Core Durable Goods Orders report.

Crude Oil - Crude Oil Fundamentals Could Be Weaker than Many Expected

The price of Crude Oil continues to float between $73.50 and $76.50 as markets digest the impact of Japan's bank interventions and speculation about further monetary easing in the United States. The summer driving season in Europe and America did little to support oil prices this year. Fundamentals remain weak for Crude Oil, and few expect growth levels to return to pre-2007 levels anytime soon.

With the current price of Crude Oil trading just below $75.00 a barrel, there appears to be technical pressures mounting to push the price higher in today's trading. Retreating optimism in Europe and a possible boost to American manufacturing growth both provide fundamental support to oil prices, but the specter of additional quantitative easing in the United States remains overhead.

Traders appear weary of purchasing the dollar, and the expected result should be a rise in oil prices. On the contrary, though, the support currently being experienced seems softer than expected and has many analysts concerned that fundamentals are in fact weaker than most have forecast.

Technical News

EUR/USD

The price of this pair has been floating in the over-bought territory on the daily RSI for some time now, suggesting strong downward pressure. A fresh bearish cross on the daily Stochastic (slow) supports this notion. As the price tests an important psychological barrier near 1.3350, going short may be a wise tactic for fast profits today.

GBP/USD

The recent uptick on this currency pair has just pushed the price into the over-bought territory on the daily RSI, suggesting an increase in downward pressure today. The price has also recently turned downward and exited the over-bought territory on the weekly RSI, suggesting that a cascading downward movement may have already been initiated on a larger time-scale. Going short may turn out to be the preferred strategy before the weekend's close.

USD/JPY

The price on the USD/JPY has recently shifted into an upward direction on the weekly RSI, also just exiting the over-sold territory, suggesting a rise in upward momentum. With impending bullish crosses on the daily and weekly MACDs, it may turn out that bullishness is on the way. Traders may want to take advantage of this movement by entering long positions on this pair throughout the day.

USD/CHF

This pair continues to decline, pushing the price into the over-sold region on the daily RSI, and even deeper into the weekly RSI, indicating that an upward correction is expected. An impending bullish cross on the daily Stochastic (slow) supports this notion. Going long may not be a bad idea.

CHF/JPY

The movements of this pair seem to suggest that the price has reached a recent high which is unsupported. The 4-hour, daily and weekly RSI show the price as over-bought, while the daily Stochastic (slow) and MACD have impending bearish crosses. Forex traders may want to evaluate their positions on this pair, especially since it appears that a bearish correction may be imminent. Going short on this pair could turn out to be an excellent gamble before the weekend's close.

Article Source - EUR to Benefit from American and Japanese Bank Moves?

Dollar Declines to 5-Month Low Against the EUR

2010-09-23T16:12:00.003+02:00

The US dollar traded near a five-month low versus the EUR before a U.S. report today that may show existing home sales are close to a 10-year low, adding to signs the world's largest economy is struggling to recover.

USD - US Dollar Extends Losses

The US dollar fell against most of the major currencies on Wednesday, a day after the Federal Reserve said it was ready to take further action to boost the U.S. economy and fend off any deflationary threats. As a result, the dollar fell to its lowest level versus the yen since Japan intervened last week and closed around 84.50. The dollar experienced similar behavior against the EUR to trade at session highs above 1.3400.

The U.S. Federal Reserve's policy-making open market committee on Tuesday set the tone after it said it was prepared to take new stimulus measures if necessary. While the Fed left interest rates at record lows, it suggested further credit easing in a statement. Those measures would likely include buying treasury bonds, causing the market to brace for further dollar losses. The Fed comments will likely keep the dollar weak in the near-term, as the bank's stance is expected to keep downward pressure on U.S. interest rates, analysts said.

Today's Unemployment Claims and Existing Home Sales releases are expected to have a strong impact on the US currency. Any result could be a surprise, and the dollar could go either way as a result. In any case, traders are unsure how the market will react to today's data. A weak report could feed risk aversion, boost Treasuries and actually aid the US dollar. Then again, a better than expected result might be seen as a sign of relative US economic strength, and lift the dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the dollar's expense.

EUR - EUR/USD Hits 5-Month High

The EUR experienced a bullish trading session yesterday, as it appreciated in most of its major currency pairs. The 16-nation currency extended gains versus the dollar during yesterday's trading session, rising to its highest level in five months to trade above 1.3400 amid a broad sell-off in the USD. The European currency finished around 60 pips higher against the JPY to finish yesterday's trading session at the 113.30 level.

The pound slipped against the EUR on Wednesday to the lowest level since May, after the report showed the British budget deficit widened in August more than expected, increasing the possibility of further budget spending cuts. The EUR/GBP reached today 0.8560, the highest level since May 28th, after it dropped to the intraday low of 0.8462.

The UK public sector net borrowing was £15.9 billion in August, compared to the borrowing of £14.1 billion in a year ago. The current budget posted the deficit of £13.3 billion in August. Analysts say that the pound may fall further versus the EUR.

JPY - Yen Makes Big Gains on Dollar

The Yen rose on Wednesday to its highest level against the dollar since Japan intervened last week, fuelling speculation of more intervention after the Federal Reserve raised expectations it would print more dollars to help the U.S. economy. The USD/JPY fell yesterday as low as 84.26 before correcting itself. Currently the pair is trading around the 84.60 level.

Top Bank of Japan officials flagged rising risks to the nation's growth as the yen climbed in the aftermath of the US Federal Reserve signaled its willingness to consider more monetary stimulus. The remarks came a week after Japan sold yen for the first time in six years in response to a strengthening currency that threatened to derail the economy's recovery. The BOJ may be pressured to consider further liquidity injections after the government's decision to intervene and the Fed's signal it may ease more.

Many traders expect Japan to step in between 83.00 and 85.00 yen. They said the authorities had called banks to ask if they will be staffed on Thursday, a Japanese national holiday, in an apparent attempt to keep traders cautious over intervention.

OIL - Crude Oil Rises Above $75 a barrel

Oil prices rose above $75 a barrel Wednesday, boosted by a weaker dollar. But gains were limited by a report showing an unexpected rise in US supplies last week, a sign demand for crude oil may not be improving.

Oil and other commodities denominated in dollars for global trading tend to rise when the U.S. currency falls as they become cheaper for holders of other currencies. A move away from dollar-based pricing of the world's leading commodity could further weaken the greenback.

As for today, traders should pay attention to the US Crude Oil Inventories report as it tends to have a large impact on Crude Oil prices recently, especially for the short-term.

Technical News

EUR/USD

After a strong rally over the last few days, the pair is finally seeing some downward correction with some room for the trend to continue. Looking at the daily chart, a breach of the upper Bollinger Band is evident with the RSI for the pair floating in the overbought territory. A bearish cross is evident on the 4 hour and 8 hour chart's Slow Stochastic. Going short with tight stops may be preferred for the day.

GBP/USD

The pair is currently range trading between 1.5630 and 1.5690 with most indicators in neutral territory. The RSI for the pair floats near the overbought territory on the 4 hour and daily chart indicating some downward movement may still be expected from the pair. Going short with tight stops for the day may be advised.

USD/JPY

After a strong downward move some correction may be expected for the pair as the RSI is floating in the oversold territory on the 4 hour and 8 hour charts and a bullish cross is evident on the 8 hour chart's Slow Stochastic. Going long for the day may be a good option.

USD/CHF

A breach of the lower Bollinger Band is evident on the daily chart with the RSI for the pair floating in the oversold territory on the 8, 4 and 2 hour charts. Furthermore, a bullish cross is evident on the 8 hour chart's Slow Stochastic. Going long with tight stops may be advised for the day.

AUD/CAD

After a long bullish run, some correction may be in store for the pair. A bearish cross is evident on the daily chart's Slow Stochastic with the RSI for the pair floating in the overbought territory on the 4 hour, 8 hour and daily charts. Moreover, a breach of the upper Bollinger Band can be seen on the daily chart, indicating an imminent downward move. Forex traders are advised to go short for the day.

Article Source - Dollar Declines to 5-Month Low Against the EUR

USD/JPY Declines Below 85 yen

2010-09-22T09:59:00.003+02:00

The U.S. dollar continued to decline in early morning trading Wednesday, buying less than 85 Japanese yen after the U.S. Federal Reserve said it was ready to take further action to boost the economy.

USD - Dollar Falls Broadly on Fed's Comments

The U.S. dollar hit its lowest level in seven weeks against a basket of currencies, following the FOMC statement Tuesday night. Furthermore, the USD dropped below 85.00 yen, which in turn generated speculation that Japanese authorities may intervene to curb yen gains after the BoJ resumed intervention for the first time since 2004 last week.

The dollar fell about 1% against the euro on Tuesday, after the Federal Reserve said it would provide additional accommodation if needed to support the economy. The FOMC also said inflation is currently running below its target and sounded gloomier on its growth outlook, laying the groundwork for quantitative easing. Quantitative easing is considered by many economists as akin to printing money and therefore weakens a country's currency.

Against the Japanese yen the dollar fell to its weakest level since Japan intervened last week, fueling speculation further Japanese intervention in the marketplace. Some market players do not rule out another push by Japanese authorities to try and send the greenback above 86 yen. Many doubt they would let the dollar fall below 84.00. That being said, the prospect of quantitative easing from the Fed does not bode well for a bullish USD/JPY pair.

EUR - Euro Near 6 Week High vs. USD

The euro rose against the greenback on Tuesday, largely due to solid demand at sales of peripheral euro zone debt. At the same time, expectations that the U.S. Federal Reserve may debate more monetary easing kept investors away from the greenback. Irish, Greek and Spanish government debt auctions attracted decent demand, easing concerns about whether the euro zone's highly indebted countries can obtain the funding they need.

Analysts said that the fact that the auctions were relatively well-received helped the euro develop some bullish momentum and it has broken through resistance at $1.3120.

The euro rose as high as $1.3312 in overnight trading, up 0.4%, after climbing 1.5% on Tuesday. It climbed through its 200-day moving average on Tuesday and chartists have said the next target is its August high of $1.3334.

JPY - Yen Gains After Fed Statement

Japan's Nikkei average slipped 0.5 percent on Wednesday, as the yen edged higher after the Federal Reserve's latest statement on the U.S. economy intensified speculation that it would take more quantitative easing steps later this year. The yen rose above the 85 level vs. the greenback, with market players saying that uncertainty about the likelihood of more intervention was keeping investors sidelined, particularly ahead of a Thursday holiday in Japan.

Despite the gains made against the dollar, the yen continues to fall against the euro. The EUR/JPY pair has shot up some 85 pips since yesterday afternoon. Following the news of euro-zone debt, it appears that investors are willing to bet on the European currency vs. the safe haven yen.

Crude Oil - Oil Weakens before Inventories Report

Crude oil prices fell for the 5th time in six days on Tuesday, amid high oil inventories and the Federal Reserve's continued concern about the sluggish economic recovery. Oil prices failed to garner any support from a weak dollar, which can lift dollar-denominated crude oil prices because it makes the commodity less expensive in countries using currencies other than the greenback.

An analyst survey ahead of the API report had yielded a forecast for crude inventories to be down 1.9 million barrels last week because of lower imports from Canada. This is largely due to the Enbridge pipeline outage and the stormy weather that hindered oil tankers navigation. Oil traders are now waiting for the first glimpse of the prior week's crude inventories. The U.S. Energy Information Administration will release its oil inventory data on Wednesday at 14:30 GMT. An increase in inventories is expected, which if true, would likely pull prices further down.

Technical News

EUR/USD

Virtually all technical indicators are showing this pair in overbought territory. The Williams Percent Range on the 8-hour chart is currently at the -5 level. Typically anything above the -20 level is a sign that the pair could experience downward pressure. The Stochastic Slow on the daily chart has formed a bearish cross, meaning a correction could take place in the near future. Traders are advised to go short with tight stops today.

GBP/USD

Most technical indicators are showing this pair in overbought territory, meaning the possibility of a downward correction is likely. The Williams Percent Range on the 4-hour chart is currently at -10, while the Relative Strength Index is approaching the upper resistance line. Traders may want to go short in their positions today.

USD/JPY

Technical indicators are currently mixed for this pair. While the Stochastic Slow on the daily chart shows that a bearish cross has formed, the Williams Percent Range on the 8-hour chart shows the pair in the oversold region, meaning an upward correction could occur. Traders are advised to take a wait and see approach for this pair today.

USD/CHF

Most technical indicators are showing this pair in the oversold region. The Williams Percent Range on the daily chart is at the -90 level, meaning upward pressure is likely. The Stochastic Slow on the 8-hour chart is showing a bullish cross forming right now. Traders are advised to go long with tight stops today, as an upward correction may occur.

Silver

Technical indicators on the daily chart including the Stochastic Slow and Relative Strength Index show that silver is currently in overbought territory. The Williams Percent Range on the 8-hour chart confirms this theory. Forex traders may want to go short with tight stops today, as a downward correction is likely to occur.

Article Source - USD/JPY Declines Below 85 yen

Markets Cautious Ahead of FOMC Meeting Statements

2010-09-21T15:38:00.003+02:00

The Dollar is under pressure ahead of the Federal Reserve meeting statements later today, as the possibility of further quantitative easing measures by the Fed weigh on the greenback.

USD - Markets Await the FOMC Meeting Statements

The U.S Dollar fell against most counterparts Monday over concerns ahead of today's Federal Reserve meeting. Speculations regarding another round of economic stimulus put investors in a cautious mood. The FOMC meeting minutes has overshadowed lingering Euro-Zone sovereign-debt issues, allowing the EUR and other counterparts to advance versus the USD as the possibility of additional asset purchasing programs weighed on the Dollar.

The U.S. Dollar did make gains on the U.K Pound, gaining around 0.5%, after Bank of England lending data measuring broad money supply for July was flat and mortgage approvals dropped to the lowest level since April 2009.

Investors were exercising caution ahead of an FOMC announcement and most currencies remained within narrow ranges. While it is not expected that more quantitative easing programs will be announced, there is the possibility the Fed will surprise the markets and be more proactive.

While the FOMC statement is the most highly anticipated news release for today, traders should also follow the release of the Building Permits and Housing Starts, both due at 12:30 GMT. The housing market remains one of the most important and highly followed indicators as a measure of economic recovery.

EUR - Renewed Sovereign Debt Concerns Weigh on EUR

The single currency came under modest pressure at the end of last week as worries about European sovereign debt increased. The EUR's strength will be further tested this week with Irish and Portuguese debt auctions Tuesday and Wednesday, respectively.

The Pound fell against the EUR and the greenback after a report showed mortgage approvals dropped to the lowest level since April 2009. The GBP declined versus all of its major counterparts as signs the U.K.'s housing market weakened, threatened to undermine the country's recovery from the recession.

Late Monday, the EUR was at $1.3064 from $1.3039 from late Friday and at 111.96 Yen from 112.89 Yen. The U.K. Pound was at $1.5547 from $1.5626.

The EUR/USD pair is currently trading within a tight range and is likely to remain between $1.30 and $1.31 ahead of the FOMC meeting minutes.

JPY - The AUD at a 2 year high

A Japanese holiday Monday kept Yen trading light as investors still keep an eye out for more Japanese intervention.

The Australian Dollar, a growth linked currency, gained more than 1% against the greenback. Reserve Bank of Australia Governor Glenn Stevens's strong assessment of the Australian economy boosted the AUD higher versus the Dollar. The hawkish remarks lifted expectations of an impending interest rate hike boosting the currency.
The Australian Dollar Monday hit a series of two-year highs, topping out at $0.9495 from $0.9372 late Friday.

Crude Oil - Crude Recovers on Rising Equities

Crude Oil futures settled higher Monday as rising U.S. equities boosted optimism about the economic outlook. Light, sweet Crude for October delivery settled $1.20 higher at $74.86 a barrel on the New York Mercantile Exchange after trading as high as $75.45 earlier in the session. Spot crude is currently trading around $76 a barrel. The October crude contract is due to expire at the end of trading today.

Future economic growth and demand remain the main drivers behind oil prices. For today the focus will be on economic data as well as comments from the Federal Reserve. With Oil Inventories remaining high, the strength of the U.S economy is the most valuable tool to gauge future oil demand.

Technical News

EUR/USD

The EUR/USD cross has experienced a bullish trend for the past week. However, it seems that this trend may be coming to an end. For example, the daily chart's Stochastic Slow signals that a bearish reversal is imminent. A downward trend today is also supported by the hourly chart's Slow Stochastic. Going short with tight stops may turn out to pay off today.

GBP/USD

There is a bearish cross forming on the daily chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the hourly chart's Slow Stochastic also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.

USD/JPY

The 4-hour chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, a bearish cross forming on the daily chart's Slow Stochastic implies that downwards correction might take place in the nearest time frame. Going short with tight stops might be the right strategy today.

USD/CHF

The typical range trading on the hourly chart continues. The daily chart Slow Stochastic is floating in neutral territory. However, the 4-hour 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 might be the right strategy today.

Gold

Gold prices rose significantly in the last week and peaked at $1283 an ounce. However, the daily charts' 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.

Article Source - Markets Cautious Ahead of FOMC Meeting Statements

Will The Yen's Bearish Momentum Continue?

2010-09-20T08:58:00.003+02:00

A very fascinating event took place last week as the Japanese leadership decided to intervene in the national currency's trading. As planned, the Japanese yen fell against all the major currencies. At the moment, Japan is promising to fight the strong yen, and admits that further interventions could take place. Is the yen likely to fall further?

USD - Positive U.S. Economic Data Spurs Demand for Risky Assets and Weakens the Dollar

The U.S. dollar fell against most of the major currencies during last week's trading session. The dollar fell about 400 pips against the euro, and the EUR/USD pair is once again trading above the 1.3000 level. The dollar fell about 200 pips against the British pound as well.

The greenback fell last week as several economic publications signaled that the U.S. economy is recovering. This in turn boosted investor confidence in the global economic recovery. The Unemployment Claims report showed that applications for unemployment benefits unexpectedly fell last week to the lowest level in two months, indicating that the labor market is improving. In addition, the Long-Term Purchases report, released on Thursday, showed that global demand for U.S. stocks, bonds and other long-term financial assets was stronger than forecast in July. Net buying of equities, notes and bonds totaled $61.2 billion in July compared with net buying of $44.4 billion in June. The positive data has boosted optimism for risker assets, and as a result decreased demand for the dollar, which is considered to be a relatively safe investment.

Looking ahead to this week, the most significant release from the U.S. economy looks to be the Federal Funds Rate, which is scheduled for Tuesday at 18:15 GMT. This is in fact the U.S. Interest Rates announcement for the next month. Analysts expect the Fed to leave rates at a record low of less than 0.25%. However, if the Fed will surprise and hike rates, unusual volatility will likely take place as a result.

EUR - Euro Bullish On All Fronts

The euro saw a bullish trend against all the major currencies during last week's trading. The euro gained about 400 pips against the U.S. dollar and about 600 pips against the Japanese yen. Additionally, EUR/GBP went up about 100 pips.

The euro shot up despite several rather disappointing economic releases from the euro-zone. The most significant publication from the euro-zone last week was the German ZEW Economic Sentiment survey. In the survey, about 350 German institutional investors and analysts rate the economic outlook for Germany, which holds the largest economy within the euro-zone. The survey showed that investor confidence fell more than economists had predicted, and in fact, reached a 19-month low in September. The drop in confidence is believed to be the result of budget cuts across the region and slowing global growth.

Despite the negative data, the euro gained against the major currencies. The euro's bullishness however was the direct result of better-than-expected U.S. releases, especially regarding the employment situation. Investors are confident that solid U.S. economic trends will eventually make their way to Europe.

As for this week, a batch of data is expected from the euro-zone, with the most interesting trading day likely to be on Thursday, when several significant economic indicators will be released from Germany and France. Analysts currently have rather gloomy expectations, but if the end results will provide better figures, the euro could strengthen further against the majors.

JPY - Central Bank's Intervention Succeeds In Weakening the Yen

Last week's most significant development in global currencies was without a doubt the Bank of Japan's (BoJ) decision to intervene in the national currency's trading for the first time since 2004. As a result, the yen fell about 150 pips vs. the U.S. dollar, and about 500 pips against both the euro and the British pound.

The Bank of Japan's decision came after the yen reached a 15-year high against the U.S. dollar. The Japanese economy largely depends on its export industry, which is hit hard when the yen is overvalued. Experts say that the BoJ has ordered to sell as much as 1.8 trillion yen ($21 billion). As a result, the yen had its biggest weekly decline against the greenback since April. In addition, Finance Minister Noda said that the government will continue to intervene if necessary, hinting that Japan will take actions to prevent the yen from reaching record highs again.

As for the week ahead, investors are curious as what the long term effects of the BoJ intervention will be. Will the yen continue to weaken, or will investors try to fight off the aggressive sell off? In case the yen will begin to erase last week's losses, traders are advised to ready themselves for additional intervention from the Japanese government.

Crude Oil - Crude Oil Halts Is Fall at $75 a Barrel

Crude oil dropped sharply during last week's trading session. Crude began last week's trading at $77.30 a barrel, and then promptly dropped to as low as $74.05 a barrel. However, the commodity managed to slightly correct its losses, and is currently trading around $75.00 a barrel.

Crude oil prices fell last week after the U.S. announced on Friday the restart of Enbridge's Line 6A pipeline, which carries up to a third of Canada's U.S. bound crude oil shipments. The expected larger amount of supplies has decreased demand for oil, causing prices to fall.

Looking ahead to this week, traders are advised to follow the main publications from the U.S. and the euro-zone, as those tend to have a large impact on oil prices. In addition, traders are advised to follow the U.S. Crude Oil Inventories report, scheduled for Wednesday, as it tends to have an instant impact on the market.

Technical News

EUR/USD

Technical indicators show that this pair, after trading above the 1.3000 level for some time, may be ready for a downward correction. The Stochastic Slow on the daily chart shows a cross has formed above the resistance line, indicating downward movement is likely to occur. The Relative Strength Index on the 8-hour chart is above the 70 level, which means downward pressure is predicted. Traders may want to go short with tight stops today.

GBP/USD

Technical data is showing mixed signals for this pair at the moment. While both the Relative Strength Index and Williams Percent Range on the 8-hour chart show the pair in overbought territory, the Stochastic Slow on the same chart is trading in neutral territory. Indicators on the daily chart are following a similar pattern. Traders may want to take a wait and see approach for this pair today.

USD/JPY

Following the jump this pair made last week, technical indicators are showing it may finally have reached overbought territory. The Relative Strength Index on the 8-hour chart is currently around the 80 level, well above the upper resistance line. Furthermore, the Williams Percent Range on the daily chart is at around -5. Typically, anything above -20 means the pair will face downward pressure. Traders may want to go short in their positions today.

USD/CHF

Technical indicators across the board are showing this pair trading in neutral territory at the moment. Typically, this means that no clear direction for the pair exists at the moment. Traders will want to take a wait and see approach for this pair, as the trend is likely to change later in the day.

Silver

After last week's spike in silver prices, the commodity may have finally reached overbought territory. The Williams Percent Range on the daily chart is around the -5 level, while the Relative Strength Index on the same chart has been trading above the upper resistance line for some time. Forex traders may want to go short in their positions today, as a bearish correction is likely.

Article Source - Will The Yen's Bearish Momentum Continue?

Forex Weekly Trading Forecast - 09.20.10

2010-09-18T11:08:00.002+02:00

Dollar Turns to FOMC Meeting to Confirm or Counter New Bear Trend

Fundamental Outlook for US Dollar: Bullish

- US Dollar marks a critical break as speculation of a new round of Fed stimulus grows
- Consumer confidence stumbles and retail sales slips as the economy’s primary engine stalls
- IF the dollar can curb its tumble against the euro, the rest of the majors could follow

The benchmark dollar put in for a critical bearish break this past week. Though, the odd thing about this slip is that the complimentary speculative markets weren’t following the risk appetite track that would normally have catalyzed this move. In fact, it seems the greenback’s sudden drop would develop completely outside of the risk arena. Has the dollar broken free of its overbearing (negative) correlation to investor optimism? The answer to this question is the essential first step to reasonably projecting the dollar’s future. If the currency’s appeal as a liquid harbor for capital diminishes, its primary fundamental driver will be open to interpretation and therefore lacking the necessary influence to develop a meaningful trend.

So, our first question heading into next week is whether the dollar has indeed made the break from risk appetite trends. The rationale behind this scenario was the sharp, bearish for the single currency whilst other speculative-sensitive markets held steady. However, if we ignore the technical implications of this move for a second, we can see more clearly that this was a decline after a month-long period of congestion. In the first two weeks of the month, when the dollar was still holding to its range, the S&P 500 was actually putting in for a marked advance. Perhaps the surge by the dollar this past week was merely an overdue reconciliation between currency and market theme? This makes sense in the context that when the fundamental force behind the capital markets eases, well-established correlations weaken. If this is indeed the case, a lack of a clear trend in risk will keep the dollar from developing its own bear trend. At the same time, should optimism or pessimism unify traders, the dollar will tumble or rally correspondingly.

At the same time, there is a chance that the dollar could permanently lose its appeal as a safe haven and turn to a longer-term deterioration in its fundamental health that has to this point been ignored. In the government’s effort to encourage growth, the expansion of stimulus in turn boosts the money supply. This is a natural burden on the value of the domestic currency. However, to this point, the role of safe haven has been more important to traders. Now, in this period of respite for risk, investors can be shaken in their confidence as the Federal Reserve has the ability to abruptly increase stimulus. Last week, speculation that the central bank will increase its lending program ushered the dollar lower. The Fed will actually have this chance this week at the policy meeting. Will they increase stimulus beyond the $2 trillion floor? Unlikely. And, such an outcome would solidify the correlation and perhaps lower speculative confidence.

Aside from this big ticket event risk, it is worthwhile to keep a close eye on the factory and housing related data due through the week. The former has proven a sieve for consumer confidence and the latter is the last hope for a recovery that is quickly deflating.

Euro Failure at 1.3150 Warns Sentiment May Have Hit Extreme

Fundamental Forecast for Euro: Neutral

- Second quarter European economic growth beats expectations, Euro strengthens
- Euro, British Pound advance against the US Dollar as risky assets gain
- Our Technical Strategist believes Euro longs against the Australian Dollar, Swiss Franc attractive

Fresh multi-month highs in the US S&P 500 and other financial asset classes made the risk-sensitive Euro top-performing G10 currency through the past week of trade, but a late-week reversal warns of a potential turnaround after significant gains. The EURUSD finally broke out of its tight month-long range on a surprisingly sharp US Dollar tumble. There was ostensibly little ‘reason’ for US Dollar losses, but we had earlier warned that currencies were poised for breakouts after an extended lull in volatility. The Euro’s next moves may be especially important as it has thus far shown relative inability to challenge multi-month highs against the US Dollar.

A relatively empty European economic calendar suggests that the Euro will need to take its cues from broader financial market sentiment and price swings. Traders should nonetheless watch for any especially large surprises out of upcoming German IFO business confidence results, while Euro Zone Consumer Confidence and other second-tier economic reports could also affect markets. The recent upswing in the US S&P 500 and broader financial market risk sentiment favors Euro gains against the safe-haven US Dollar. Yet examination of FX Options market sentiment suggests that the Euro may have reached an important sentiment extreme through very recent trading.

The speed with which the Euro broke out of its long-standing range warns that markets can and will shift direction at a moment’s notice. As such, EURUSD behavior near important congestion resistance at 1.3150 may prove especially significant. If we do see the single currency trade above said resistance level, there is little in the way of a test of 5-month highs above 1.33. Otherwise, a retest of recent congestion support closer to 1.2800 seems the more likely outcome.

Japanese Yen: Will The Intervention By the Bank of Japan Work?

Fundamental Forecast for Japanese Yen: Bearish

- Japanese Yen Collapses on BoJ Intervention
- Yen Drops as Japan Intervenes, Dollar’s Fate Clouded on Neutral Risk Trends
- Policy Makers Keep Trades Off Balance with Intervention Threat

After maintaining its descending channel for more than three months, the USDJPY finally crossed over the upper bounds of its range, and now looks poised to test 87.50 in the near term. Indeed, the yen was the biggest loser against the U.S. dollar amongst the G-10 currencies as the Bank of Japan intervened in the FX markets for the first time since 2004. Going forward, the Japanese yen may continue to lose ground against the greenback as the recent technical and fundamental developments points to further gains in the exchange rate.

Subsequent to much anticipation, and entering into a period in which markets discounted intervention by policy makers in Japan following the re-election of Prime Minister Naoto Kan, the central bank stepped in to stem the appreciation of the yen. The day prior to the BoJ’s move, Mr. Kan was re-elected the head of the ruling Democratic party in Japan. Preceding his re election, the Prime Minister did not show an aggressive stance toward currency intervention, which lead to the immediate rally in all major currencies against the yen. The weaker yen does more than just support exporters; it can also solve Japan’s deflationary issues. With the BoJ’s action now behind us, the question that now arises is, whether the yen will continue to deteriorate or return back to recent highs? For Japan, next month’s monetary policy meeting will be extremely important in that the intervention will need to be supported by additional quantitative easing. Until October, the yen may display a lackluster performance or weaken further if the FOMC minutes next week is more optimistic than the previous meeting, and in turn fuels risk appetite.

For this upcoming week, the economic docket for the world’s third largest economy is relatively weak as traders face the nationwide department store sales, machine tool orders, and the all industry activity index. However, it is worth noting that the final reading for the leading index is on tap. Movements in these figures usually precede larger developments in the domestic economy. The reading is widely expected to stay above 50, but will likely contract from June’s reading of 99.0, which does not bode well for the region. Away from the docket, traders should not overlook another intervention by the central bank as Japan’s Finance Minster Noda pledged to take bold action in the yen if necessary.

With regards to price action, technical analysis favors a weaker Japanese yen against the U.S. dollar. The USDJPY recently broke above its descending channel which remained intact for over three months. At the same time, our speculative sentiment index now stands at 2.10, which is off of its extreme of 7.0. Going forward, we could possibly see a test towards 87.50.

British Pound Lull to Persist on Flat Rates Outlook, Risk Decoupling

Fundamental Forecast for the British Pound: Neutral

- Pound Fails to Capitalize on CPI as BOE’s Weale Sounds Off
- UK Labor Market Unexpectedly Weakens as Jobless Claims Rise
- RICS: UK House Prices Fell Most in 15 Months in August

The British Pound was little changed last week, adding a meager 0.03 percent against a trade-weighted average of its major counterparts. Prices have been confined to a narrow range since the beginning of the month, with volatility readings lagging the spectrum of major currencies. The relative standstill has owed to a fairly stable monetary policy outlook, with traders seeing virtually no changes on the horizon for the foreseeable future, as well as a rapidly fading correlation with risk sentiment. Indeed, the link between the aforementioned trade-weighted average and the MSCI World Stock Index is now virtually nil while that of equities and typically risk-sensitive pairs like GBPJPY and GBPUSD has dropped below significant levels on 20-day percent change correlation studies.

Turning to scheduled event risk, the release of minutes from the last Bank of England policy meeting takes top billing. While traders will certainly pay close attention to the vote break-down on the rate-setting MPC committee as well as the rhetoric presented in the discussion leading up to the announcement, the likelihood of a material shift in the markets’ established outlook seems unlikely. The central bank has argued for some time that the upswing in prices since the beginning of 2010 owes to temporary factors, with the annualized inflation set to fall back below 2 percent by 2012. Given such a prolonged time frame, Mervyn King and company are surely going nowhere fast despite a promise to shift policy “in either direction” as needed, a comment likely directed at the domestic audience amid jitters about economic headwinds from the government’s austerity program. Indeed, a Credit Suisse gauge of rate hike expectations points to a static monetary policy for the coming year.

The remainder of the economic calendar is filled out with low-level releases, hinting that absent a re-coupling with risk appetite, range-bound conditions are likely to persist for the time being. Indeed, 1-week implied volatility readings suggest sterling price action will remain relatively quiet compared with the remainder of G10 FX space.

Canadian Dollar May Be Weighed By Dimming Yield Expectations

Fundamental Forecast for Canadian Dollar: Bearish

- Inverse Head & Shoulders Points To Upside Potential
- Canadian Consumer Prices Offer Potential Volatility

The Canadian Dollar finished the week on a sour note as it lost ground to the dollar and yen which retraced earlier losses from QE speculation and intervention respectively. The commodity dollar has also been weighed by a more dovish outlook from policy makers. Concerns over the impact from U.S. weakness and a slowing global economy have led to the BoC lowering their growth forecasts. Bullish, momentum from the central bank’s rate hike carried into the start of the week. Comments following the policy meeting, that financial conditions remain “exceptionally stimulative” signaled that prior tightening wasn’t restricting the flow of credit, opening the door for additional tightening. The upcoming retail sales and inflation reports may impact interest rate expectations going forward and could dictate loonie direction for the upcoming week.

Governor Carney speaking in Berlin on Friday stated that he central bank will set policy appropriate for their inflation target of 2-3%. The lead monetary authority also showed concern over the loonie’s strength as it will have a detrimental effect on demand for exports. The comments weighed on yield expectations as additional rate hikes could lead to further appreciation. Meanwhile, deputy governor Lane speaking in St John’s cautioned that the recovery will be more modest than past cycles. The BoC also holds an unusual uncertainty on the outlook for growth, with the economy having “significant” excess supply. An unexpected fall in July factory sales supported the dimming growth outlook, as the 0.9% decline warned of slumping demand from abroad.

Inflation is forecasted to have accelerated to 1.9% in August with core prices holding at 1.6%, adding to the case for the central bank to pause their tightening cycle. Prior rate hikes should help dampen consumer price growth and allowing inflation to remain within target levels. Meanwhile, an expected 0.5% improvement in retail sales could raise yield expectations in the short-term as strong domestic demand will continue to put upward pressure on prices. However, the impact may be limited given the dovish statements from policy makers, especially of inflation remains below target levels. Despite the packed fundamental calendar, price direction could come from broader trends for the USD/CAD as it is currently holding an 83% correlation with U.S. equity markets.

Australian Dollar: Will RBA Rhetoric Pave The Way For Parity?

Fundamental Outlook for US Dollar: Neutral

- Business Confidence Rebounds
- Consumer Confidence Weakens The Most In Three-Months
- Inflation Expectations Gather Pace in September

The Australian dollar extended the rally from earlier this month to reach a fresh yearly high of 0.9467, and the high-yielding currency could face increased volatility over the following week as the Reserve Bank of Australia is scheduled to release its policy meeting minutes on September 21. As the AUD/USD continues to pare the decline from the 2008 high (0.9849), the exchange rate may make another run at parity as policy makers maintain an improved outlook for the $1T economy.

RBA Governor Glenn Stevens expects growth and inflation to trend close to target after holding the benchmark interest rate at 4.50% earlier this month, and sees strong growth in business investment as the region benefits from the marked expansion in China, Australia’s largest trading partner. At the same time, assistant Governor Philip Lowe sees the economy operating close to full-capacity in the following year and expects the labor market to improve going forward as firms increase production and employment. With the economic recovery gathering pace, the central bank may adopt a hawkish tone for future policy and see scope to tighten monetary policy further as the risks for inflation intensify. Increased speculation for a rate hike in October could support the underlying strength behind the Australian dollar and the lead the exchange rate to push higher over the near-term.

The AUD/USD looks posed to test 0.9500 for psychological resistance as price action continues to trade above the 10-Day moving average at 0.9281, but there could be a short-term phase of consolidation over the following week as the daily relative strength index falls back from a high of 70. If a corrective retracement unfolds in the days ahead, we would expect price action to fall back towards the lower bounds of its recent range roughly around 0.9300, but a bigger below the 10-Day SMA would expose the August highs around 0.9200. However, hawkish comments from the RBA could lead the rally to gather pace and drive the exchange rate to make another attempt at parity.

New Zealand Dollar Traders Keep Tabs on RBNZ’s Fundamental Prompts

Fundamental Forecast for New Zealand Dollar: Bearish

- RBNZ surprises bullish kiwi traders with dovish commentary to compliment hold on rates
- NZD/USD rally stalled by resistance, maintains range despite volatility

With the capital markets on a slow but steady advance, it would seem a point of certainty that the high-yield New Zealand dollar would appreciate. However, a taste for risk alone may not be enough to keep the kiwi buoyant. Certainly, if investor sentiment soared and demand for return far outstripped the risks that accompanied such an income, then the currency would most likely fall right back into its paces. However, if confidence merely flounders (or worse yet, if it actually broke down), then the New Zealand dollar will find itself especially exposed.

Where does this bearish tendency come from? If we consider the primary appeal of the kiwi dollar as a major; it is quickly apparent that a high yield is the only appealing feature that this currency possesses to command such liquidity. Therefore, when the capacity of producing return is diminished, it quickly drops off the charts. In this framework, we can understand why the RBNZ’s dovish commentary last week has had such a heavy influence over the outlook. Governor Bollard commented that global uncertainties presented a significant hurdle for the domestic economy, he wrote off immediate inflation pressures as a potential side effect of the quake that struck this month, and he explicitly stated that future rate hikes would come at a slower pace. With the Aussie dollar touting a positive benchmark differential of 1.50 percent, there is an immediate and attractive alternative to the kiwi.

Going forward, fundamental traders will monitor the same indicators and economic symptoms that Bollard will be watching to establish the timing for monetary policy. And, it just so happens that this week we will see a key economic indicator with immediately implications for deciphering the health and stability of New Zealand: the second quarter GDP reading. There is no official consensus to work with yet; so the door is still wide open to speculative interpretation. That being said, Australia’s strong 3.3 percent annual will be likely used as a benchmark – unfortunately for the kiwi. Furthermore, data that covers capital flows across the border, consumer confidence and credit health will all mark significant fundamental benchmarks if not encourage a meaningful price response.

Gold Prices Hit Record Highs, FOMC Decision Could Fuel Further Rallies

Fundamental Forecast for Gold: Neutral

- Gold prices continue to hit record-highs
- Technical forecasts point to further rallies in Gold prices

Gold prices set fresh record-highs amidst broader US Dollar weakness, but the precious metal actually remained relatively unchanged against other major currencies. The US Dollar itself fell against all but two G10 counterparts and remains stuck in a fairly pronounced downtrend against commodity currencies such as the Australian and Canadian Dollars. That gold would set fresh all-time highs in USD terms may subsequently come of little surprise, but that does not take away from the fact that the trend favors further gains in precious metals.

The key question rolling forward is whether we can expect the US currency to continue lower through coming trade. According to the most recent CFTC Commitment of Traders data, Non-Commercial traders are the most net-short the USD since July. Medium-term trends and sentiment suggests risks remain to the downside for the Greenback. Yet increasingly one-sided positioning warns that any subsequent corrections could come quickly as traders cover their USD-short positions. Gold prices may likewise see noteworthy volatility on the upcoming US Federal Open Market Committee interest rate announcement due Tuesday afternoon. All eyes will be on whether the central bank hints at renewed efforts to boost monetary supply via Quantitative Easing. Continued signs of slow economic growth and languishing employment trends have heightened speculation the FOMC will move to “Quantitative Easing Part 2”. Given that any such moves would be inherently inflationary, we could once again see gold prices rally substantially on any such announcement. How the US Dollar trades in the week ahead may ultimately decide the medium-term trajectory for gold prices.

Written by John Kicklighter, Currency Strategist; David Rodriguez, Quantitative Strategist; Ilya Spivak, Currency Strategist; John Rivera, Currency Analyst; David Song, Currency Analyst and Michael Wright, Currency Analyst
Article Source - Forex Weekly Trading Forecast - 09.20.10

US Economic Recovery Not So Bleak, Data Shows

2010-09-17T09:46:00.004+02:00

This past week's news has given some investors hope that an economic recovery is indeed underway in America, even if recent news has begun to comment about a pause. The US IBD/TIPP Economic Optimism gauge on Tuesday was 1.2 points higher than expected, while American retail sales also beat forecasts. Wednesday saw a minor slowdown in industrial production, but yesterday's PPI, unemployment claims, and TIC long-term purchases reports all showed forecast-beating growth in the US economy.

USD - USD Declines as Data Shows Growth and Risk Appetite Returning

The USD appears to have declined against the bulk of its currency counterparts, with a few exceptions. The EUR/USD has climbed above 1.3100 as of late-Asian trading, while the GBP/USD is climbing towards 1.5650. It appears as if the stronger currencies of the early months of summer are now seeing an autumn correction. The dollar, Swiss franc, and Japanese yen are all losing ground while riskier assets are on the rise.

This past week's news has given some investors hope that an economic recovery is indeed underway, even if recent news has begun to comment about a pause. The US IBD/TIPP Economic Optimism gauge on Tuesday was 1.2 points higher than expected, while American retail sales also beat forecasts. Wednesday saw a minor slowdown in industrial production, but yesterday's PPI, unemployment claims, and TIC long-term purchases reports all showed forecast-beating growth in the US economic recovery.

If inflationary figures and economic optimism continue into today's reports of the same nature, we should see current USD trends continue. Expected today is the US release of its Consumer Price Index (CPI) data, measuring the growth of consumer inflation. If the CPI data is released in-line with yesterday's Producer Price Index (PPI) growth, then we should see riskier assets continue to rule the market.

The University of Michigan (UoM) is also set to release its Preliminary Consumer Sentiment report which is expected to show confidence on the rise in the United States, fueling the return of risk appetite further.

EUR - Poor European Data Offset by Japanese Currency Intervention

Since the start of the Asian trading session this morning, the EUR has climbed against 15 of its 16 major counterparts. The only currency appearing to outpace the EUR's recent ascent has been the Australian dollar. Against the US dollar, the euro has soared above 1.3100 and looks to have the momentum to carry on higher. Against the Japanese yen, the 16-nation single currency has risen to as high as 112.35 in late-Asian trading.

Europe's light news week has helped other economies take the lead in global currency valuation. The United States has released a heavy stream of economic reports which appeared to have dominated market attention. The trend in America seems to be a modest return to growth, for this week's data at least, while in Europe the few reports published appear to have been far worse than expected.

The shocking drop in the ZEW economic sentiment reports on Tuesday pushed many traders in the direction of safe-haven investments. But the euro was able to rebound sharply following Japan's intervention in the currency market, devaluing one of the primary global safe-havens, and after the US released report after report showing positive growth. The result was an offsetting jump in the value of riskier assets such as the EUR, despite its own economic woes.

JPY - JPY Plummeting; Will There Be Further Intervention from BOJ?

The Japanese yen remains under the pressure of Wednesday's intervention by the Bank of Japan (BOJ). The JPY fell to a 5-week low against the US dollar, hitting just below 86.00 after appreciating 71 pips. Against the euro, the JPY has seen a much sharper drop, falling 181 pips to a recent low of 112.35; the GBP/JPY, likewise, has climbed modestly, with a current price just over 134.10.

Despite the absence of further intervention by the BOJ, many speculate that the yen-selling by the central bank may not have yet come to an end. Analysts have recommended keeping an eye on JPY pairs for the second sell-wave, which many claim could happen as early as next week.

Crude Oil - Crude Oil Price Pares Losses, Trading Over $76 a Barrel

The start of this past week saw a rather sharp boom in the price of Crude Oil as a pipeline delivering oil from Canada to the American mid-west suffered a leak, forcing the pipe to be shut down. The resulting speculation of a dip in supply, both from the pipeline leak and from hurricanes in the Gulf of Mexico, led to strong support for oil prices. News that the leak would be fixed by the end of this week has resulted in a paring of those gains, however, as concerns of an over-supply are now hitting the market.

Analysts have begun to claim that despite minor setbacks in production, the fundamentals for Crude Oil remain weak. Even with a short-term decline in supply, inventories remain at record highs. This has been the case especially since the world's major energy consumers are experiencing a minor pause in recovery. Without a major shift in fundamentals, few are expecting oil prices to break out of the current range between $72 and $77 a barrel.

Technical News

EUR/USD

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 RSI. Going short with tight stops may turn out to pay off today.

GBP/USD

The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI indicating a downward correction may be imminent. The downward direction on the daily chart's Momentum oscillator also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

USD/JPY

The USD/JPY cross has experienced a bullish trend for the past 3 days. However, it seems that this trend may be coming to an end. The RSI of the 4-hour chart shows the pair floating in the overbought territory, indicating that a downward correction will happen anytime soon. Going short with tight stops might be a wise choice.

USD/CHF

The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the 4-hour chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.

Gold

Gold prices rose significantly in the last week and peaked at $1279 for an ounce. However, the 8-hour 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.

Article Source - US Economic Recovery Not So Bleak, Data Shows

Rare Japanese Intervention in Yen Trading Manages to Halt Yen's Bullish Trend

2010-09-16T20:31:00.003+02:00

The most significant economic event yesterday was beyond any doubt Japan's ‎confirmation of a unilateral intervention in yen trading in order to put a stop to the ‎soaring currency. The consequences were seen immediately and the yen saw its ‎biggest daily loss in 22 months. Unusual trading is expected today as well. ‎

USD - Dollar Sees Mixed Results Vs. The Majors

The U.S. dollar saw mixed results against most of the major currencies during ‎yesterday's session. The dollar fell about 80 pips vs. the British pound, causing the ‎GBP/USD pair to reach the 1.5650 level. The dollar also saw an irregular 250 pips gain ‎against the Japanese yen, following the recent 15-year low the USD/JPY pair hit ‎earlier this week. The dollar did not show a clear trend against the euro.‎

The dollar was boosted against the yen yesterday following Japan's decision to ‎actively intervene in devaluing the national currency. It was only a couple of days ago ‎the yen reached a 15-year high against the dollar. This in turn caused the bank of ‎Japan to unexpectedly buy dollars in order to halt the soaring yen. As a result the JPY ‎sharply fell against all the major currencies, including the greenback. ‎

Against the rest of the major currencies the dollar failed to see similar results ‎following disappointing U.S. economic releases. The Empire State Manufacturing ‎Index showed that manufacturing in the New York region expanded at a slower pace ‎than forecast in September. In addition, the Industrial Production report showed that ‎total value of output produced by manufacturers rose by 0.2% in August. Analysts ‎had originally predicted the figure to come in at 0.3%. As a result, the dollar dropped ‎slightly against the euro and pound.‎

As for today, a batch of data is expected from the U.S. economy. The most significant ‎releases are likely to be the Producer Price Index, the weekly Unemployment Claims ‎and the Philadelphia Manufacturing Index. Each one of these publications is likely to ‎have a large impact on USD trading. ‎

EUR - Euro Slips Against the Pound; Soars Vs. The Yen

The euro saw a volatile session during trading yesterday. The currency mainly saw ups ‎and downs vs. the U.S. dollar, without marking a clear direction. Against the British ‎pound the euro fell about 100 pips. On the other hand, it gained over 350 pips against ‎the Japanese yen.‎

The euro fell against the pound yesterday following the European Consumer Price ‎Index figure for August. The report showed that the euro-zone's annual inflation rate ‎eased to 1.6% from 1.7% in July, indicating that the European Central Bank has ‎enough room to maintain its loose monetary policy, and to keep interest rates at a ‎record low of 1.00%. Investors interpreted this as an opportunity to open short ‎positions against the euro, especially against high yielding assets, such as the pound.‎
Nevertheless, the euro saw an extraordinary bullish move against the yen. The yen fell ‎against all the major currencies due to the Japanese government's intervention in JPY ‎trading. ‎

Looking ahead to today, the most significant economic release from the euro-zone ‎seems to be the European Trade Balance figure. Trade balance measures the difference ‎in value between imported and exported goods and services over the previous month. ‎A positive figure might support the euro.‎

JPY - Yen Free-falls Following BoJ Intervention in Yen Trading

The yen tumbled against all the major currencies yesterday. It slipped about 250 pips ‎against the dollar, causing the USD/JPY pair to rise from a 15-year low to the 85.50 ‎level. The yen also lost about 350 pips against the euro and about 500 pips against the ‎British pound.‎

The JPY saw its largest daily loss in 22 months after Japan's Finance Minister ‎Yoshihiko Noda said the Bank of Japan actively devalued the currency. This was the ‎first time since 2004 that the Japanese leadership decided to intervene in the forex ‎market. The decision came after the yen saw a 15-year high against the dollar. The fear ‎was that the strong yen would damage Japan's export industry. ‎

As for today, the yen is likely to remain the most volatile currency of all the majors. ‎Traders are advised to look for notifications regarding the BoJ's actions in the market, ‎and take under consideration that if the Japanese leadership will continue to intervene, ‎the yen may see another bearish session.‎

OIL - Crude Oil Falls For the 3rd Day to $74.70 a Barrel

Crude oil fell to a session low of $74.70 a barrel yesterday. After starting out at ‎around $76.50 a barrel, oil saw a sharp drop before correcting some of its losses to end ‎the day around $75.50 a barrel.‎

Crude fell yesterday after U.S. regulators agreed to a Friday Restart of Enbridge's ‎biggest pipeline from Canada, restoring crude supplies to Midwest refineries. In ‎addition, reports showed that demand for gasoline in the U.S, the world's largest oil ‎consumer, fell by 2.6% lately. The combination of bigger supplies and lower demand ‎typically lead to a drop in prices.‎

Looking ahead to today, traders are advised to follow the leading economic ‎publications, especially from the U.S. and the euro-zone, as they tend to have a large ‎impact on crude oil trading. Traders should keep in mind that positive results are likely ‎to support crude oil prices.
‎
Technical News

EUR/USD

The bullish trend is losing its steam and the pair seems to be consolidating around the ‎‎1.2990 level. There is a bearish cross forming on the 4-hour Slow Stochastic, ‎indicating a bearish correction might take place in the nearest future. When the ‎downward breach occurs, going short with tight stops appears to be the preferable ‎strategy.

GBP/USD

The daily chart is showing mixed signals with its RSI fluctuating in neutral territory. ‎However, the 4-hour chart's RSI is already floating in the over-sold territory ‎suggesting that the recent downward trend is losing steam and a bullish correction is ‎impending. Going long with tight stops might be the right strategy today.‎

USD/JPY

The volatility this pair has seen recently has created a number of contradictory signals. ‎The hourly chart shows a bullish cross on the Slow Stochastic, indicating an upward ‎movement may be coming. Contrary to this is the bearish cross on the 4-hour chart, ‎signaling an impending upward movement. Waiting for a clear signal might be wise ‎today. ‎

USD/CHF

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. The 4 hour charts do not ‎provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might ‎be a good strategy today.‎

CAD/CHF

This pair has been trading very flat these past few weeks, but has now begun to show ‎signs of life. The MACD on the hourly and 4-hour chart shows clear bullish crosses, ‎signaling an impending bullish move. The daily chart also has a bullish cross on the ‎Slow Stochastic, which supports this notion. Forex traders can join this upcoming ‎trend by entering early buy positions and riding the upcoming spike for profits this ‎week. ‎

Article Source - Rare Japanese Intervention in Yen Trading Manages to Halt Yen's Bullish Trend

Yen Reaches 15-Year High

2010-09-15T17:04:00.003+02:00

The Yen rose to a 15- year high against the dollar on Tuesday after Japan's prime ‎minister won a ruling party leadership vote, reducing the chances Japanese authorities ‎would attempt to stem yen gains. The USD/JPY fell as low as 82.91, its lowest level ‎since mid-1995.‎

USD - Dollar Drops against the Majors

The U.S. dollar fell against most of its major currencies on Tuesday, touching a 15-‎year low below 83 yen as a break of technical support levels in several currency pairs ‎sparked a stampede out of the greenback. Also the AUD/USD pair rose as high as ‎‎0.9456, its highest level since July 2008 before correcting itself. Currently the pair is ‎trading around the 0.9370 level.‎

The significant break came in late morning New York trade on market talk that ‎Goldman Sachs said in a research note that while it suspects the Federal Reserve will ‎ratchet down growth forecasts, the revision is unlikely to be enough to spark ‎additional easing.‎

Another leading indicator released yesterday was U.S. Core Retail Sales. This number ‎handedly beat last month's results but failed to provide strength to the Dollar as ‎investors may be waiting for key data due to be released today to implement their ‎trading strategies.‎

Looking ahead today, the two main news events that may have a very large impact on ‎the Dollar and its main currency pairs are the Industrial Production and Crude Oil ‎Inventories at 13:15 GMT and 14:30 GMT respectively. These reports are very ‎important and are likely to impact dollar volatility. Traders should pay close attention ‎to the market as there is an opportunity to capitalize on the fluctuations which are ‎likely to follow this release.‎

EUR - EUR Traded Near One-Month High against Dollar

The EUR strengthened against most of its major counterparts yesterday, continuing to ‎prove that for the time being the euro is the solid currency that traders can rely on to ‎provide them with steady profits. The 16-nation currency extended gains versus the ‎USD on Tuesday, to close at around 1.2980 amid a broad sell-off in the U.S. dollar. ‎

The euro experienced similar behavior against the JPY and closed at 109.90.‎
The euro's advance began after U.S. retail sales rose more than ‎expected in August, ‎notching the largest gain in 5-months. Once the euro broke above ‎‎$1.2920-30 area, the ‎level that was the top of the range since August, it kept going to a ‎one-month high of ‎‎$1.3033. The move may be accelerated, as ‎being at parity was a key technical point ‎which may encourage more selling of dollars, ‎analysts said. ‎

In addition, the single currency, which slid below $1.19 in June on euro-zone debt ‎trouble, has since risen by more than 8% after smooth government debt auctions in ‎Greece, Portugal, Spain and Ireland eased concerns.‎

JPY - Yen at 15-Years High vs. Dollar

The yen rose to a 15- year high against the dollar on Tuesday after Japan's prime ‎minister won a ruling party leadership vote, reducing the chances Japanese authorities ‎would attempt to stem yen gains. The USD/JPY fell as low as 82.91, its lowest level ‎since mid-1995 before correcting itself. Currently the pair is trading around the 84.60 ‎level.‎

The yen has gained more than 10% against the dollar this year as recent weak U.S. ‎data and record low bond yields drove money away from U.S. assets.‎

Investors worry over a recent rise in the JPY as it makes Japanese products less ‎competitive abroad and hurts the value of overseas sales when translated back into the ‎Japanese currency. With steady gains primarily against the dollar, much of the yen's ‎bullish movement could be contributed to the repatriation of overseas earnings by ‎Japanese companies into the local economy. This has had a positive effect on major ‎JPY currency pairings, as the rising turmoil in the market is leading to greater ‎investment in the Japanese currency.‎

Oil - Traders Await Crude Oil Inventory Report

Oil settled below $77 a barrel Tuesday as the stock market swung between losses and ‎gains on mixed economic news. After a run-up from $72 a barrel at the end of August, ‎crude oil has again slowed its advance, mainly on concerns about the strength of the ‎global economy. While positive news on China's economy has tended to push prices ‎up, data from the U.S. and Europe has been a mixed bag, keeping a lid on price ‎increases.‎

Today, the release of the crude oil inventory report is likely to help determine the ‎market's next direction for black gold. Moreover, a release of a string of positive ‎economic figures from U.S. could help its bullishness. Therefore, traders are advised ‎now to make some profits as the price of crude oil is set to remain volatile in the short ‎term.‎

Technical News

EUR/USD

There appears to be a bullish cross on the hourly chart's Slow Stochastic for this pair, ‎indicating an upward correction may be imminent. The recent bullish cross on the ‎daily chart's Slow Stochastic supports this notion. Going long might not be a bad idea ‎today.‎

GBP/USD

The price of this pair appears to be floating in the over-sold territory on the RSI of ‎both the hourly and daily charts, indicating that we could see an upward correction in ‎the nearest future. The bullish cross on the hourly chart's Slow Stochastic supports this ‎notion. Going long might be a good strategy today.

USD/JPY

After yesterday's volatile price movements, this pair appears to have temporarily ‎calmed down. The price appears to be floating in neutral territory on most oscillators ‎and momentum appears to be showing a flat price movement. Waiting for a clearer ‎signal might be the right choice today.

USD/CHF

The Bollinger Bands on the hourly and daily charts appear to be tightening in ‎anticipation of a volatile movement. With the recent bullish cross on the 4-hour chart's ‎Slow Stochastic oscillator, the impending movement may be a downward correction. ‎Going long with tight stops might be the right choice today.

Platinum

The continuous upward trend in this commodity appears to be running out of steam ‎lately. The highs of the upswings have begun to diminish in size and the longer-term ‎oscillators are beginning indicate an imminent correction. There appears to be a bearish ‎cross on the daily chart's Slow Stochastic, and the weekly Momentum oscillator has ‎turned downwards. ‎ Forex traders have a great opportunity to enter this possible trend ‎reversal at a fantastic price and capture the impending price swing.

Article Source - Yen Reaches 15-Year High

USD/JPY Hits New 15-year Low

2010-09-15T17:00:00.003+02:00

The U.S. dollar fell to a fresh 15-year low against the Japanese yen ahead of a big leadership election in Japan. The greenback also sank against the euro during Tuesday's trading.

USD - Dollar Falls Ahead of Japan Leadership Vote

The U.S. currency was near a 1-month low against a basket of currencies after suffering its steepest fall against the euro in two months as rising investor risk appetite helped the European currency.

The dollar fell to a 9-month low against the Swiss franc on Tuesday as market players scaled back investments in risk currencies and poured funds into low-yielding currencies such as the yen and the franc. The dollar fell 0.2% to 1.0050 franc, its lowest since December of last year.

The greenback traded broadly flat against the euro on Tuesday, at $1.2870, after losing more than 1% against the common currency on Monday. The dollar touched 83.23 yen, the lowest level in 15 years, but later recovered slightly to 83.43, but still down from 83.66 in late trading on Monday. The move came ahead of an election to decide the leader of the Democratic Party of Japan, with the winner widely expected to serve as the nation's prime minister. Analysts said that dollar-yen pair may firm and could strengthen toward 85 should Japan's political situation stabilize.

EUR - Euro Gains on Risk-Asset Demand

The euro rose the most in 10 weeks against the U.S. dollar after regulators gave European banks more time than analysts expected to meet new capital requirements. The euro also strengthened after the European Commission said the region's economy may grow almost twice as fast this year as previously forecasted. Against the Japanese yen however, the euro lost ground, hitting 107.42, down from 107.63 Monday.

The euro strengthened 1.6% against the dollar to $1.2878. It climbed earlier as much as 1.7% to $1.2893 in the biggest intraday gain since July 1. The euro rebounded 12% from a four-year low on June 7 through Aug. 6 as investors focused on worse-than-forecasted U.S. economic data as European statistics surpassed predictions. Still, the euro may be unable to sustain its gains against the dollar as renewed concern over the solvency of nations from Portugal to Ireland points to another slump for the common European currency.

JPY - Yen Extends Gains Versus Dollar Before Election

The yen rose to a 15-year high on Tuesday ahead of a decisive vote in Japan, weighing on Japanese equities and leaving traders wondering whether a rally that has lifted global stock markets to their highest levels in a month can be sustained.

The yen rallied versus the dollar on speculation Prime Minister Naoto Kan will beat his rival Ichiro Ozawa in a party vote today; reducing the likelihood the government will intervene to weaken the currency. Japan's currency also strengthened against all the major currencies as the Japanese stocks dropped, boosting demand for safer assets.

OIL - Oil Rises on Improved Global Economic Outlook

Crude Oil closed above $77 a barrel Monday after upbeat data from China stoked optimism about the global economy, while the closure of a pipeline in the Midwest disrupted supplies to refineries in the region. Oil traders were cheered by increasing industrial production in China, which over the weekend reported manufacturing gains of nearly 14% in August from a year ago, with the data signaling the world's second-biggest economy is growing.

Crude prices earlier reached an intraday high of $78.07 a barrel, the first time a front-month contract breached the $78 mark since Aug. 11. On Friday, Oil gained $2.20 to end at $76.45 a barrel, closing the week higher by 2.5%. A softer U.S. dollar also supported the dollar-denominated commodity by making it less costly for holders of other currencies.

Technical News

EUR/USD

The pair has been rising constantly since the beginning of the week and is currently trading around the 1.2870 level. As the MACD on the 4-hour chart continues to point up, the pair could rise further, with potential to reach the 1.2950 level.

GBP/USD

The pair failed to breach the 1.5500 level yesterday, and as a result saw a sharp fall which took it as low as the 1.5365 level. The bearish move might continue today, with a key-target level of 1.5300.

USD/JPY

The bearish trend continues with full steam as the USD/JPY has reached a 15-year low on yesterday's trading. The RSI on the weekly chart remains within the over-sold section, suggesting that the pair might drop even further. Going short might be preferable today.

USD/CHF

Ever since peaking at the 1.275 level, the pair is dropping with no apparent stops. The MACD and the RSI on the 4-hour chart continue to point down, indicating that the bearish move has more room to go. Going short might be a good strategy today.

Oil

A swift rise in the price of spot crude oil by $5 may have left the commodity oversold. A bearish cross has formed on the daily chart's Slow Stochastic oscillator, indicating that the price may fall in the near term. Another sign supporting an end to the price rally is the doji candlestick from yesterday's trading. The price climbed to a high of $77, a previous resistance level from early February. CFD traders may want to liquidate any long positions they may have in spot crude oil. Support is found at $75.60.

Article Source - USD/JPY Hits New 15-year Low

Euro Maintains Bullish Trend as We Start the Week

2010-09-13T08:35:00.000+02:00

Following solid economic news out of China released last Friday, the euro, as well as other so-called riskier currencies, has maintained an upward trend going into this week. That being said, analysts are warning that these gains may only be temporary. Overall economic sentiment regarding the euro zone is still fairly pessimistic. The slightest bit of bad news could cause investors to revert back to the safe haven US dollar and yen, which would lead to a drop for euro pairs.

USD - USD Starts Busy Week Down vs. Majors

Despite the significant gains the US dollar made in the first half of last week, a sudden switch to risk-taking among investors eventually caused the currency to slide back into a bearish trajectory. As we start off the week, the greenback continues to lose ground. The EUR/USD pair has gone up over 100 pips since markets opened, and is currently trading around the 1.2790 level. The USD/CAD dropped over 50 pips in overnight trading, reaching as low as 1.0311 before making a slight recovery. Currently the pair stands at around the 1.0325 level.

Today, USD crosses will likely fluctuate based on what ECB President Jean-Claude Trichet says in his speech. Pessimism in the euro zone economies is still relatively high. Should the ECB's president reflect this sentiment in his speech, the dollar is likely to make steady gains as investors return to safer assets like the greenback.

As for the week ahead, traders will want to pay attention to a batch of potentially significant US economic data. Tuesday's Retail Sales reports, as well as Thursday's PPI figure and Unemployment Claims, will likely dictate the direction of dollar pairs for some time. Any gains made in the US economy will likely lead to bullish movement for the buck.

EUR - Analysts Question How Long Euro Can Maintain Current Trend

The euro was able to move up against most of its main currency rivals, including the Japanese yen and UK pound, in overnight trading. The gains can largely be attributed to renewed investor confidence, following positive Chinese data released last week. Since markets opened for the week, the EUR/JPY has gone up around 90 pips, while the EUR/GBP moved up close to 50 pips.

While the euro has been able to make some fairly significant gains as of late, most analysts are questioning how long the currency can maintain this trend. Confidence in the euro zone economic recovery remains particularly low. Today's speech from ECB President Trichet may highlight these concerns; in which case euro crosses may correct themselves later in the day.

As for the week ahead, traders will want to pay attention to a number of potentially impacting news events. Tuesday's German ZEW Economic Sentiment figure as well as Wednesday's CPI and Core CPI figures are all predicted to create market volatility. Traders will want to note that should any of these results come in below analyst predictions, the euro will likely move down as a result.

JPY - Yen Corrects Earlier Gains as Risk Taking Returns

The yen corrected much of its recent gains in trading late last week and into overnight trading today. Positive Chinese economic news, as well as better than expected American labor news are seen as the leading causes for the return to risk taking.

As a result, the yen took some heavy losses against the euro and Swiss franc beginning last Friday. The one exception appears to be the US dollar. After beginning the week with slight upward movement, the USD/JPY pair has since dropped close to 30 pips and is currently trading around the 84.05 level.

This week, yen traders will want to pay attention to European and US economic news. Positive news is likely to give further confidence to investors in the global economic recovery. If so, then the yen will likely continue to lose ground against its main currency rivals.

Crude Oil - Optimism in US Recovery Causes Crude Prices to Soar

Positive US economic news, as well as the most recent US Crude Oil Inventories report has led to a prolonged upward trend for crude prices that appears to be continuing into this week. Crude prices are largely determined by the state of the US economy. Following a number of positive indicators last week, oil demand in the world's largest energy consuming nation appears to be on the rise.

Since beginning its most recent bullish trend late last week, oil prices have shot up over 300 pips. Currently, a barrel of crude goes for around $77.10. Traders will want to pay careful attention to US economic indicators this week in order to determine the direction crude is likely to take. Should the news again come in above expectations, prices are likely move up further.

Technical News

EUR/USD

There appears to be a fresh bearish cross on the hourly Stochastic (slow), indicating an impending short-term correction for the pair. The 4-hour Stochastic (slow) is also climbing towards the over-bought region and could also form a bearish cross later in the day if upward momentum does not change in the next few hours. Going short with tight stops may be a wise way to gain quick profits in intra-day trading today.

GBP/USD

This pair appears to be trading within a distinct bearish channel, and has recently touched the upper border of this trend. The hourly Stochastic (slow) has a fresh bearish cross, while its RSI may also be just entering the over-bought territory. Short-term downward movements may be expected throughout the first half of the trading day. Selling this pair for short-term profits may be a wise move today.

USD/JPY

Most indicators on this pair appear to be floating in the neutral territory, suggesting the current trend may continue. The long-term movement of this pair is in a very distinct bearish channel spanning the last few months. The only indicator which appears to suggest an upward correction is the weekly chart's RSI, which has the price of the pair floating just within the over-sold territory. Continuing with the downward direction by opening short positions may prove a smart decision for this pair.

USD/CHF

The hourly Stochastic (slow) on this pair appears to be showing a recent bullish cross, suggesting upward movement may be imminent. The hourly RSI also floats in the over-sold territory, which supports this notion. Additionally, the weekly chart's RSI has the price of this pair floating deep within the over-sold region and beginning to turn upward. Longer-term upward movements may be expected on this pair.

Crude Oil

The recent bullish movements on this pair have pushed many indicators into corrective territory. The hourly, 4-hourly, and daily charts' RSIs all have the price in the over-bought territory. The Stochastic (slow) on all three of these charts also shows either a fresh or an impending bearish cross. Forex traders can usually be certain that after such strong movements there will be similarly strong counter-movements, and Crude Oil is no exception. Going short on oil today may not be a bad idea.

Article Source - Euro Maintains Bullish Trend as We Start the Week

Forex Weekly Trading Forecast - 09.13.10

2010-09-11T13:51:00.002+02:00

US Dollar Could Strengthen if Advance Retail Sales Data Disappoints

Fundamental Outlook for US Dollar: Bullish

- US Dollar starts the week strong as Dow Jones tumbles push it to highs vs. Euro
- Subsequent rebound in US S&P 500 weighs on the US Dollar
- View our monthly Euro/US Dollar Exchange Rate Forecast

The US Dollar traded slightly higher against major forex counterparts in an uneventful week of trading, showing little impetus to break important support or resistance levels on similarly lackluster price action across broader financial markets. A pickup in US economic event risk promises stronger volatility in the week ahead, however, and it seems only a matter of time before currency pairs break out of narrow ranges. Relatively steady gains in the US S&P 500 and a multi-month downtrend in the US Dollar suggest that risks remain to the downside. Yet a fragile recovery in financial market risk sentiment could just as easily falter and send the safe-haven USD higher against the Euro and other currencies.

Calendar highlights in the week ahead include an often market-moving Advance Retail Sales report, Industrial Production numbers, Consumer and Producer Price Index inflation results, and University of Michigan Consumer Confidence survey data. The Retail Sales release may be especially contentious given its strong influence on the US S&P 500 and broader risk sentiment; recent fears of faltering US economic recovery could make disappointments especially market-moving. CPI and PPI data could likewise influence market expectations on the future of US Federal Reserve monetary policy.

The US Dollar lost substantially when the Fed first announced and implemented Quantitative Easing measures to boost monetary supply and stave off the risk of deflation. Fed Chairman Ben Bernanke has openly discussed various tools at the central bank’s disposal to counteract sluggish growth and promote price stability. If CPI and PPI surprise to the downside, pressure may increase on the Fed to announce fresh QE measures—likely driving the US Dollar lower against major counterparts.

One gets the sense that risks remains to the downside ahead of these key US consumer-centric economic releases, and significant disappointments could easily jolt the fragile recovery in financial market risk sentiment. Any such deterioration in ‘risk’—especially as seen through the S&P 500—could be enough to force the US Dollar through key resistance levels against the Euro and British Pound in the week ahead. Yet traders should likewise watch CPI and PPI data; any significant downgrades in inflation could just as easily force US dollar declines.

Euro Won’t be able to Hold Back the Fundamental Tide for Much Longer

Fundamental Forecast for Euro: Bearish

- Ireland to split Anglo Irish Bank in an effort to defuse a financial bomb
- Norway Sovereign Wealth Fund invests in shunned Greek and other trouble EU countries’ debt
- Greek consumers and businesses withdraw 4.2 billion euros from national bank accounts

It would be a stretch to simply imply that the euro experienced elevated volatility this past week. Considering European traders were returning from their summer holidays and US-based speculators rushed back after an extended holiday weekend, there was wave of risk-sensitive capital that washed over the market and offered the best opportunity for a meaningful breakout that we have seen in a month. And yet, EURUSD would hold its sideway track. Now we turn to the coming week and attempt to gauge the potential of that long-awaited breakout that will provide finally establish a meaningful direction for the capital markets and shared currency. Considering the euro’s bearing is heavily dependent on its performance against the US dollar and risk appetite in general, the fundamental trends to encourage this market along are perhaps larger than the currency itself. That being said, global investor sentiment itself could actually establish its bearings on European financial and economic developments.

It should come as no surprise that policy officials are singing the praises of their respective economists and financial markets. It is their job to be cheerleaders and encourage confidence as much as possible. However, these assurances ring hollow when we consider the growing troubles of the region. At the forefront of our concerns for Europe are the cracks in the effort to balance economic growth and fiscal prudence. From Ireland, the deputy director of the country’s debt office said the nation was fully funded until June of 2011; but does this assessment account for the burden that the Anglo Irish bank could place on the coffers? The plan to split the troubled back (which has already required 22.9 billion in bailout capital) is a design that has failed in other instances and will not magically erase the costs of nationalization. For Greece, the IMF’s approval of another 2.57 billion euros tranche of its three-year bailout program should serve to remind of the incredible level of capital it will have to repay in the future, the economic pain the nation will have to suffer to reach fiscal targets and the inequity of countries with higher debt costs having to bailout this particular nation. To add to the precarious picture, Greece is scheduled to auction off short-term bills. Then there is the Basel III capital ratio. There is a reason Germany has loudly rebuffed calls for higher reserves and a five-year implementation; because this and other European nations are the furthest from meeting the suggested targets. If the bar is raised, European banks (dependent on ECB liquidity) could be forced to raise more capital and suffer painful yields.

If we are looking for the spark to feed fear of a financial crisis or accelerant to an economic slowdown, we have an entire fuse box in Europe. However, speculators’ attention is a fickle and unpredictable thing; and they can remain unfocused for longer than we would expect. So, we must wait. In the meantime, it will be worthwhile to keep an eye on scheduled event risk to see if there any volatility to be had from the docket. The top tier data for the period is Tuesday’s investor sentiment survey’s imperative to establishing the market’s tolerance for the region’s financial instability. One step down, we have Eurozone employment and inflation for the ECB to consider as bearings for monetary policy. After that trade, industrial production and factory prices will struggle to garner attention.

Japanese Yen: Will FX Traders Curb Speculation For BoJ Intervention?

Fundamental Forecast for Japanese Yen: Neutral

- BoJ Holds Rate at 0.10%
- Japanese Yen Traders Still Not Convinced of Invention as Noda Says Simulated Manipulation Tested
- Forex Strategy Outlook: Breakout Strategies Favored on Indecisive Currency Price Action

The Japanese yen rallied to a 15-year high against the U.S. dollar and the low-yielding currency may continue to gain ground over the following week as the Bank of Japan holds off on intervening in the foreign exchange market. The central bank’s attempt to talk down the appreciation in the exchange rate has certainly failed to materialize throughout the third-quarter, and investors may curb speculation for a currency intervention going forward as policy maker weigh various options to address the downside risks for the region.

The Japanese government unveiled a JPY 915B stimulus packaged to boost the domestic economy, and the expansion in fiscal policy could lead the central bank to stay out of the currency market over the near-term as BoJ Governor Masaaki Shirakawa sees the recent strength in the Japanese yen coming from the rise in safe-haven flows. However, there have been increased pressures on the BoJ to tackle the marked appreciation in the exchange rate, with Japan Finance Minister Yoshihiko Noda recently announcing that the central bank will jump into the currency market if conditions warrant. In addition, market participants see scope for the BoJ to expand monetary policy further over the coming months as the Organization for Economic Cooperation and Development expect a “more pronounced” slowdown in the recovery, and the central bank may look to increase its liquidity programs as it struggles to stem the risks for deflation.

However, speculation for an intervention could intensify if the USD/JPY tests 83.00 over the following week. As the dollar-yen maintains the downward trend from earlier this year, it seems as though the pair could fail to find psychological support around the 83.00 level as investors continue to scale back their appetite for risk. If investors become more risk adverse over the following week, we will favor a bearish outlook for the dollar-yen, but trading the pair may become increasingly difficult as the risks for a currency intervention remain on tap.

British Pound Volatility Depends On Slower Price Growth

Fundamental Forecast for British Pound: Neutral

- BoE Leaves Benchmark Rate, Asset Purchase Program Unchanged
- Industrial and Manufacturing Production in July Rose 0.3%, Led by Textiles
- Producer Prices Grow at Slowest Pace in Six-Months

The British pound remains range bound against most its counter parts as the Bank of England left their bench mark rate on hold for an eighteenth straight month. Policy makers also refrained from adding to their asset purchase program, which economists are expecting the MPC to re-start as credit conditions remain tight. The non-action wasn’t accompanied by a statement, leaving markets to guess whether Andrew Sentence remains the lone voice for tightening. The voting member’s concern over inflation above the government’s 3.0% threshold has raised the possibility that a rate hike could come in early 2011. However, if consumer prices follow the slower factory gate price growth seen in August, then more market participants could start to move into the “additional QE” camp.

The U.K. trade deficit in July widening to 8.7 billion pounds from 7.5 billion pounds as export demand slowed, will put added pressure on policy makers to fuel domestic growth. The central bank will face a difficult task as they have lowered growth forecasts, as they anticipate austerity measures from the new coalition government will become a weighing factor. Indeed, we may have seen a three way split at the last rate decision, with some members calling for a resumption of QE measures, as they look to ensure the recovery sustains. Industrial and manufacturing production growing 0.3% in July has helped erase fears of a double dip recession, potentially leaving the monetary authority on the sidelines through the end of the year. However, the National Institute of Economic and Social Research is forecasting growth slowed to 0.7% in the three months through August, from 1.3% the month prior, a trend that could spark action.

The upcoming economic calendar is full of event risk which could spark volatility but may not be enough to inspire breakouts for sterling crosses, with the BoE minutes scheduled for September 22nd. The most market moving release will be the consumer price report which is forecasted to ease to 3.0%, placing it at or above the government’s threshold for an eighth straight month. Inflation slowing below the level would open the door for additional QE and could be a catalyst for Sterling weakness. The employment report could stem pessimism, with forecast for jobless claims to decline for a seventh straight month by 3,000. Retail sales growth of 0.3% is also expected adding to sign that the recovery is sustaining. However, in line employment and consumption figures would reflect a lower measure of improvement for a third straight month, supporting broader growth concerns.

Canadian Dollar at Risk of Declines as it Fails to Set Fresh Highs

Fundamental Forecast for Canadian Dollar: Bearish

- Canadian Employment Report tops forecasts, Canadian Dollar bounces
- Bank of Canada raises interest rates and does not rule out further hikes

The Canadian Dollar finished the week marginally higher as the Bank of Canada raised interest rates and domestic employment numbers beat expectations. Yet a Friday reversal suggested traders are thus far unwilling to push the Loonie to fresh monthly highs against its US namesake. BoC officials matched consensus forecasts in raising their benchmark interest rates a further 25 basis points to 1.00 percent, and the bank struck a relatively hawkish tone in showing few signs it would pause in its tightening cycle. Whether this will be enough to push the Canadian Dollar to further highs is questionable, however; the USDCAD correlation to Crude Oil remains near record-highs and Canadian Dollar strength will almost certain depend on the trajectory of commodity prices.

Canadian economic event risk will be minimal in the week ahead, and traders are more likely to focus on movements in broader financial markets than individual pieces of fundamental data. A marginal exception may be Wednesday’s Manufacturing Shipments report. Though said news release has not historically forced noteworthy volatility in CAD pairs, a Canadian Trade Balance deficit at record highs means negative surprises may elicit CAD declines. An otherwise fairly empty calendar leaves the USDCAD at the whims of Crude Oil prices and a similarly slow week of US economic event risk.

The Canadian Dollar’s inability to hit fresh highs amidst an upward revision to interest rate expectations raises doubts on future gains. A key factor in determining the USDCAD’s next step will undoubtedly be the direction of Crude Oil prices, and the NYMEX WTI Contract’s close near monthly highs leaves momentum in the Canadian Dollar’s favor. Yet we will likely need to see a USDCAD break below key support near 1.0250 to instill confidence in the downtrend. According to our Senior Strategist, however, the USDCAD may have recently bottomed and is set to go higher through the medium term.

Australian Dollar May Appreciate Further as Growth Prospects Improve

Fundamental Outlook for US Dollar: Bullish

- Reserve Bank of Australia Keeps Rate on Hold
- Employment Rises More-Than-Expected
- Australian Dollar Risk of Reversal Increased

The Australian dollar rallied against its U.S. counterpart for the third week and the exchange rate looks poised to test the yearly high at 0.9383 as the economic recovery in the isle-nation gathers pace. The AUD/USD rallied to a fresh monthly high of 0.9276 following a larger-than-expect rise in employment paired with a rebound in mortgage lending, and the pair may continue to retrace the decline from earlier this year as the economic docket for the following week is anticipated to reinforce an improved outlook for future growth.

The Reserve Bank of Australia held a positive attitude toward the economy after holding the benchmark interest rate at 4.50% for the third time in September and said that monetary policy remains appropriate “for the time being” as the global outlook remains clouded with uncertainties. Central bank Governor Glenn Stevens expects the recovery to strengthen going forward as the labor market improves, with businesses investments increasing, and the central bank may tighten policy further in order to stem the risks for inflation. The RBA sees price growth rising above the 3% limit for a few quarters and the central bank may turn increasingly hawkish going forward as it maintains its dual mandate to ensure price stability while promoting full-employment. As the outlook for growth and inflation improve, market participants may raise speculation for a rate hike in October, and an upward shift in interest rate expectations would support a bullish outlook for the AUD/USD as investors weigh the prospects for future policy. Investors are currently pricing a 24% chance for a 25bp rate hike next month according to Credit Suisse overnight index swaps, and further increases

Nevertheless, the economic docket for the following week is expected to show a gradual improvement in the private sector, but a fifth consecutive drop in consumer inflation expectations could weigh on the exchange rate and bring the recent appreciation in the AUD/USD to a halt. If we see a consolidation in the aussie-dollar, price action may fall back towards the lower bounds of its recent range at 0.9100 to test for short-term support. However, as the 50-Day SMA (0.8952) crosses above the 200-Day SMA at 0.8939, the golden cross formation remains favorable for the high-yielding currency as it reinforces a bullish outlook for the exchange rate.

New Zealand Dollar Awaits RBNZ Rate Decision For Direction

Fundamental Forecast for New Zealand Dollar: Bearish

- New Zealand Manufacturing Activity increased 3.1% in the second quarter, led by meat and dairy
- NZD/USD Threatening Resistance Levels

The New Zealand dollar benefitted from broader trends as firm risk appetite on the back of easing concerns over a double dip recession benefitted the high yielder. However, the domestic picture may dictate upcoming direction with the RBNZ rate decision on tap. The second quarter increase in manufacturing activity of 3.1% is evidence that the commodity driven economy continues to enjoy solid growth. Strong demand for meats and dairy helped drive activity and improved the Terms of trade index for the period by 2.1%. However, a slowdown in manufacturing sales outside of the country’s main exports fell 2.2%, raising concerns that domestic growth is slowing. Therefore, it is expected that the central bank will keep their benchmark rate on hold at 3.00%.

The RBNZ rate decision will present major event risk for the “kiwi” as it could dictate medium term direction. An expected rate hold and dovish commentary could sink the commodity dollar as markets have been looking for the central bank to follow its Australian counterpart on a path of several increases. Policy makers in general have started to take a more cautious stance, as developed economies are struggling to maintain the current recovery pace, at a time when emerging markets begin steps to cool domestic growth. A rate hike and concerns over inflation could add to prevailing bullish momentum and have the pair look to test the channel bound. Retail sales data beforehand could shape the outlook for the rate decision and provide short-term volatility.

Gold Finally Breaks its Bullish Trend but Does that Guarantee Reversal?

Fundamental Forecast for Gold: Neutral

- Gold finally breaks is consistent bull trend after suffers its biggest daily loss in six weeks
- Is this commodity set to reverse just before setting a fresh record high?

After six weeks of a steady and unencumbered advance, gold seems to have finally reached the limits of its temperate momentum. Just this past week, not $5 from testing its record high, the precious metal would suffer its biggest daily loss since the exhaustion move jump started the bull wave. Subsequently, with this move, the rough technical trendline that defined the positive drift was broken. Is this a surefire sign that the commodity is set to reversal dramatically this coming week? After more than a month, there is certainly significant room for retracement; but the fundamental pressure for such a move is not necessarily there.

While gold represents a key safe haven asset for global investors – one of the few that can claim a low correlation to most of the other major asset classes and perhaps the only viable security that sets itself outside the influence of fiat (currency) fluctuations – the commodity doesn’t necessary follow sharp bullish or bearish moves in the broader capital markets. Therefore, if there is a breakdown in the S&P 500, EURUSD or some other risk-defined market; gold will not necessarily be encouraged back onto its trend. This is a discouraging development considering there are so many fundamental uncertainties (the European fiscal/growth balance, China’s trouble in deflating its bubble and the slowdown in global activity) that could trigger a mass exodus from the capital markets. On the other hand, it could help as a recovery in confidence will be buffered for its bearish influence on the metal.

What has hurt gold is the general stability in risk appetite trends this past month. While the commodity is not particularly sensitive to short-term fluctuations in risk appetite, there does need to be the general buzz of long-term uncertainty that encourages investors to seek the shelter of the recession, deflation and fiat instability-hedge. It is likely this extended bought of congestion that has broken the conviction of the gold bugs before the critical level. Therefore, we will need to find systemic troubles and tribulations to put this market back on pace. This kind of driver happens to be the type that does not often have foreseeable cues. Therefore, we will have to keep our eyes open for major financial news headlines and monitor cross market correlations that help to identify major shifts in speculative capital.

Written by David Rodriguez, Quantitative Strategist; John Kicklighter, Currency Strategist; John Rivera, Currency Analyst and David Song, Currency Analyst
Article Source - Forex Weekly Trading Forecast - 09.13.10

Encouraging US News Leads to Renewal in Risk Taking

2010-09-10T10:24:00.000+02:00

Riskier currencies made significant jumps in overnight trading, as positive news from the US economy led to renewed optimism in the global economic recovery. The most recent US Trade Balance and Unemployment figure both came in better than expected, and led to gains for the Canadian and Australian dollars. Still, the news was not enough to help the euro, which took some losses against the US dollar.

USD - Dollar Slowly Moving Away from Record Lows against JPY

The greenback has been slowly moving away from the 15-year low it recently hit against the Japanese yen. The USD/JPY pair has gone up over 65 pips since yesterday morning, and was largely helped by the positive US trade balance and unemployment figures. Currently the pair is trading around the 84.25 level. The positive news also helped the dollar gain on the euro. The EUR/USD pair has dropped close to 90 pips from yesterday's high and is currently trading around the 1.2675 level.

As we close out the week, traders can expect heavy volatility from the GBP/USD and USD/CAD pairs. While there is no US news scheduled to be released today, the UK PPI Input figure and the most recent Canadian employment data is likely to affect their respective dollar pairs. The USD/CAD in particular could see heavy volatility, following yesterday's trading. The pair dropped over 80 pips throughout the day, before bouncing back to its current level of 1.0326.

Next week, USD traders will want to prepare themselves for a batch of significant news that is likely to impact the dollar. This includes the latest retail sales report as well as the PPI and CPI figures. Whether or not the dollar can maintain its small gains on the euro and yen is yet to be seen, but significant market movements are assured.

EUR - EUR Fails to Gain From Positive US Data

The euro was not able to take advantage of the return to risk taking yesterday, following a batch of positive news from the US economy. Analysts attribute this to persistent concerns in the euro-zone banking sector. Still, it seemed odd that the return to risk taking did not help the ailing European currency.

EUR/USD has continued to drop in overnight trading, while EUR/JPY has remained relatively steady since yesterday afternoon. Furthermore, the EUR/AUD pair has dropped close to 160 pips since yesterday, and is currently trading around the 1.3710 level.

Today, traders will want to pay attention to the news coming out of the UK and Canada. Both are forecasted to show marked improvements in their respective economies, which may further fuel investor risk taking. This would typically lead to gains for the euro, but with pessimism in the euro-zone still dominating the market, that remains to be seen.

JPY - Yen Takes Losses against USD and GBP in Overnight Trading

The return to risk taking did not help the yen yesterday, as it decreased sharply against the UK pound and US dollar. USD/JPY has been slowly moving up from its record lows and is holding steady around the 84.25 level. GBP/JPY has gone up close to 100 pips in trading since yesterday afternoon, and is currently at the 129.70 level.

Today, in addition to the news being released from Canada and the UK, yen traders will want to pay attention to any indication that the Bank of Japan may be moving in to limit further yen growth in the forex marketplace. Recent yen gains have hurt Japan's export based economy, leading to increased speculation that the government will move in to devalue the currency. Should this occur, traders can assume that the JPY will see heavy losses against its main currency rivals.

Crude Oil - Crude Oil Sees Correction after US Data Released

Crude oil started yesterday's session by taking heavy losses, but following a report showing US oil stockpiles unexpectedly dropped last week, was able to rally in evening trading. The latest US Crude Oil Inventory figure showed that stockpiles dropped by 1.9 million barrels. Typically a drop in supplies is an indicator of increased demand among the world's biggest energy consuming nation; the United States.

Crude prices have gone up some 86 pips since yesterday evening, and currently stand at around the 74.75 level. Today, traders will want to pay particular attention to the Canadian news set to be released. News from Canada typically impact commodity prices, in particular oil. Should the latest employment figure, set to be released at 11:00 GMT, come in as expected, oil prices could rally in afternoon trading.

Technical News

EUR/USD

The EUR/USD has gone increasingly bearish yesterday, and currently stands at the 1.2670 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart's RSI signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.

GBP/USD

The pair has recorded much bearish behavior. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's MACD signals that a bullish reversal is imminent. An upward trend today is also supported by the hourly chart's Slow Stochastic. Going long with tight stops may turn out to pay off today.

USD/JPY

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. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

USD/CHF

The typical range trading on the 4-hour chart continues. The 8-hour chart RSI is floating in neutral territory. However, the pair currently sits near the bottom border of the daily chart's RSI, suggesting an upward correction may be imminent. Going long with tight stops may turn out to be a good strategy today.

CAD/CHF

This pair's sustained upward movement has finally pushed its price into the over-bought territory on the 4-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.

Article Source - Encouraging US News Leads to Renewal in Risk Taking

EUR Gains on Successful Portugal and Poland Debt Auctions

2010-09-10T10:15:00.001+02:00

The EUR rose against the U.S. dollar on Wednesday, buoyed by successful bond auctions in Portugal and Poland that made the single currency's fall the prior session look overdone. The EUR rose 0.4% against the USD after an early fall as low as 1.2660.

USD - Dollar Drops against the Majors

The U.S. dollar fell against most of its major currencies on Wednesday after the Federal Reserve's Beige Book cited a slowing economy and limited inflation pressure, though stayed lower amid better news out of Canada and the U.K. As a result, by yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.2730. The dollar experienced similar behavior against the GBP and closed at 1.5470.

The greenback also remained under selling pressure on expectations that U.S. interest rates will stay at very low levels for some time. Low interest rates make the dollar less attractive to investors than higher-yielding currencies, stocks and commodities. In addition, economic recovery does not appear to be improving at the speed many investors were hoping for, and currencies appear to be tracing the movement of stocks as a result.

Looking ahead today, the two main news events that may have a very large impact on the greenback and its main currency pairs in today's trading are the Trade Balance and Unemployment Claims around 12:30 GMT. These reports are very important and likely to impact the dollar's volatility. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.

EUR - EUR Gains on Successful Debt Auctions

The EUR rose against the dollar and Swiss franc on Wednesday, buoyed by successful bond auctions in Portugal and Poland that made the single currency's fall the prior session look overdone. By yesterday's close, the EUR rose against the USD, pushing the oft-traded currency pair to 1.2730. The 16-nation currency also rose against the CHF and closed around 1.2865.

The EUR also gained support after Ireland's finance ministry said nationalized lender, Anglo Irish Bank, would be split to wind down its assets. Concerns about how Ireland dealt with the troubled bank had weighed on investors recently.

The single euro zone currency tumbled 1.5% versus the dollar on Tuesday after a news report that recent stress tests of European banks sector underestimated some lenders' holdings of potentially risky government debt.

JPY - Yen Hits 15-Year High vs. the Dollar

The yen struck a fresh 15-year high against the dollar and edged closer to a 9-year peak against the EUR on early Wednesday on a flare-up in worries over euro zone banks, prompting market players to test the will of Japanese authorities to intervene. The USD/JPY fell as far as 83.35 before correcting itself. Currently the pair is trading around the 83.95 level.

Bank of Japan Governor Masaaki Shirakawa reiterated his reluctance to return to quantitative easing although he indicated the central bank was weighing its options on how to deal with the economic impact of the yen's strength.

Investors worry over a recent rise in the JPY as it makes Japanese products less competitive abroad and hurts the value of overseas sales when translated back into the Japanese currency. With steady gains primarily against the dollar, much of the yen's bullish movement could be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. This has had a positive effect on major JPY currency pairings, as the rising turmoil in the market is leading to more investment in the Japanese currency.

Crude Oil - Crude Oil Inventories to be Released Today

Oil prices rose on Wednesday for the first time in three sessions to trade around $75 a barrel, bouncing with equities and supported by a weaker dollar as concerns over the European banking system eased and investors cautiously bought riskier assets.
A weaker U.S. dollar tends to boost the price of dollar-priced commodities as it lowers the price to holders of other currencies and reduces the value of the currency oil producers receive for their product.

Today, the release of crude oil inventories is likely to help determine the market's next direction for crude oil. Moreover, a release of a string of positive economic figures from the U.S. could help its bullishness. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.

Technical News

EUR/USD

The range-trading pattern on the hourly chart continues. The daily chart's Slow Stochastic is floating in neutral territory. However, the 4-hour chart's RSI is already floating in the over-sold territory, suggesting an upward correction may be imminent. When the upwards breach occurs, going long with tight stops appears to be a preferable strategy.

GBP/USD

The pair has been range-trading for a while now, with no specific direction. The daily chart's Slow Stochastic is providing us with mixed signals. The 4-hour chart does not provide a clear direction either. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

USD/JPY

The pair has recorded much bearish behavior in the past several weeks. However, the technical data indicates that this trend may reverse anytime soon. For example, the weekly chart's RSI signals that a bullish reversal is imminent. An upward trend is also supported by the daily chart's RSI. Going long with tight stops may turn out to pay off today.

USD/CHF

The price of this pair appears to be floating in the over-sold territory on the daily chart's RSI, indicating an upward correction may be imminent. The upward direction on the weekly chart's Momentum oscillator also supports this notion. Going long might be a wise choice.

Gold

Gold prices rose significantly yesterday and peaked at $1,261 an ounce. However, the daily 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 a modest correction at a very early stage.

Article Source - EUR Gains on Successful Portugal and Poland Debt Auctions

Dollar Rallies on Weak German Data

2010-09-08T08:39:00.002+02:00

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.

Article Source - Dollar Rallies on Weak German Data

Japan's Currency Hits a 7 Month High

2009-09-28T08:40:00.001+02:00

The Yen rose to a 7 month high versus the Dollar as Japan's new government reiterated its opposition to pursuing deliberate currency devaluation strategy. The Sterling dropped to a 3 month low versus the Dollar last week after Bank of England Governor Mervyn King was quoted as saying the Pound's weakness is aiding in stabilizing the U.K.'s economy. Today's trading day will likely experience the markets reaction to the G20 leaders' decisions, mainly their pledge to continue supporting the stimulus efforts.

USD - USD Falls below 90.00 Yen

The Dollar weakened on Friday after a set of mixed U.S economic reports as well as reports that the G20 leaders will continue to provide support for the global economy. The Dollar index fell to 76.774 Friday, down from 76.901 late Thursday. The Dollar remained down more than 1% versus the Japanese Yen after statements by Japan's Finance Minister Hirohisa Fujii that he opposes intervening in the currency markets to curb the rise in the Yen.

Orders of durable goods unexpectedly fell 2.4% in August. Sales of new homes rose 0.7% to a 429,000 pace in August, much slower than the expected 442,000. On the other hand, the Reuters-University of Michigan consumer sentiment index was revised to 73.5 in September, compared to a previous estimate of 70.2 and 65.7 in August, beating analysts expectations.

No news events are expected today form the U.S; therefore, it is likely that Dollar sentiment will be determined by investors' reactions to the G20 concluding statements.

EUR - Sterling Trades at a 3 Month Low vs. USD

The Sterling dropped to a 3 month low below $1.60 last week after Bank of England (BOE) Governor Mervyn King was quoted stating the Pound's weakness is aiding in the recovery of the U.K economy. The EUR traded at $1.4665, up 0.2% from Thursday.

The Sterling slid 2.1% versus the Dollar last week following very dovish announcements by BOE Governor Mervyn King, calling the Pound's recent drop “very helpful.” The Pound fell Friday to $1.5918, the lowest level since June 8, and depreciated to 91.19 per ERU, the weakest level since April 1.

While a rather slow news day is expected today, ECB president Trichet's speech at 2:30 GMT is likely to provide volatility to the EUR as interest rate targets and exit strategies are likely to be discussed.

JPY - Yen at a 7 Month high versus the Dollar

The Yen registered sharp gains Friday, breaching the significant Y90.00 barrier against the Dollar and reaching the highest levels versus the greenback in over 7 months. Japan's currency benefited from supportive comments from Japan's finance minister Hirohisa Fujii who said that he opposes intentional devaluation of the Yen.

The JPY advanced 1.8% this week to 89.64 per Dollar from 91.29 on Sept. 18, briefly touching 89.51 Friday, the strongest level since Feb. 5. The currency also gained 2% to 131.70 per ERU, from 134.33.

Crude Oil - Crude Prices up Slightly on Mixed Data

At the end of a very volatile trading day Friday, Crude Oil futures rose slightly, for the first session in 3, following the release of mixed economic data from the U.S as well as on increased odds of broad based sanctions against Iran, the world's 4th largest Oil producer. Crude for November delivery rose 13 cents, or 0.2%, to end at $66.20 a barrel on the New York Mercantile Exchange, after dropping as low as $65.05, the lowest level since July 30. Overall futures tumbled more than 8% this week, the biggest weekly loss in more than two months.

The unexpected jump in the Reuters/UoM Consumer Sentiment Index to 73.5 in September helped push up Oil prices; however, concerns over weak demand dampened Friday's gains. Furthermore, several worse than expected economic data from the U.S stemmed further Oil's Gains.

With last Wednesday's report by the Energy Information Administration (EIA) stating that inventories of Crude Oil, gasoline and other petroleum products all rose last week and a lack of any significant economic news today, Oil prices will likely continue to stay subdued throughout today's trading day.

Article Source - Japan's Currency Hits a 7 Month High

Pound Tumbles, Dollar Surges as Risk Aversion Hits Currency Markets (Euro Open)

2009-09-28T08:35:00.003+02:00

The US Dollar surged higher to start the trading week as stocks sold off across Asian exchanges, boosting demand for the safety-linked currency. The British Pound bore the brunt of the greenback’s assault as risk aversion compounded last week’s dovish rhetoric from the Bank of England.

Key Overnight Developments

• Pound Tumbles Despite BOE Backtracking on King’s Comments
• Japanese Yen Surges on Safety Demand as Stocks Plunge in Asia

Critical Levels

The British Pound and the Euro both suffered sharp losses in overnight trading as stocks tumbled in Asia, driven lower by Friday’s disappointing US economic data, sending the MSCI Asia Pacific regional benchmark index down 1.2% and boosting demand for the safety-linked US Dollar.

Asia Session Highlights

The British Pound raced sharply lower in early trading as currency markets seemingly concluded that the Bank of England suspiciously “protests too much” after the UK Times Online cited unnamed sources at the central bank as saying King was trying to talk down sterling last week. The Pound began to accelerate lower last Monday after the BOE released an article titled “Interpreting Recent Movements in Sterling” as part of its quarterly bulletin which argued that the inability of drying up capital inflows to finance the current account deficit could mean a fall in the “the long-run sustainable real exchange rate”. Sterling bears were given extra fuel last Thursday when Governor Mervyn King said rebalancing the UK economy was “very necessary [and] the fall in the exchange rate that we have seen will be helpful to that process” in an interview with The Journal.

Reserve Bank of Australia Governor Glenn Stevens struck a hawkish tone at a testimony to the Senate Committee in Sydney. Stevens said that Australia’s recession has been mild and the economy has done “quite well” as government stimulus “materially” supported growth, adding 2-3% to local demand. On interest rates, Stevens said that benchmark borrowing costs are “unusually low” and will need to go back to normal levels, adding that inflation targeting will guide the timing of adjustment to “more normal levels”.

Euro Session: What to Expect

A preliminary estimate of Germany’s Consumer Price Index is set to show that prices fell -0.2% in the year to September, marking the third consecutive month that the EU-harmonized metric has printed in negative territory. A reading in line with expectations is unlikely to prove market-moving: economists have called for year-on-year CPI to shrink -0.3% through the third quarter, and averaging September’s would-be reading with those recorded in the previous two months yields just about that outcome. The coming months present an opportunity for volatility, however: consensus forecasts have inflation coming back into positive territory in the fourth quarter and averaging around 1.2% through 2010; if this proves too rosy as the economy falters anew after the boost from fiscal stimulus (both at home and abroad) and the inventory cycle fizzles out, a drop in inflation expectations stands to prolong the slump in the Euro Zone’s largest economy. Indeed, consumers and businesses have little incentive to spend and invest in the present if they reckon prices will be lower in the future, bringing economic activity to a standstill. This will mean the ECB will keep interest rates at current lows longer than nearly all of its major counterparts (with the exception of Japan and Switzerland), weighing down the Euro.

Written by Ilya Spivak, Currency Analyst
Article Source - Pound Tumbles, Dollar Surges as Risk Aversion Hits Currency Markets (Euro Open)

Forex Weekly Trading Forecast - 09.28.09

2009-09-27T14:12:00.002+02:00

US Dollar: Optimistic Economic Outlooks to Meet Hard Facts This Week

Fundamental Outlook for US Dollar: Bullish

- The Federal Reserve left rates unchanged, but signaled a more optimistic outlook
- University of Michigan consumer confidence jumped to a 21-month high in September
- US durable goods orders tumbled 2.4% in August, marking the steepest drop since January

The US dollar ended the past week marginally higher after the Federal Reserve issued a more optimistic outlook on the economy. In the coming week, though, there will be a variety of growth indicators on hand that may help to signal whether the US recession really ended in Q2. That said, the US dollar index will have to contend with resistance just above 77.00 at the start of the week, but a break above there will likely coincide with a EURUSD drop below 1.4615.

Looking to the upcoming event risk, on Tuesday, the September reading of the Conference Board’s measure of US consumer confidence is expected to rise up to a one-year high of 57 from 54.1 in August, but overall, there are some upside risks for this report. Indeed, the final reading of the University of Michigan’s consumer confidence index show that sentiment improved greatly in September, with the index hitting a 21-month high of 73.5 from 65.7.

On Wednesday, the third round of US Q2 GDP estimates is due to hit the wires, but the results will only be market-moving if we see surprising revisions. The final reading is forecasted to be revised down to -1.2 percent from -1.0 percent, though this would still represent a sharp improvement from Q1, when GDP plunged 6.4 percent. Readings in line with expectations may not have a very big impact on price action, but better-than-anticipated results could lead carry trades higher, especially in light of speculation that the recession may have ended in Q2.

On Thursday, the ISM manufacturing index is projected to rise for the ninth straight month in September to 54 from 52.9, which would be the highest reading since April 2006. With 50 being the point of neutrality, this would also be the second month that the index signals an expansion in activity, adding to evidence that the sector is experiencing a recovery in business activity. The last release didn’t have much of an impact on the US dollar, as risk aversion dominated the day, leading the currency higher. However, the report will still be useful because of its employment component as a leading indicator for the big news on Friday: US non-farm payrolls.

The US non-farm payrolls (NFPs) index is forecasted to show job losses for the 21st straight month in September, though the rate of decline is anticipated to slow further. At the time of writing, Bloomberg News was calling for NFPs to decline by 187,000, which would be the smallest drop since August 2008. Meanwhile, the unemployment rate is projected to edge up to 9.8 percent from 9.7 percent, but ultimately, the NFP result will be the event to watch as it is extremely volatile and is one of the sole reports that impacts the US dollar from a pure fundamental point of view. A better-than-anticipated result is likely to provide a boost to the US dollar, but it will be interesting to see the impact of disappointing results as weak US data tends to weigh on risky assets and push the greenback higher amidst flight-to-quality.

Euro Shows Early Signs of Reversal – Week Ahead Critical to Trends

Fundamental Forecast for Euro: Neutral

- Euro breaks key technical short-term trendline
- Candlesticks likewise point to a potential Euro reversal
- German IFO improves for sixth month
- Risk trends remain most important EURUSD driver

The Euro showed early signs of technical reversal through an eventful week of trading, setting fresh yearly peaks versus the US Dollar yet finishing lower through Friday’s close. Strong rallies in the US S&P 500 and other key risk barometers led the single currency to impressive highs against most major counterparts. Yet a late-week breakdown in risk sentiment sparked a flight to safety across forex markets—much to the Euro’s detriment. Near-term Euro forecasts will very much depend on the trajectory of said asset classes, and a busy global economic calendar promises no shortage of volatility through the week ahead.

The Euro remains in fairly well-defined 6-month uptrend, and we would hardly argue that several days of declines signal that it has set a major top. Yet it is undeniable that the EUR/USD lost much of its short-term momentum—having broken below short-term technical support and threatening further declines. Fundamentals will likely play a fairly significant role in the days ahead as the combination of German and US Employment figures will shed a great deal of light on economic conditions in both key countries. The reports may confirm recent waves of economic optimism or cut celebrations short. Reasonably steady improvements in fundamental data have made for lofty market forecasts across most economic releases, and a string of disappointments could easily force noteworthy corrections across major financial markets.

Early-week German Consumer Price Index numbers and Euro Zone Consumer Confidence figures could produce surprises, but most traders look forward to market-moving German Unemployment Change figures due Wednesday. Previous results showed unemployment actually fell for the second consecutive month through August, but the numbers were clouded by government stimulus payments inducing firms to keep workers on their payrolls. Forecasts for September results call for a far less sanguine 20k jump in unemployment. Given that Germany is largely considered the bellwether for the broader Euro Zone economy, any disappointments could led to a noteworthy correction in the Euro exchange rate.

Friday’s US Nonfarm payrolls result could likewise have a pronounced effect on Euro pairs. US and European markets have proven especially sensitive to major surprises in the monthly payrolls number. Consensus forecasts call for the eighth-consecutive improvement in the jobs release, and any disappointments could clearly make a dent in broader forecasts for growth out of the world’s largest economy.

The critical question remains whether we can expect further equity market gains. Much like the Euro, the S&P 500 showed early signs of reversal through late-week trade. A continuation of said tumbles could easily force the Euro to move in kind.

Japanese Yen Momentum a Combination of Risk, Intervention and Data

Fundamental Forecast for Japanese Yen: Bullish

- Finance Minister Fujji reiterates his opposition to FX intervention
- Policy officials start reining in the stimulus that has supported the most aggressive rally in decades
- Exports shrink 36 percent in the year through August, exacerbated by sharp appreciation of the yen

The Japanese yen was the biggest mover and gainer amongst the majors this past week – by a long shot. However, we can’t idly attribute this appreciation to risk appetite alone. Indeed, we can see while other risk sensitive assets (equities, bonds funds, commodities, high-yield currencies) have pulled back over the same period; they certainly didn’t do so with the same gusto as the yen. Underlying sentiment no doubt prompted the trend; but early signs of policy withdrawal and confirmation from the new Japanese Finance Minister suggesting the days of FX intervention has passed provided the fuel for momentum. Will the market maintain its bearing and pace? That will depend on three dominant factors: interpretation of the G-20 commitments; weighing the fair value of the yen; and the outlook for the domestic recovery.

While the first concern is related to the G-20 meeting and commitments that were announced this past week, the fundamental relation to the yen is risk appetite. In the six-month rally from anything and everything that can bear a yield above the risk-free assets that traders took shelter in during the worst of the crisis, we have seen an early upsurge in demand for return and an elemental redistribution of capital. There have certainly been earlier adopters to the market reversal and those lured in by the steady capital gains; but most of the inflow of wealth is simply coming from the market sidelines and is seeking an investment with stability and steady returns. It wouldn’t take much to spark fear of a reversal and catalyze a wave of profit taking; but it is the money that is flowing back in for the long haul that will decide the larger trend. Both these short-term and long-term dynamics can be impacted by the G-20’s joint statement and individual government’s efforts going forward. The impressive recovery in market levels this past year is in large part due to the guarantees, liquidity injections and bailouts by the world’s policy makers. It is unclear whether speculator confidence in the balance of risk and reward will be anywhere as strong as it has been without the government safety net. However, with German and the US cutting down its programs last week while the global call for ‘exit strategies’ grows to a roar; we may well be testing those waters soon.

It is generally true that the majors are free-floating currencies and economics indeed sets exchange rates; but perfection only exists in academic theory. In reality, the Japanese yen has carried the burden for potential intervention from the Bank of Japan for years. As a major export nation, the former DPJ administration considered a ‘weak yen’ policy essential to economic stability. However, regimes have changed and new LDP Finance Minister Fujii has explicitly said that the currency should reflect economics. The first time, the policy makers made this statement the week before last, the yen responded with a sharp appreciation. With a reiteration of the same this past week (despite the yen being at relative highs), the currency moved on to another leg of its rally. How much pressure has been priced in due to intervention fears? Only time will tell. What’s more, how will the economy handle this steady appreciation? Domestic demand has long been lacking for Japan.

And, so we round out the story with more domestic considerations. As the currency appreciations, a critical artery of growth is slowly pinched off. In line with the G-20’s commitment to balance savings, domestic demand and trade; Japan will have to compensate for the potential loss in exports with domestic demand at a critical time for the economy. In the midst of a fragile recovery, we will now low to key economic data due over the coming week to see if Japan can lift itself out of its worst recession on record. The 3Q Tankan surveys, industrial production, employment, household spending, housing activity and inflation will offer a thorough assessment.

British Pound Losing its Risk Appeal as Conditions Deteriorate

Fundamental Forecast for British Pound: Bearish

- BoE Mervyn King says the weak pound “will be helpful” in supporting a feeble recovery
- Upcoming spending cuts and speculation of a cut in the deposit rate means the BoE is running out of options
- The Bank of England minutes show a unanimous vote to keep the bond purchasing program at 175 billion pounds

Some of the major currencies are showing strength against some pairs and weakness against others – a sign of underlying currents like risk appetite. However, the British pound was down across the board this past week, and in dramatic fashion. Prominent breakouts are starting to look the establishment of new trends as the struggling fundamental health of the United Kingdom begins to override the appeal the currency once held as a source for high yields. The next few weeks will be critical in establishing where the pound will head, and more importantly, where it fits in the market.

There is no doubt that risk trends will have an impact on what kind of direction and pace the British currency takes. However, it will likely start to be more of a one sided influence. Should risk tumble in the wake of the G-20 meeting as investors worry the capital markets can’t support their own weight without a government safety net, the pound will likely tumble. There is still a latent build up of risk appetite behind this currency that was fed by the belief that the recovery in the global economy and markets would be exceptionally beneficial for the United Kingdom which is generally considered to be the industrialized nation in the worst shape. As the outlook for a speedy recovery and fades, so too does the picture of London retaking its title of financial center of the world. Yet, what happens should sentiment actually improve? Even then, the pound will likely lag or even fade despite the positive turn.

Over the past weeks and months, it has become blatantly clear that Europe’s second largest economy is struggling to pull itself out of its deep recession; and the time frame for a return to growth is being continuously pushed back. Not only did the 2Q GDP numbers tell us that the slump was more intense than initially though; but we have also seen that policy officials are running out of options to support an orderly recovery. This past week, the minutes seemed to have a positive tilt in that there was a unanimous vote to keep the bond purchasing program at 175 billion pounds (whereas in the previous vote, the was minority dissention headed by Governor Mervyn King for a greater amount). Nonetheless, the central bank kept open the possibility of further expansion of this unorthodox policy. Another step that was speculated to under consideration was a cut to the deposit rate paid to banks that hold their capital with the BoE. This too was written off; but commentary by King and other MPC members continues to stoke speculation that either or both is still a considerable possibility. Without doubt, the central bank is running out of options to jump start the economy. The further the policy authority extends itself without a commensurate response from financial health or economic activity, the more dire the nation’s condition. Considering the government will have to follow through on a serious round of spending cuts in the near future (expected to be the biggest reduction in over three decades), time is certainly working against policy officials.

In the grand scheme of things, economic data is vital at this point; but a meaningful improvement in the outlook will come with time and a wide array of indicators. Nonetheless, there are a slew of indicators to account for next week – and perhaps even a few of them could help jump start optimism. Most prominent, but least likely to surprise, is the final reading of the 2Q GDP numbers. There is rarely a meaningful adjustment in this last recalculation of the data; but the new current account numbers, some spending adjustments or capital investment alterations would be notable. Among the other notable figures, mortgage approvals, net consumer credit and the money supply are important gauges for financial health. The BoE home equity withdrawal figure and PMI factory and construction data is growth focused.

Written by Terri Belkas, David Rodriguez, John Kicklighter, Ilya Spivak, John Rivera and David Song, Currency Analysts
Article Source - Forex Weekly Trading Forecast - 09.28.09

Dollar, Yen up Ahead of the G20 Meeting

2009-09-25T14:47:00.004+02:00

The Dollar snaps a two week decline versus the EUR after disappointing U.S Home Sales data and ahead of the G20 meeting. The USD and JPY are benefiting from the recent surge in risk aversion ahead of the G20 meeting and a concern that the group's leaders will pose stricter regulations on financial markets. The drop in Oil prices, which began Wednesday, only exacerbated yesterday as equity markets tumbled and the Dollar strengthened, putting pressure on the commodities market.

USD - Dollar Rebounds on Return to Risk Aversion

The Dollar came roaring back yesterday against its rivals as poor housing data and falling equity markets sapped traders appetite for risk. Existing home sales numbers were released to an unspectacular reception with the numbers failing to reach their expected targets. Only 5.10M existing homes were sold as compared with economists forecasts of 5.36M. This sent traders running from higher-yielding currencies and into long Dollar positions.

Yesterday's trading was notably volatile, with the EUR/USD climbing in early European trading hours to a daily high of 1.4789, only to end the day at 1.4650 from 1.4721. Driving the early appreciation for the EUR was a lower number of U.S. Unemployment Claims. These gains were later eroded after less than spectacular housing data was released. Against the Yen the Dollar was down as traders looked for the less risky currency. The pair closed at 90.82 from 91.30.

Looking ahead to today's trading, we can expect further volatility of the Dollar. The Group of Twenty (G20) meets for a second day today. Comments made by the global heads of finance can move the market fast so traders should be aware of their impact. U.S. New Home Sales data is due at 2:00pm GMT time. If the New Home Sales is anything like the Existing Homes Sales data from yesterday, the EUR/USD could continue its decline for the second day in a row to finish the week near the 1.4550 mark.

EUR - Pound Crumbles on Currency Comments

The Pound took a thrashing during yesterday's trading as comments by the Bank of England sank the British currency. A report surfaced that Bank of England (BOE) Governor Mervyn King stated a weaker Pound could be beneficial to the U.K. economic recovery. It is assumed the BOE prefers a weak Pound. The weaker currency could help boost British exports, making them relatively cheaper than their foreign counterparts.

Traders immediately began bidding the Pound lower, sinking the GBP/USD to 1.5947 from 1.6353, for a single day decline of 2.5%. The EUR also rose 2% on the Pound as the EUR/GBP ended at 0.9816 from 0.9004, and the GBP/AUD fell to 1.8467 from 1.8803.

If the BOE does prefer the Pound to depreciate, this could create an opportunity for those traders who feel the British currency is not properly valued. Perhaps the BOE sees the possibility for further weakening of the Pound. Will the bank take future action to help artificially deflate the nation's currency?

JPY - Yen Rises on Negative U.S. News

As the rally of riskier currencies puts on the breaks, demand for the Yen is increasing. Yesterday's news of lower U.S. housing data helped slow the rally for riskier assets, thereby boosting the Yen. This trend continues to go unabated, with the USD/JPY rising alongside riskier assets, and falling when risk sentiment diminishes. This was the case yesterday as the USD/JPY fell to 90.82 from 91.30

Traders should be watching today's data releases from the U.S. for today's direction of the Yen. If the negative news will continue further into the day, we could have another pullback of some of the higher yielding currencies. If so the USD/JPY could be looking to drop below the 90.00 support line.

Crude Oil - Economic Data Lowers Demand for Crude

The price of Crude Oil was significantly lower yesterday as poor U.S. housing data and a strong Dollar weighed on the commodities market. Traders took the information as a pullback to economic growth and a sustained economic recovery, thereby reducing demand for the commodity. Oil fell below a significant support line of $66 and finished the day down at $65.85 from $68.36.

Yesterday's 3.6% drop in price was the second day in a row for a pullback in Crude prices. The valuation seems to be taking hints from reported economic data. If this is the case, traders will be wise to follow today's U.S. Core Durable Goods Orders and New Home Sales numbers. We could see Crude Oil trading at $65 by the end of today.

Article Source - Dollar, Yen up Ahead of the G20 Meeting

Currency Markets Look to G20 Summit Outcome to Guide Price Action (Euro Open)

2009-09-25T14:39:00.002+02:00

Currency markets will be focused on the outcome of the G20 summit of world leaders in Pittsburg to guide directional momentum. A leaked draft communiqué hinted policymakers were in no rush to withdraw fiscal stimulus, but concerns remain about what measures will be taken against risk-taking in the financial markets.

Key Overnight Developments

• NZ Annual Trade Deficit Shrinks as Imports Fall for Fifth Month
• Bank of Japan Says Recovery After Stimulus, Restocking is “Uncertain”

Critical Levels

The Euro initially sold off but prices recovered late into the overnight session, adding much as 0.2% against the US Dollar. The British Pound continued to be sold, though prices recovered most of the drop in early trading that saw GBPUSD test as low as 1.5918, trading just below 1.60 ahead of the opening bell in Europe.

Asia Session Highlights

New Zealand’s annual Trade Balance deficit contracted to the narrowest in over six years, revealing a shortfall of –NZ$2.37 billion in August following a revised –NZ$2.49 billion result in the previous month as imports fell for the fifth straight month, shrinking -21.6% from a year before. The outcome speaks ill of domestic demand in the smaller antipodean nation, especially considering that the Kiwi Dollar has become considerably stronger over recent months, which should boost New Zealanders’ purchasing power of foreign goods and encourage imports. More of the same is likely going forward as unemployment continues to push higher, trimming incomes and discouraging spending. Indeed, a survey of economists conducted by Bloomberg forecasts the trade gap will shave just -6.6% on average off GDP this and next year, the smallest since 2004. To be fair, however, exchange rate movements take a long time to be reflected in trade figures, so it is possible that the currency’s recent gains may surface to widen the shortfall in the months ahead. The deficit grew –NZ$725 million from July, more than the –NZ$329 million expected, but monthly figures tend to be volatile and looking at annualized readings offers better gauge of trade flows’ direction.

Minutes from the August policy meeting of the Bank of Japan revealed that while policymakers agreed that “overseas economic conditions have stopped worsening,” but expressed concern that the pace and sustainability of recovery after the effects of fiscal stimulus and the inventory restocking cycle run their course “remained highly uncertain.” Members concurred that exports will probably continue to improve for the time being as overseas markets stabilize, but domestic consumption will remain weak as unemployment continues notwithstanding isolated policy-induced spikes in purchases of specific items such as cars and electrical appliances. On inflation, members concluded that year-on-year consumer price figures will remain weak largely because of the correction in high oil costs seen last year. On financial conditions, policymakers said that while funding access had improved for large firms, credit for small enterprises remained limited.

Euro Session: What to Expect

With little of importance on the economic calendar, currency markets will be focused on the outcome of the ongoing Group of 20 (G20) summit of world leaders going on in Pittsburg. Traders’ concerns are two-fold: first, there are worries that policymakers will take recent signs of economic stabilization to agree on a path to withdrawing fiscal stimulus measures, nipping the recovery in the bud; second, it remains unclear what, if anything, will be agreed upon regarding regulations of risk-taking in the financial markets. On the former point, a draft G20 communiqué leaked by Reuters contained language saying leaders will maintain expansionary policies until the global recovery is secured, alleviating at least some concern. Little is known on the latter point, however, and any actions that are perceived to be too strong (which, in fact, would be any kind of broad-based agreement considering the difficulty of building consensus in the G20) are likely to send capital feeing out of risky investments and into safety-correlated assets like the US Dollar and the Japanese Yen.

Article Source - Currency Markets Look to G20 Summit Outcome to Guide Price Action (Euro Open)

USD Up on Fed Statements; Oil Sinks on Demand Concerns

2009-09-24T11:09:00.001+02:00

The US Federal Reserve yesterday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession. As expected, the Fed kept its target for its federal funds rate set at a range of zero to 0.25%. The previously weakened Dollar had been propping up commodity prices. Following the US Crude Oil Inventory report yesterday, oil prices dropped nearly 4% to below $68.50 a barrel. The Fed statement, which pushed the US Dollar up, only helped extend these decreases in oil prices.

USD - Dollar Optimism High Following Fed Statements

The Dollar rallied yesterday against most of its major counterparts amid concern that the Federal Reserve is nearing the end of its efforts to lift the economy out of recession. The Dollar has been sold-off recently partially due to growing optimism about the outlook for the U.S. economy. The USD finished yesterday's trading session 100 pips higher against the EUR at the1.4700 level.

The Federal Reserve yesterday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession. As expected, the Fed kept its target for its federal funds rate set at a range of zero to 0.25%. The Fed repeated that it continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Fed also said it would slow its purchases of mortgage debt to extend that program's life until the end of March, in a move toward withdrawing the central bank's extraordinary support for the economy and markets during the contraction. Analysts had expected the move, which smoothes out the purchases.

Looking ahead to today, the most important economic indicators scheduled to be released from the U.S. are the Unemployment Claims and Existing Home Sales at 12:30 GMT and 14:00 GMT respectively. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to boost the USD in the short-term. Traders are also advised to follow FOMC member Evan's speech at around 14:30 GMT. This speech is very important as it is likely to impact the Dollar's volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar's movements going into the rest of the week's trading.

EUR - EUR Declines as Stock Market Falls

The EUR fell to session lows against the U.S. Dollar yesterday, weighed down by declines in stocks following early gains. This came after the Federal Reserve signaled that interest rates will remain low for some time. By yesterday's close, the EUR had fallen against the USD, pushing the oft-traded currency pair to 1.4700. The EUR experienced similar behavior against the GBP and closed at 0.9000.

Europe's manufacturing and service industries expanded for a second month in September, suggesting that the Euro-Zone regional economy is gathering strength and showing signs of emerging from its worst recession in more than six decades after governments stepped up stimulus measures and the European Central Bank (ECB) injected billions of euros into markets.

In addition, European economic confidence rose to a 10-month high in August but rising unemployment is a reason to remain prudent about the economic outlook.

Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.

JPY - Yen Trading Down against Currency Rivals

The Japanese Yen saw a bearish trading session yesterday, losing ground against most of its currency crosses. The JPY fell against the USD after several days of recovery, while the GBP/JPY cross also rose to around 149.40. The only economic events out of Japan yesterday were the trade balance figures; only slightly changed from forecasts as volatility was kept to a minimum.

Japan's exports fell in August for an 11th consecutive month as recovery struggled to gain traction in the island economy. Bank of Japan Governor Shirakawa said last week that he is concerned the recovery may not outlast the worldwide stimulus packages that boosted demand for the country's cars and electronics. The central bank cited exports as the main reason for raising its assessment of the economy last week, as record unemployment and slumping wages weaken consumer spending.

Another headwind for Japanese exporters is an appreciating currency. The yen has gained more than 7% against the Dollar in the past six months, threatening to erode companies' profits earned abroad.

Crude Oil - Oil Drops as Inventory Rises; Demand Concern?

Oil prices dropped nearly 4% to below $68.50 a barrel during yesterday's trading session. This drop came after a U.S. government report showed Crude Oil inventories rose more than expected, rekindling worries that energy demand in the world's biggest consumer will be slow to recover in the wake of the recession.

The International Energy Agency (IEA) said that the inventories rose to 2.8 million barrels in the week September 18, against analysts' expectations of a 1.5 million barrel decline.

A weak Dollar had been propping up prices recently. The greenback was narrowly mixed against the JPY, EUR and GBP on Wednesday. Oil, like other commodities, is priced in dollars so when the U.S. currency weakens, commodities become cheaper for investors holding other currencies.

As for today, traders should pay attention to the U.S Unemployment Claims report as it has tended to have an impact on Crude Oil's prices recently, especially in the short-term.

Article Source - USD Up on Fed Statements; Oil Sinks on Demand Concerns

Euro in Play with German IFO to Show Business Outlook Rose for Third Month (Euro Open)

2009-09-24T10:53:00.003+02:00

The Euro may see near-term gains as Germany’s IFO Survey shows that business confidence in the Euro Zone’s largest economy rose for the third straight month to hit the highest level since May 2008, but sentiment may not be supportive in the longer term.

Key Overnight Developments

• Japanese Trade Surplus Shrinks on Export Weakness
• Australia's New Home Sales Matched Record Gain in August
• RBA Says Financial System Resilient But Risks Remain

Critical Levels

The Euro consolidated near the 1.47 level in overnight trading, yielding a flat result ahead of the opening bell in Europe. The British Pound advanced, adding as much as 0.3% against the greenback. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

Japan’s Merchandise Trade Balance surplus narrowed to 185.7 billion yen in August as overseas shrank -36% from the previous year, marking the 11th consecutive contraction. Economists had expected a greater decline, calling for a 157 billion result. Export volumes shrank for the first time since May, with shipments to the European Union leading the way lower. The data may be hinting that the $12 trillion or so in fiscal stimulus spent by the world’s governments to stabilize growth that had boosted demand for Japanese products may be running out of steam. Indeed Bank of Japan chief Maasaki Shirakawa expressed concern that his country’s economic rebound may survive once worldwide expansionary policies are reversed. A stronger currency may have also contributed to the outcome: the Yen strengthened by 1.9% in trade-weighted terms in August, the most since January. While this would typically raise fears that formerly activist Japanese policymakers will intervene into the markets to drive down the currency, incoming DPJ Finance Minister Hirohisa Fujii said last week that it was not the government’s job to set exchange rates and that a stronger Yen had its advantages, clearly signaling that Japanese authorities will stand aside from here. The trade balance is expected to continue to contract in the months, with a survey of economists polled by Bloomberg forecasting that net exports will add on average 2.4% to GDP through this year and in 2010, the least since 2001.

Australia’s Housing Industry Association (HIA) reported that New Home Sales surged 11.4% in August, matching the record-setting monthly gain in January 2008. However, property sales began to rebound in May after the government extended a scheme offering an A$21,000 grant for first-time home buyers, so it still remains suspect whether momentum can remain supported after the flow of stimulus cash dries up. Indeed, unemployment continues to climb, with expectations calling for the jobless rate to approach 8% next year, while the HIA’s own Housing Affordability Index fell for the first time in 15 months in the second quarter.

Separately, the RBA’s semi-annual Financial Stability Review was broadly balanced, saying that although the Australian financial system remains resilient and funding conditions for banks have improved, recent progress can owes significantly to government guarantees on lending and loan losses may still rise in the future. The central bank also cautioned that business borrowing has continued to decline (which spells trouble for employment) and the commercial property market has weakened, contributing to the possibility of renewed problems from bad loans ahead.

Euro Session: What to Expect

Germany’s IFO Survey of business confidence is expected to show that the pessimists about the economy’s six-month economic climate outlook among polled firms outnumbered the optimists by the narrowest margin since May last year, with the Expectations index rising to 96.6 in September. A reading above 100 suggests the majority of respondents were optimistic, and vice versa. While the improvement may engineer some short-term gains for the Euro in the aftermath of the announcement, it remains questionable whether sentiment will remain supportive as the effects of fiscal stimulus both in Germany and abroad that has boosted domestic demand and exports in recent months are exhausted. As it stands, a survey of economists conducted by Bloomberg suggests that the Euro Zone’s largest economy will underperform all of the G10 excluding Japan this year and remain behind the US and commodity bloc countries (Canada, Australia, New Zealand) into 2010. This suggests the ECB will be among the laggards as central banks begin to lift interest rates from current lows, an outcome that bodes well for business climate surveys (for surely businesses prefer lower borrowing costs to higher ones) but will likely weigh on the single currency.

Article Source - Euro in Play with German IFO to Show Business Outlook Rose for Third Month (Euro Open)

U.S. Interest Rates on Tap

2009-09-23T09:28:00.002+02:00

Following two relatively peaceful trading days, today is filled with news publications from the major economies. Starting at 06:45 and until 09:00 (GMT) traders are advised to follow the news events from the Euro-Zone. Later on, the Crude Oil Inventories will be published at 14:30 (GMT). This indicator tends to have an instant impact on Crude Oil prices, and traders should use it with their trading. Finally, at 18:15 (GMT), the Federal Reserve will announce the U.S Interest Rates for September. This promises to create hefty volatility in the market, which should provide various opportunities for traders to enlarge profits.

USD - The Dollar Falls before Federal Reserve Meeting

The U.S Dollar's weakness resumed, as global investors again embraced risks, reducing safe-haven demand for the U.S. currency, as traders took positions on the first day of the Federal Reserve monetary policy meeting. The U.S. Dollar also weakened on speculation that the Group of 20 leaders, meeting in Pittsburgh starting tomorrow, will call for a reduction in global trade imbalances that may cause further gains in the greenback's counterparts. The greenback traded at $1.4794 per EUR from $1.4790 yesterday, after declining to $1.4842 earlier on, the lowest level since September 22, 2008.

The hard-pressed Dollar had gained some ground Monday as equity markets weakened, with traders tying a decline in risk appetite to caution ahead of the Fed meeting, as well as the summit of Group of 20 leaders at the end of the week. But Tuesday's resumption of risk appetite may reflect views in the market that neither event is likely to produce meaningful changes analysts said.

Market sentiment toward the USD remains bearish. Analysts expect the Fed to signal its ultra-loose monetary policy will remain in place well into next year. Additionally, as the G20 to discusses rebalancing the global economy this will almost certainly further weaken the Dollar. The Federal Reserve is widely expected to leave Interest Rates unchanged. But markets will seek out clues on the Fed's asset purchases. Any sign that the Fed intends to continue its quantitative easing measures beyond this year could send the U.S Dollar to record lows.

EUR - Euro Hits $1.48 for the First Time in a Year

The EUR traded at a 1 year high against a sliding Dollar on Wednesday, as traders took advantage of the U.S. currency's rise the previous day to resume selling ahead of a Federal Reserve monetary policy meeting. The European currency advanced as hopes for a global recovery prompted investors to shift money to higher-yielding currencies from the safe-haven greenback.

In late trading, the EUR was up 0.8% at $1.4796 after options-related demand and strong Asian buying pushed it above $1.48 for the first time since September 2008. European Central Bank (ECB) Governing Council member Axel Weber said on Tuesday recent moves in currency markets were surprising given the Euro-Zone's economic performance relative to other major economies. Traders expect the $1.4870 level may be the next target in EUR/USD cross, with many predicting an eventual move back to $1.50.

The British Pound also gained against the U.S Dollar for the first time in 4 days, as stocks rallied around the world on evidence that the global economic recovery is accelerating. The British currency advanced 1% to $1.6376. The GBP rose 0.2% against the EUR to 90.33 pence, ending a 6 day losing streak. Against the EUR, the British currency rebounded from near the lowest level in more than 5 months after Goldman Sachs Group Inc. recommended selling the common European currency against Sterling.

JPY - Yen Gains as USD Remains Under Pressure

The Japanese Yen extended its gains on Wednesday vs. the greenback as investors unloaded the U.S. currency ahead of meetings by the Federal Reserve and the G20 leaders this week. The currency gained for a 2nd day against the U.S Dollar on speculation world leaders will discuss policies to rebalance global economic growth at the G20 meeting this week. The JPY climbed to 90.82 Yen per Dollar from 91.10, and rose to 134.40 Yen per EUR from 134.76.

The Japanese currency is likely to strengthen further before new Finance Minister Hirohisa Fujii takes office this month; he said a strong Yen was generally good as it boosted the purchasing power of Japan's economy. Fujii subsequently backed away from that comment, but speculation will remain that after sweeping to power last month, the Democratic Party of Japan may try to shift the country away from its reliance on exports and its opposition to Yen strength.

Crude Oil - Crude Rebounds as Inventories are Expected to Decline

Crude Oil prices rose Tuesday to above $72 a barrel, as pressure on the Dollar and expectations for a further drop in U.S. Crude inventories boosted market sentiment. Weekly petroleum data is likely to show that stockpiles of Crude fell again last week, as imports remained low analysts said. Last week, the EIA said Crude Oil Inventories decreased by 4.7 million barrels in the week ending Sept. 11, as imports dropped 2.1% from a week ago.

The move in Crude Oil today is likely to be supported by a fresh wave of selling of the U.S. Dollar. Traders will be waiting for U.S. Crude inventory data from the American Petroleum Institute and the U.S. Energy Information Administration. Also of interest to commodities traders is leaders of the world's most powerful economies will convene in Pittsburgh later this week for the G20 Summit.

Article Source - U.S. Interest Rates on Tap

British Pound Volatility Threat High as Currency Markets Focus on BOE Minutes (Euro Open)

2009-09-23T09:21:00.002+02:00

The British Pound may be in for a volatile session ahead as the release of minutes from this month’s Bank of England monetary policy meeting top the economic calendar in European hours. Currency markets were active in overnight after New Zealand GDP unexpectedly expanded and the Chinese central bank deputy governor sounded off against the US Dollar.

Key Overnight Developments

• Currency Surges as New Zealand GDP Unexpectedly Grows in Second Quarter
• USD Drops After PBOC’s Hu Says Dollar-Reserve System Must Change

Critical Levels

The Euro trended higher against the US Dollar in overnight trading, testing as high as 1.4842. The British Pound also advanced, adding as much as 0.4% against the greenback. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

New Zealand’s Gross Domestic Product unexpectedly added 0.1% in the three months to June, snapping five consecutive quarters of losses. Economists were forecasting a -0.2% result ahead of the release. The economy shrank -2.1% from a year before, less than the expected -2.6% decline. The Reserve Bank of New Zealand was among those calling for a contraction when Governor Alan Bollard said the bank expected to “keep [interest rates] at or below the current level…until the latter part of 2010” at the monetary policy announcement earlier this month, and traders seemingly took today’s release to mean the time table will now accelerate. Indeed, a Credit Suisse gauge of priced-in rate hike expectations for the coming year jumped 13 basis points to a record high and the New Zealand Dollar surged to a fresh 2009 high against a trade-weighted basket of top currencies.

The US Dollar Index (an average of the greenback’s value against six major counterparts) spiked to a fresh yearly low after the Chinese central bank’s deputy governor Hu Xiaolian wrote in a paper posted on the G20 website ahead of the group’s summit in Pittsburg this week that the current crisis was due in part to the Dollar’s role as global reserve currency. Hu, who is also the former director of China’s foreign-exchange authority, went on to say that the world stands at risk of an asset bubble and potentially another crisis akin to the current one if the global monetary system is not changed.

Euro Session: What to Expect

The release of minutes from this month’s Bank of England monetary policy meeting headline the economic calendar in European hours. The announcement itself produced no surprises with interest rates left at 0.5% and the magnitude of quantitative easing unchanged at 175 billion pounds. Just five days later, however, BOE chief Mervyn King gave resoundingly dovish testimony to House of Commons Treasury Committee, saying poor credit growth remains a direct drag on demand and revealing that policymakers are considering cutting the interest rate they pay on bank deposits to encourage idle reserves to be channeled into lending. The latter comment in particular sent the British Pound tumbling, with traders clearly caught off guard as the BOE was seemingly preparing for more, not less, monetary easing despite the recent uptick in leading economic indicators. This creates strong potential for sterling volatility as the markets dissect tonight’s release for any clues on how serious King and company are about the deposit rate idea and when (if ever) such an outcome may be expected. For our part, we speculated ahead of the September 10 rate announcement that the bank was preparing the markets for a change in policy after the asset-buying scheme largely failed to affect lending to the real economy. Indeed, although Mervyn King has said that the BOE was “beginning to see its impact on the supply of broad money,” the M4 measure of money stock grew at an annual pace of just 12.6% in August, the slowest in a year, while central bank’s own data showed net lending shrank for the first time in at least 16 years in July.

Separately, the British Bankers Association’s measure of Loans for House Purchase is set to show that mortgage approvals rose by 40,500 in August, the most since February 2008, hinting at stabilization in the property market. Earlier this week, a report from Rightmove Plc showed that UK house prices fell the least in a year in September, saying “confidence is up, stock is down and the number of people searching is high.” However, as we noted earlier, the rebound may have a hard time retaining traction with consumer sentiment apparently tracking equities and therefore is vulnerable to a (long overdue) correction in risky assets while unemployment continues to rise, with a survey of economists polled by Bloomberg calling for the jobless rate to top 9% next year.

Turning to the continent, a handful of Purchasing Manager Index releases are expected to come in broadly positive. In Germany, the manufacturing sector is expected to expand for the first time in 14 months while the pace of expansion in the service industry picks up to the fastest since April 2008. Manufacturing will likely continue to shrink in the Euro Zone as a whole but the rate of decline is set to moderate to the slowest since the sector first began to contract in May last year. The improvement can likely be attributed to the continued rebuilding of inventories after firms cut production and exhausted their stocks of goods last year and through the first quarter of 2009 amid the global economic downturn. Still, Industrial New Orders are expected to shrink -25.9% in the year to July, suggesting the pace of demand contraction will remain within the range noted since November of last year.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound Volatility Threat High as Currency Markets Focus on BOE Minutes (Euro Open)

Market Expects Low Volatility Today

2009-09-22T12:49:00.000+02:00

There is likely to be less volatility in the market today with almost no market moving data on tap from Japan Europe and Unites States. Yet, few fundamental events that are due out later today may indeed create a remarkable wave in the market, especially towards the late afternoon hours.

USD - USD Ups and Downs Result of Market Uncertainty

The US Dollar experienced an exciting trading day on Monday as a rise in risk averse trading helped add an early morning boost, followed by a retracing of Friday's levels. Against the EUR, the greenback climbed to as high as 1.4610 before coming back down and closing the day at 1.4717. Versus the British Pound, the USD gained as much as 90 pips, with a high mark of 1.6134, before coming back up and closing out the trading day at the 1.6250 level.

With a decision regarding the Federal Funds Rate looming, traders are becoming more aware of the potential delay in any increase to short-term interest rates due to the instability of global economies recently. Britain has made similar overtures, as did the Euro-Zone in its recent discussions. However, the question still remains over whether the global economy is indeed recovering as many were expecting. This uncertainty drives many investors back into safe-havens for the short-run until things become clearer.

As far as the North-Western Hemisphere is concerned today, the United States is not due to release much data of concern. Canada, on the other hand, is going to release vital data regarding its retail sales levels, which last week caused a stir among the USD and EUR. Growth in Canadian sales may help return the Loonie back to a bullish posture, but forecasts appear modest at best. This Wednesday's US interest rate decision appears to be this week's primary event for Dollar traders.

EUR - EUR Benefits from USD and GBP Aversion

The EUR continued its rally against most currencies, save the USD, in yesterday's trading; making considerable inroads against the GBP especially. Climbing as high as 0.9076 versus the Pound and upwards of 135.48 against the Japanese Yen, the EUR may indeed be one of the primary beneficiaries of market growth, and the continuing uncertainty.

Investors appear ready to make the shift into riskier assets to return to the heady days of pre-2008 growth, but market concerns make their transition move somewhat sheepishly. Regional retail sales in Europe and the US helped give a boost to consumer optimism, but only offset losses in other sectors such as housing and consumer sentiment. With the Pound under heavy selling pressure following statements from Bank of England governor Mervyn King, the EUR, as stated above, has become one of the primary beneficiaries of recent returns to strength and risk appetite.

Going into today's trading, with little on the economic agenda, the EUR may be poised to benefit from the uncertainty surrounding the US interest rate decisions due on Wednesday. With an announcement similar to those of Britain and Europe recently regarding a delay of an interest rate hike, the EUR could be on the receiving end of further risk appetite and USD-aversion.

JPY - Japanese Bank Holiday Puts Additional Sell Pressure on Yen

The Japanese Yen appears to be returning to a bearish posture against its major currency rivals considering it ended yesterday's trading down somewhat versus all of its major rivals. Hitting the 149.60 level against the GBP, and even dropping to the 135.50 level against the EUR, the island currency is a little worse for wear considering its latest movements.

Many economists point out, however, that the banks in Japan being closed in celebration of the autumnal equinox carries a significant role in this latest downtrend. The thinly traded JPY only appears weak momentarily until the Japanese markets come back online early Wednesday. In other Asian news, the currencies of the south Pacific (Australia and New Zealand) appear to be gaining heavily against all of their currency rivals. Their avoidance of the harshest aspects of the global downturn has made them juicy targets for risk-hungry investors. Traders would be wise to note the upward movement of these pairs and trade accordingly.

Crude Oil - Crude Falls to $70; Prices Rose too Quickly According to Investors

Investors hoping for a growth in oil prices were dismayed by news yesterday that the price for a barrel of Crude Oil may have risen too quickly from last week's market optimism. As yesterday helped traders realize, Crude Oil may indeed be over-valued and its recent strength has come to a temporary halt. After last week's steady yet volatile gains, the beginning of this week has started with a drop of almost $3 a barrel, closing out yesterday's trading just above $70.

Adding to the sell pressure on Crude Oil is the surprising surge in the value of the USD in yesterday's early trading hours, albeit offset somewhat by its retraction later in the day. But market optimism seems to have returned, but energy demand concerns persist. Crude Oil has been on the verge of reemerging as a lead investment and inflationary hedge, yet it has failed to receive the same level of support as Gold and Silver, which suggests that demand for oil is low, and precious metals are being used in its stead as a safety valve. Chances are, so long as market uncertainty remains, Crude Oil will continue to float near its current mark.

Article Source - Market Expects Low Volatility Today

Currency Markets to Trade with Risk Sentiment on Thin Economic Calendar (Euro Open)

2009-09-22T12:44:00.001+02:00

Currency markets are likely to continue looking to risk sentiment to drive price action with another thin economic calendar on tap in European trading hours. Switzerland's Trade Balance report and the SECO economic forecast update are set for release.

Key Overnight Developments

• NZ Current Account Surprises With Surplus in Q2 as Imports Fall
• US Dollar Sold in Overnight Trading as Stocks Gain on Asian Exchanges

Critical Levels

The Euro added 0.3% against the US Dollar to retake the 1.47 level in overnight trading. The British Pound followed suit, testing as high as 1.6258. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

New Zealand’s Current Account Balance unexpectedly showed a surplus of NZ$124 million in the second quarter, marking the first quarterly surplus since the first three months of 2003. Economists were forecasting a –NZ$1.98 billion result ahead of the release. In annual terms, the deficit narrowed to –NZ$10.6 billion or 5.9% of GDP, the smallest share of total output in nearly 5 years. Details behind the headline figure look far from encouraging however: imports fell -19.6% from a year earlier, outpacing a -3.5% decline in exports and painting a picture of stagnant consumer demand in the island nation. The deficit is likely to continue to narrow in the months ahead as rising unemployment weighs on spending. Indeed, the central bank expects the external gap will narrow to 5.5% of GDP while a survey of economists polled by Bloomberg predicts the jobless rate will rise to a decade high of 6.8% by the end of this year. Traders welcomed the announcement, sending the New Zealand Dollar 90 pips higher against its US counterpart in the hour following the data release as traders expressed relief that the central bank may not be pushed to lower interest rates to cheapen the currency and thereby offer exporters a boost to help narrow the current account shortfall, which has been on the forefront of policymakers’ concerns since it led to a downgrade of the New Zealand’s credit outlook by the Fitch ratings agency. An index of traders’ one-year RBNZ rate hike expectations compiled by Credit Suisse jumped 8 basis points to a record high after the figures crossed the wires.

Euro Session: What to Expect

Swiss economic data dominates a thin economic calendar in European hours. While Augusts’ Trade Balance report is likely to show that exports fell considering last week’s dismal industrial production data, the appetite for imported goods is proving difficult to gauge from leading indicators. Domestic demand may have recovered a bit considering the recent upward correction in retail sales figures, but the trend in receipts is undeniably pointing lower while unemployment rises and consumer confidence continues to set record lows. Separately, the release of updated economic forecasts from the government’s State Secretariat for Economic Affairs (SECO) will be notable in terms of how it compares to last week’s upward revisions to the growth and inflation outlook from the SNB.

On balance, risk sentiment is likely to remain the key driver for currency markets going into the US session. Stocks rose for the first in three days across Asian exchanges after Citigroup raised its price estimate for Samsung Electronics (the world’s largest computer memory chip manufacturer), Morgan Stanley upgraded their outlook for Samsung SDI Co. and LG Chem Ltd on expectations of higher car battery demand, and China Mobile Ltd (the largest global cellular provider) said it’s customer base grew 15.6% from the previous month in August. Risky assets look set to retain momentum with US equity index futures trading higher and hinting that Wall St will open 0.2% higher on Tuesday, adding to selling pressure on the safety-linked US Dollar.

Written by Ilya Spivak, Currency Analyst
Article Source - Currency Markets to Trade with Risk Sentiment on Thin Economic Calendar (Euro Open)

Dollar Tentatively Higher Ahead of Federal Reserve Meeting

2009-09-21T11:24:00.002+02:00

This month investors have increasingly moved to riskier assets like stocks, commodities and higher-yielding currencies, as concerns about a ballooning U.S. fiscal deficit and low Interest Rates have fueled Dollar selling. The Federal Open Market Committee (FOMC) is expected to hold Rates steady but markets will be interested for any guidance on whether the Fed will continue its expansionary monetary policy for a prolonged period of time.

USD - Dollar Advances on Economic Optimism

The Dollar saw quite a volatile session during last week's trading. The Dollar dropped against the EUR, although saw a rising trend against the Yen and especially against the Pound, as the Dollar soared over 400 pips against the GBP. On Monday the U.S dollar gained in thin conditions, extending a bounce seen late last week as traders covered short positions ahead of a Federal Reserve monetary policy meet and a Group of 20 summit.

It seems that the main reason for the Dollar's volatility is the mixes results coming from the U.S economy last week. The U.S Retails Sales continued to deliver positive figures. This means that the total value of sales at the retails level is growing, showing that consumers in the U.S might feel safer to spend these days. Also last week, the Consumer Price Index (CPI) rose by 0.4%, proving that inflation continues to rise in the U.S. This could have a significant impact on the Dollar, as the rising inflation usually leads to an interest rate hike, which may very well support the Dollar.

But on the other hand, the Long-Term Purchases publication failed to reach expectations for a 65.3B result which would have reflected a recovering economy, and the final result was 15.3B. This appears to be one of the main factors for the Dollar depreciation against the Euro.

As for the week ahead, a number of important data are expected from the U.S economy. The most significant will be the Federal Funds Rate Statement which is scheduled for Wednesday 18:15 (GMT). Analysts expected no change to the central bank's target, but speculate whether the fed will make changes to its debt-buying programs. Traders are advised to pay close attention to the Fed's announcement on Wednesday.

EUR - The EUR off 1 Year Highs; GBP Dips

The EUR eased against the U.S. dollar to $1.4688, having lost about 0.2% on Friday, though strong support is seen around $1.4640. On the Yen, the European currency held steady around 134.35 yen. The EUR dropped from near a 1 year high versus the U.S dollar after the European Union (EU), said yesterday that a restructuring of the banking sector must take place. According to EU policy makers Europe needs continued low Interest Rates and government stimulus measures to keep the recovery on track.

The Sterling extended losses, hitting a 4 month low against the EUR of 90 pence on news the UK had set tougher-than-expected conditions to the potential exit of Lloyd's Bank from a state-run scheme to protect its assets. The GBP dropped to 90.53 pence per EUR from 90.40 pence on Sept. 18, after earlier touching 90.67 pence, the lowest level since Apr. 24. The British pound may weaken further against the Dollar and the EUR on speculation the Bank of England will keep borrowing costs low.

Looking ahead to this week, a batch of data is expected from the Euro-Zone's leading economies, especially on Wednesday. Many French and German indicators are scheduled for Wednesday, as this day seems to be the day that will determine the Euro's direction for this week. Traders are advised to follow all the main publications on this day and look for any unexpected result that may soar or tumble the Euro.

JPY - Yen Losses Strength against the Majors

The Yen continues to depreciate against the major currencies during last week's session. The Yen dropped over 100 pips against the Dollar and the USD/JPY pair is currently traded around the 91.50 level. The Yen also saw a bearish trend against the EUR.

While the Japanese yen gained against all but one of the 16 most- actively traded currencies since early August as the Democratic Party of Japan became the likely winner in national elections, forecasters say it will decline 5.7% against the U.S dollar and 1.2% versus the EUR by year-end. The economy is too weak to support a stronger rate, according to analysts.

The main data of this week appears to be the Trade Balance report, which is expected on Wednesday 23:50 GMT. This report measures the difference in value between imported and exported goods during August, and is one of the best indications for Japan's exports. A better-than-expected result might have the potential to support the Yen.

OIL - Crude Oil Slips On Firmer Dollar

Crude prices fell for a 3rd day on speculation further evidence of a global recovery is needed to extend the commodity's 61% gain this year. Oil prices were also pressured by bearish comments from Sinopec, Asia's top refiner and China's 2nd largest oil and gas producer, that diesel demand in China continues to lag economic recovery.

Oil rose 3.9% last week, thanks to U.S. government data showing a larger-than-expected draw in crude stocks, heavy losses in the U.S. dollar and rallying stock markets. Though Crude prices have only gained about 3% so far this quarter, after shooting up 40% in the June quarter, some analysts said Oil prices were set to move higher in coming weeks amid an economic recovery and seasonal winter demand.

Looking ahead to this week, traders are advised to follow the leading publications from the U.S and the Euro-Zone, and to follow the equity markets in the major economies in order to predict crude oil's movements. Traders should also focus on the Crude Oil Inventories report which is expected in Wednesday, as it has proven to have an instant impact on oil's value.

Article Source - Dollar Tentatively Higher Ahead of Federal Reserve Meeting

US Dollar May Gain as Currency Markets Follow Risk Trends in European Hours (Euro Open)

2009-09-21T11:17:00.002+02:00

The US Dollar may rise as stocks retreat and US equity index futures point to a lower open on Wall St with currency markets focused on trends in risk sentiment to drive price action, looking past a virtually empty economic calendar.

Key Overnight Developments

• NZ Service Sector Expands For Second Month on Inventories; Sales Decline
• UK House Prices Fell Least in a Year in September, Says Rightmove
• Euro, British Pound Sold Against US Dollar as Most Stocks Fall in Asia

Critical Levels

The Euro trended lower to start the trading week, testing as low as 1.4678 to the US Dollar in overnight trading. The British Pound followed suit, dropping as much as -0.4% against the greenback. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

New Zealand’s Performance of Services Index rose to 51.3 in August, showing the sector expanded for the second consecutive month. The details of the report are not nearly as encouraging as the headline figure would suggest, however. Inventory growth led the metric higher, adding 5.9% from the previous month, while Sales fell -1.2% to register the first decline in four months. On balance, this looks to be a reflection of the same dynamic we have seen throughout the apparent economic recovery of recent months: companies are restocking, all the while cutting costs and shedding jobs, which boosts relative output readings but says very little about the sustainability of the rebound once government stimulus is withdrawn and private demand (increasingly ravaged by unemployment as it is) has to step in and pick up the slack. Separately, Credit Card Spending fell -1.9% in the year to August, in line with the average noted over the past four months.

UK House Prices fell -1.5% in the year to September, registering the smallest decline in over a year according to Righmove Plc, an online listing of for-sale properties. Righmove commercial director Miles Shipside said, “Confidence is up, stock is down and the number of people searching is high.” The rebound says little about the health of the economy, however, with low supply being the dominant force behind higher home values according to a report from the Royal Institution of Chartered Surveyors (RICS) released last week. Consumer confidence has tracked the rebound in the FTSE 100 benchmark UK equity index with a correlation of over 90% since March, making this part of the equation highly vulnerable to any reversal of the recent rally in risky assets. For our part, we have long argued that the markets have done too much, too fast over the past six months, with global equities trading at levels unseen since 2003 relative to earnings. The world economy grew nearly 3% in real terms that year, whereas virtually every credible forecast calls for the first post-WWII contraction in real growth in 2009, pointing to lackluster revenues and overextended asset prices. Further, trading volumes have steadily declined for the bulk of the equity rally (the past 5 out of 6 months). While some of this may be chalked up to a seasonal slowdown that is typical for the summer, it may also be hinting at waning conviction behind the up move and a forthcoming reversal as traders return from holiday and volumes pick up into the Fall.

Euro Session: What to Expect

With next to nothing on the economic calendar, risk sentiment is likely to be the primary catalyst driving currency markets in European hours. Risk appetite retreated at the start of the trading week: most Asian markets sold off, led by finance and mining companies, and US equity index futures suggested Wall St will open as much as -0.5% lower on Monday. This points to continued gains for the safety-correlated US Dollar after the greenback rose against the spectrum of major currencies in overnight trading.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar May Gain as Currency Markets Follow Risk Trends in European Hours (Euro Open)

Forex Weekly Trading Forecast - 09.21.09

2009-09-20T09:44:00.004+02:00

US Dollar Overdue for a Technical Bounce, But Fundamental Reversal…

Fundamental Outlook for US Dollar: Neutral

- Speculation for rate hikes deferred as fundamentals temper exuberant risk appetite
- The steady charge in risk appetite keeps the dollar on the short side of carry interests
- Sentiment can often run askew of fundamentals; but what do technicals say about the dollar?

The dollar was able to relieve the pressure of suffering its worst trend on recent record by clawing out the first bullish close in eleven consecutive trading days; but that does not mean the burdened currency is necessarily primed for a true reversal. While this currency is arguably oversold on a fundamental basis; the same drivers that ushered it to its yearly low last week are still in play. The pace of the economic recovery, growing financial concerns and a Fed struggling to keep pace are all prominent concerns when gauging the long-term health of the dollar; but all of that is overshadowed by the immediate and market-wide preoccupation of risk appetite.

Last week, a Bloomberg survey of investors found the market was the most bearish on the dollar in 18 months. Where does this speculative grade come from? The economy is still dealing with an economic recovery and government deficits are a genuine concern; but most of the world’s largest economies are suffering with the same dilemma. The real weight on the dollar is the steady revival of risk appetite over the past six months. Following the necessary period of consolidation after the worst of the financial crisis, capital started to slowly work its way back into the speculative arena. Initially, interest was from early adopters; but the draw of capital gains was strong enough to start the flow from deeper pools of wealth in “risk free” areas. Where do these funds go? It certainly finds its way to US equities and other relatively-risky assets; but when it comes to the yield bearing instruments, the American products can’t compete. The benchmark, 3-month Libor rate dropped to a new record low (0.28948 percent) this past week and subsequently was depreciated to a discount against its Japanese (0.34875 percent) and Swiss (0.29667 percent) counterparts. Does the dollar realistically make the ideal funding currency? No. The Fed will certainly turn to a hawkish policy stance well before the other two, it has the potential to take a more consistent hawkish path, deficits are a problem amongst all three and the foundation for a true recovery is most stable in the US. As soon as US rates recover, risk-seeking capital will once again flow into the world’s financial center.

In the meantime, we may see a shift in sentiment that could benefit the dollar’s safe haven status. The broader markets have rallied consistently for months – despite a fundamental picture that has changed pace little since the initial reversal. Naturally, a wave of profit taking is highly probable. And, considering the advance to this point has been heavily dependent on steady capital gains, a correction could be sharp and aggressive. There are many different potential catalysts for such a turn; but in the end, the shift in optimism will likely develop naturally. Nonetheless, we should keep an eye on a few specific developments. Reports suggest that lending to consumers has dropped at its fastest pace since the Great Depression; yet leverage has returned to levels last seen since before the 2007 meltdown. This is an imbalance that will lead to problems later down the line if not corrected. Also, the Federal Reserve and White House have both voiced concern over the commercial real estate debt market. The former is looking into major banks’ exposure to this asset class; but the term ‘stress test’ is not being used.

Though it is vital to keep abreast of the health of risk appetite; we shouldn’t ignore the influences of data and growth forecasts. The economic docket is light next week; but durable goods orders and housing data (existing sales, new home sales) can supply short-term volatility. It is the FOMC that tops the list – not with a possible change in the benchmark, but commentary that can move up the time table for a hike. Data aside, the US/China trade spat hints at a growing concern with protectionism which may come under scrutiny at the September 24/25 G20 Meeting. Exit strategies, financial regulation, banking compensation are all on the topic list; but not currencies.

Euro: Not as Strong as the EURUSD’s Trend Suggests

Fundamental Forecast for Euro: Neutral

- Investor confidence hits its highest level since April 2006 as growth, equities recover
- Slow global recovery translates into the biggest trade surplus for the Euro Zone in seven years
- Has a push above December’s highs cleared the way for a EURUSD extension rally?

Is the euro the fundamental powerhouse that the EURUSD would suggest or is the euro merely playing the compliment to the rest of the market. If we were to look at the world’s most liquid currency pair alone, we see a six month trend, recent rally and the highest overall level for the exchange rate in nearly a year. However, the easy read on the major is clouded when we look at the crosses. Against the pound, the euro was set in its biggest rally since March (a move that was mirrored in most of those pairs denominated in sterling). Elsewhere, EURJPY was stuck in a contracting range; EURCHF was virtually unchanged in its 100-point range; and the commodity group consolidated within bigger trends. It seems the case that the market is influencing the euro rather than the euro influencing the market. And, while there are fundamental concerns building beneath the surface, this relationship isn’t likely to change much in the coming week.

Few would argue that risk appetite (and its influence in currencies through carry interest) is a primary driver for the market at large; but what does that mean for the euro? To gauge any currency or asset’s response to sentiment, you need to determine where it stands in the scale of risk. High interest rates, strong growth prospects and progressive policy are a few factors that build a positive correlation to a rising demand for yield. Naturally, the opposite considerations count as traits for a safe haven or funding currency. On either side of this spectrum, we have an asset that is sensitive to the underlying fundamental currency. However, the euro fits comfortably in the middle of the range. The benchmark lending rate in the Euro Zone is relatively high; but the outlook for hawkish progress is reserved. Growth is colored not only by the positive turn from Germany and France; but there have also been downgrades for Italy and Spain. Overall, despite the confidence of politicians and some policy officials, the economy is on the same playing field as the US, Japan and many others. Until the ECB turns up the heat on the target rate or financial troubles (like the ability for some Eastern European economies to repay their debt), this will remain the case.

Outside the vagaries of sentiment, there are a few notable economic events on the docket to supply short-term volatility and perhaps a moderate shift on the bearing for growth forecasts. Top event risk is the series of service and manufacturing sector PMI data. While this series covers specifically the business sector of growth, it is inclusive and timely enough to act as a meaningful leader for growth speculation. Being the September round of data (the ‘Advanced’ or first measure), this will round out the forecast for third quarter activity. All of the regional, German and French numbers are expected to produce month-over-month improvement and most are seen offering ‘expansionary’ readings. This would support the central banks and government’s outlook for growth; but it still does not paint a clear picture for a return to a true expansionary trend.

Other indicators like the Euro Zone industrial new orders and German factory inflation gauge threaten little more than a meager shift; but the IFO business sentiment gauge could generate some fundamental interest. Sensitive to economic health, consumer spending, access to credit, export demand, optimism among German firms acts as its own unique report on the general health of the economy. The headline and expectations readings have been most prized recently; but a closer eye should be kept on the difference between expectations and current conditions. The outlook after a financial crisis and steep recession will certainly improve quickly; but actual health in the economy and markets will be more measured. One will have to give way to the other sooner or later.

Japanese Yen Forecast Bullish on Lack of Intervention Threat

Fundamental Forecast for Japanese Yen: Bullish

- What happens to the Japanese Yen when threat of intervention is removed?
- Yen tumbles as S&P 500 continues to set fresh highs
- ‘September effect’ not having much of an effect on Japanese Yen

The Japanese Yen finished the week lower against all but the British Pound and the US Dollar, as impressive rallies in the US S&P 500 and broader financial market risk sentiment pushed the safe-haven currency sharply lower against major counterparts. A mediocre week of economic data hardly helped matters, and hawkish rhetoric from the Ministry of Finance pushed the Yen even lower. Vice Finance Minister Yasutake Tango stated that the administration was watching currency moves closely—implying that forex market intervention was a distinct possibility. Indeed, the Japanese Ministry of Finance has historically been an active participant in the Japanese Yen exchange rate and has repeatedly intervened in instances of excessive Yen strength. The very fact that the US Dollar/Japanese Yen exchange rate reached the psychologically significant 90 mark was enough reason to fear MoF intervention, and Tango’s comments were enough to fuel a rapid USDJPY pullback. Later commentary from newly-appointed Finance Minister Hirohisa Fujii quickly dispelled the short-term threat to JPY stability, but the damage had been done and the Japanese Yen remained on offer through the week’s close.

The legitimate threat of MoF FX intervention served as a clear warning to JPY bulls, but recent rhetoric suggests that there will be little in the way of further Yen strength. This leaves the currency to trade purely off of financial market risk sentiment. The fact that the S&P 500 recently registered fresh 2009 highs hardly bodes well for the risk-linked currency, but no market can rally indefinitely. Given the overwhelmingly bearish trend in the USDJPY (bullish trend for the JPY), it seems momentum is plainly in the Yen’s favor. Yet it remains critical to watch any and all moves in key financial market risk barometers.

We previously claimed that the “September Effect” could lead the S&P 500 lower and the Japanese Yen higher. Recent weeks have produced impressive equity market strength yet the JPY has remained relatively stable. We believe that the Yen stands to gain on any subsequent pullbacks in stocks, and recent experience shows that it can hold its own despite major S&P strength. Thus we would argue that risks remain fairly bullish for the Yen. If stocks continue their seemingly interminable rally, the JPY could pull back slightly. If stocks fall, the Yen will in all likelihood continue its previous ascent. Things are never quite this simple in currency markets, but we believe JPY risks favor near-term rallies.

The wild card will come on Wednesday’s Trade Balance report. The export-dependent Japanese economy has taken a massive hit on the sharp drop in foreign demand for its own production. Any signs of continued exporter duress will once again raise political pressure on the Ministry of Finance to counteract Japanese Yen strength. Though we clearly believe that risks of intervention are remote, a truly shocking trade balance result could rekindle market speculation on MoF intervention.

The coming week may prove significant in determining more medium-term direction in the Yen. If nothing else, markets will definitely watch for signs that the USDJPY may finally break below the psychologically significant 90 mark.

British Pound Decline May Be Indicative of Long-Term UK Macro Outlook

Fundamental Forecast for British Pound: Bearish

- UK RICS house prices rise for first time in 2 years
- The number of people looking for jobs in the UK rose the highest level since 1995
- FXCM SSI results suggest GBPUSD could be in for further declines

The British pound was easily the weakest of the majors last week as the currency fell more than 3 percent against the euro, Swiss franc, and Canadian dollar. Likewise, the British pound slumped 2.4 percent against the US dollar and 1.7 percent versus the Japanese yen. While some indicators from the nation have shown signs of improvement, such as the RICS house price index, fiscal data has done nothing but deteriorate, adding pressure on the British pound. In fact, public sector net borrowing in the UK jumped a whopping 16.1 billion pounds during August as income tax receipts fell 13 percent from a year ago. Even worse, the deficit reached 127 billion pounds in August from a year ago, and the steady rise suggests that the shortfall may breach Chancellor of the Exchequer Alistair Darling’s full-year forecasts for a deficit of 175 billion pounds.

According to the Financial Times, the corrosion of the UK’s fiscal state has “been a result more of a collapse in revenues - total tax receipts have fallen by 11.4 percent so far this financial year compared with a year earlier - than of a jump in spending” of just 5.3 percent this year. Going forward, the further the UK’s fiscal state deteriorates, the greater the risk will grow that ratings agencies will question if the nation deserves the golden AAA credit rating, especially after Standard & Poor’s downgraded the UK’s credit outlook to “negative” from “stable” because of their budget woes back in May. Nevertheless, Standard & Poor’s has also said that they would reserve any judgment on potential downgrades until the next general election, which may be held in May or early-June 2010. On the downside, this leaves a long period of time open for speculation on the prospects for the UK’s credit rating to reign supreme, which may make the already-volatile British pound even choppier.

In more immediate event risk, the minutes from the BOE’s September meeting will be released on Wednesday at 8:30 ET. However, they may not expose new information as the BOE’s Quarterly Inflation Report has already revealed dour outlooks by the Monetary Policy Committee. That said, following the latest UK CPI results, which were stronger than anticipated, Credit Suisse overnight index swaps have shifted to price in 78 basis points worth of hikes by the BOE over the next 12 months, up from 66.7 basis points on Tuesday. As a result, if the minutes highlight a clearly dovish bias by the BOE, the market's focus may shift back toward the central bank's liberal stance on quantitative easing, and the British pound could fall sharply.

Written by John Kicklighter, David Rodriguez, Terri Belkas, Ilya Spivak, John Rivera and David Song, Currency Analysts
Article Source - Forex Weekly Trading Forecast - 09.21.09

Dollar Edges Up Against EUR, Crude Falls with Stocks

2009-09-18T11:47:00.001+02:00

The Dollar took a break from its bearish run versus the EUR yesterday, but the long term trend could continue today. Driving yesterday's reversal were losses in U.S. equities and stronger manufacturing data from the U.S. Today's trading will be highlighted by key data releases from Europe and Britain, perhaps returning the EUR/USD to its bullish streak.

USD - USD Profits as Stocks Sell Off

The U.S. Dollar held small gains late Thursday as pessimism about the strength of the economic outlook put selling pressure on stocks and higher-yielding currencies. The currency had been lower earlier with stocks rising after the Federal Reserve Bank of Philadelphia's index on manufacturing jumped far more than forecast this month.

The U.S Dollar also traded higher against the Yen at 91.21, up from 90.84 yen Wednesday. The Dollar sank to a seven-month low against the Japanese currency on Wednesday. The Dollar's slide against the yen picked up pace after Japan's Finance Minister Hirohisa Fujii said a strong yen had advantages for the nation's economy.

The Dollar has been on the ropes in recent weeks, with the Dollar index losing 2.41% this month. Pressure has been tied in part to rising risk appetite, which has seen investors shun the greenback's safe-haven status in favor of equities and other assets.

Still analysts expect the U.S Dollar to resume its more traditional relationship with economic data, rising with positive economic news and falling when the outlook for the U.S. turns gloomier.

EUR - Euro Hit 1-year Peak vs. the U.S Dollar

The European currency held onto gains to hover near a 1-year highs against the U.S. Dollar on Friday, as equities and commodities advanced on expectations of economic recovery, putting pressure on the greenback. It advanced a 3rd day to $1.4716 and yesterday reached $1.4737, the strongest level since last September. The EUR has gained more than 2.5% this month, riding improved investor confidence and expectations that U.S. rates are likely to stay at rock bottom for some time.

The EUR also traded near a 4 month high versus the Pound before a German report today that may show the pace of decline in producer prices slowed, providing more evidence the 16-nation region's economy is emerging from the recession. The pound traded near its lowest since May as a report yesterday showed the jobless rate in the U.K. rose to the highest since 1995.

The 16-nation currency rose above 98 pence for the first time on Dec. 30. It advanced a third day to $1.4716 and yesterday reached $1.4737, the strongest level since Sept. 25, 2008. The Sterling is likely to weaken in the coming months as the government needs to rein in spending and its central bank is likely to retain an expansionary monetary policy, analysts said.

JPY - Yen Gains after BOJ's Shirakawa Comments

The Japanese yen had gained after Japan's new finance minister said currencies were not moving rapidly and that he opposed currency intervention as long as market moves were moderate. The Yen rose to the day's high against the Dollar pushing the U.S. currency down more than 0.2% on the day to around 90.60 yen. The pair traded around 90.90 yen before the comments.

The yen also got a boost after Bank of Japan (BOJ) Governor Masaaki Shirakawa said a stronger yen would push down prices in the near term but might support the economy in the longer run. The Japanese currency jumped versus the EUR, which trimmed earlier gains and slid to the day's trough of 133.54 yen, down slightly on the day.

OIL - Crude Oil Trades Lower as USD Firms

Crude Oil finished slightly lower after a volatile session Thursday, as the U.S Dollar firmed and traders digested upbeat economic news and a bigger-than-expected drop in U.S. stockpiles in the previous session. Crude earlier rose to a high of $73.16 a barrel and fell to a low of $70.40 a barrel.

On Wednesday, Oil rose more than 2% after the Energy Department reported a bigger-than-expected drop of 4.7 million barrels in U.S. stockpiles of the commodity in the week ended Sept. 11. Oil remains unable to top the upper end of its trading range at $73 a barrel without a new trigger, analysts said.

Oil has tracked equities markets closely in recent months as dealers look to stocks as a leading indicator of an economic recovery that could boost ailing energy demand. What happens to the Dollar, stock market and Gold are now driving the Oil market on a daily basis. A weaker Dollar can fuel purchases of Oil and other Dollar-denominated commodities, as they become relatively less expensive to non-Dollar holding investors.

Article Source - Dollar Edges Up Against EUR, Crude Falls with Stocks

US Dollar Rises on Safety Demand as Stocks Retreat in Asian Trading (Euro Open)

2009-09-18T11:44:00.001+02:00

The US Dollar gained as stocks sold off in Asian trading on news that Japan’s third-largest consumer lender will suspend debt payments to its creditors, boosting demand for the safety-linked currency. German PPI, Euro Zone Current Account, and UK Public Borrowing figures are on tap ahead.

Key Overnight Developments

• Japan’s Third-Largest Consumer Lender to Suspend Debt Payments
• Hong Kong Monetary Authority Deputy Chief Says Mortgage Rates Too Low
• Euro, British Pound Decline as Stock Losses Boost the US Dollar

Critical Levels

The Euro lost as much as -0.4% against the US Dollar, testing below the 1.47 level in overnight trading. The British Pound was weaker still, slipping as much as -0.6% against the greenback.

Asia Session Highlights

Currency markets took their cues from stock exchanges in overnight trading, with the safety-linked US Dollar rising by as much as 0.3% on average against its major counterparts as stock exchanges in overnight trading. US equity index futures are trading firmly in negative territory ahead of the opening bell in Europe, suggesting risk-taking is likely to remain subdued and hinting at further gains for the greenback.

Asian exchanges declined on reports that Aiful Corp, Japan’s third-largest consumer lender, was going to suspend debt payments to its creditors citing fund-raising problems. Most worryingly, this may be a part of a larger problem: Japan’s government has capped the interest rates that consumer lenders can charge borrowers and mandated reimbursements of overcharged interest, meaning other major firms may follow Aiful’s lead.

Separately, Hong Kong Monetary Authority Deputy Chief Executive Y.K. Choi said that the city’s banks have lowered mortgage rates “to such an extent that they might not have given due regard to the reputation risk, interest rate risk and liquidity risk potentially associated with their pricing,” stoking fears that policymakers will push for higher borrowing costs and take the steam out of the rebound in asset prices.

Euro Session: What to Expect

German Producer Prices are set to show that the pace of contraction in wholesale prices slowed for the first time in 13 months in August, rising to -7.2% from a record-low -7.8% recorded in the previous month. The uptick likely reflects the recent rebound in energy prices – an index tracking energy costs from Bloomberg and UBS has rebounded over 54% since bottoming in February. While this foreshadows some moderation in deflationary pressure on consumer prices (the benchmark gauge of the price level) in the months ahead, the strength and durability of any rebound remains uncertain. Although economic growth has started to stabilize on the back of broad-based fiscal stimulus, low interest rates, and the inventory restocking cycle, unemployment rates have continued to press higher and will surely lead to anemic private demand once expansionary policy runs its course. Indeed, the International Energy Agency has forecast that global oil demand will remain firmly below its 2004-2008 average through the end of next year, working against sustainable gains in PPI growth.

The Euro Zone Current Account may post a surplus in six months in July following yesterday’s better-than-expected Trade Balance result for the same period as exports surged by 4.1%. The capital side of the equation also looks supportive: Euro area stock markets gained 9.8% while the currency advanced 0.1% on average against its major counterparts. Most interestingly, any improvement over June’s -0.3 billion euro outcome will amount to a break out of the downward trajectory that has guided the metric lower since the peak in June 2007. While it is early to be certain at the moment, this could be hinting at the formation of long-term fundamental support for a stronger Euro if it marks a sustained trend change in the regional bloc’s external position.

In the UK, the Public Sector Net Borrowing report is expected to show that the government deficit expanded by a whopping 17.6 billion pounds in August, the most since May. Public debt has swelled by a whopping 73.1 billion points so far this year and is expected to average 13% of the economy’s total output, the most among the G10 nations. To that effect, the data’s release may prove to weigh on the British Pound, stoking fears that Europe’s third-largest economy could face a cut of its sovereign credit rating.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Rises on Safety Demand as Stocks Retreat in Asian Trading (Euro Open)

USD Continues Decline; Slow Economic Recovery Expected

2009-09-17T16:39:00.001+02:00

With recent fears over inflation and fiscal deficits, the market surprisingly appears calmer than it should be. The USD has continued its decline, suggesting that either faith in the American economy is fleeting, or investors are increasing their risk appetite and dumping US Treasuries. Either way, the decline in the value of the USD has helped boost energy prices and fueled export growth worldwide. Economic recovery seems to be underway, but many caution that it will still be a long and bumpy ride.

USD - Dollars Falls on Market Optimism

The Dollar dropped to near 1-year lows against most of its major currency pairs yesterday as optimism about the global economy eroded the greenback's safe-haven appeal. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.4730. The Dollar experienced similar behavior against the GBP and closed at 1.6492.

Traders have sold the Dollar heavily this month as recovery hopes have diminished safe-haven demand. The prospect of low U.S. yields and concerns about the U.S. fiscal deficit also fueled Dollar selling. In addition, market participants increased bets on stocks and commodities, encouraged by better-than-expected U.S. consumer price index (CPI) and Industrial production data yesterday, while Federal Reserve chairman Ben Bernanke said the U.S. recession was most likely over, though he also warned the recovery would be slow.

Today's Unemployment Claims and Building Permits releases are expected to have a strong impact on the U.S currency. Any result could be a surprise, and the Dollar could go either way as a result. In any case, traders are unsure how the market will react to today's data. A weak report could feed risk aversion, boost Treasuries and actually aid the U.S Dollar. Then again, a better than expected result might be seen as a sign of relative U.S. economic strength, and lift the Dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the Dollar's expense.

EUR - EUR Rises on Weaker Dollar

The EUR strengthened against most of its major currencies yesterday as gains in stocks and commodities prompted investors to wade into riskier currency trades. The 16 nation currency extended gains to hit a near one-year high against the dollar and closed at around 1.4714. The EUR experienced similar behavior against the CHF as the pair rose from 1.5150 to 1.5195 by day's end.

The EUR was affected by the global stock market rally and the bearish Dollar. The U.S. stock market rally led investors to buy-back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in Wednesday's trading.

The Sterling extended losses against the EUR and JPY yesterday, after U.K. unemployment jumped to the highest level since 1995 as the recession destroyed work in industries from banking to construction, stoking concerns about the pace of recovery in the British economy. The GBP was also down 0.8% against the EUR at 0.8920.

Looking ahead to today, the most important economic indicator scheduled to be released from Britain is the Retail Sales report at 8:30 GMT. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's announcement as a better than expected result may boost the GBP in the short-term. Traders are also advised to follow the Trade Balance figures coming out of Euro-Zone at 9:00 GMT, as this result may set the EUR's main currency crosses going into today's trading.

JPY - USD/JPY Hits 7-Month High

The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session around the 133.70 level. The Japanese yen also saw bullishness against the Dollar, closing in on a 7-month high against the U.S. currency after Japan's incoming finance minister said a strong yen had advantages for the nation's economy.

The Japanese market should have a heavy effect on the JPY versus its major currency counterparts, as the Overnight Call Rate will be announced today. The rate is expected to remain unchanged, but traders should pay close attention to the BoJ Press Conference that will follow to look for expectations of Japan's economic future. A bullish statement from the BoJ could lead some traders to believe that it is forecasting a rosier financial climate in Japan.

Crude Oil - Crude Oil spikes on Better Inventory Data

Crude Oil prices experienced another day of appreciation as the oft-traded commodity rose above $72.80 during yesterday's trading session. Oil prices traded up for the second straight day. This has been compounded by a weaker Dollar that has also caused investors to flee to commodities such as Crude Oil.

Moreover, with crude oil inventories in the US shrinking more than anticipated, there is a chance that prices will continue to rise as demand climbs from market optimism and economic growth. These factors point to the notion that Crude Oil's price may stumble across more support in the near future and continue to rise.

Article Source - USD Continues Decline; Slow Economic Recovery Expected

Swiss Franc in Focus as SNB Announces Rates, Currency Policy (Euro Open)

2009-09-17T16:37:00.002+02:00

The Swiss Franc may see volatility ahead as the Swiss National Bank gets set to make their quarterly monetary policy announcement, including an update on their policy of intervention into the currency market to prevent the appreciation of the currency. UK Retail Sales and the Euro Zone Trade Balance are also on tap.

Key Overnight Developments

• Japanese Service Demand Rises to Highest Since February
• NZ Manufacturing Shrinks at Faster Pace as Orders Plummet
• Bank of Japan Holds Rates at 0.10%, Raises Economic Forecast

Critical Levels

The Euro advanced in the overnight session, testing as high as 1.4734 to the US Dollar. The British Pound initially moved downward, touching as low as 1.6468, but recovered late into the session to trade little changed ahead of the opening bell in Europe.

Asia Session Highlights

Japan’s Tertiary Industry Index grew slightly more than economists expected, adding 0.6% in July to show that demand for services has rebounded to the highest level since February. The result likely owes to continued support from the government’s record-setting 25 trillion yen stimulus package. Indeed, government spending accounted for the bulk of economic growth in the second quarter. The question now facing Japan as well as most other developed countries is what happens when the flow of public funds invariably dries up. On balance, unemployment continues to push higher, trimming incomes and hinting at turn lower in spending (including that on services) in the months ahead.

New Zealand’s Business NZ Performance of Manufacturing Index fell to 48.7 in August from 49.6 in the previous month, showing the pace of contraction in the industrial sector quickened for the first time since May. The sub-index measuring New Orders led the metric lower, dropping by -5.1 points to register the largest decline in 9 months, while output shrank the most since February. The report follows news that manufacturing sales dropped the most on record in the second quarter, adding yet more weight to last week’s comments from Reserve Bank of New Zealand Governor Alan Bollard, who said the stronger New Zealand Dollar puts business profits “under pressure” and warned that “If the exchange rate were to continue its recent appreciation…the sustainability of the present recovery will be brought into question.”

The Bank of Japan unanimously agreed to keep interest rates unchanged at 0.10%, as expected, but policymakers raised their forecasts for economic growth as economic conditions begin to “show signs of recovery”, calling for growth to begin to rebound in the second half of the 2009 fiscal year (the 12 months ending April 2010). The bank still sees downside risks to the economy, however, saying fiancial conditions continue to be “severe” while consumption remains weak and capital spending is still falling. Policymakers made no changes to their asset-buying and lending programs. On balance, BOJ Governor Maasaki Shirakawa concluded that “risks to the economy are still on the downside [with the outlook] attended by a significant level of uncertainty.”

Euro Session: What to Expect

The Swiss Franc may see volatility late into the European session as the Swiss National Bank makes their quarterly monetary policy announcement, including an update on their policy of intervention into the currency market to prevent the appreciation of the currency. As with most major central banks, there is little doubt that the SNB will leave benchmark interest rates unchanged. Rather, traders will focus on any updates to policymakers’ commitment to keep a lid on the value of the Swiss Franc with direct intervention into the currency markets. Consumer prices printed a bit better in August, rebounding from the low set in July, and a similar moderation in Producer Prices earlier this week foreshadows slightly better results for the headline inflation gauge in the months ahead. Still, it is surely much too early to say that the specter of deflation has dissipated, so the SNB is unlikely to do a complete about-face on exchange rate policy. To that effect, the markets will look for a more nuanced hint at the bank’s bias going forward, such as an upward revision of inflation expectations. The 1.50 level in EURCHF seems to have been the threshold of the SNB’s comfort zone, and traders would be wise to watch the behavior of the cross vis-à-vis this juncture ahead of the policy announcement.

UK Retail Sales are expected to rise 2.7% in the year to August, snapping two months of consecutive gains in the annual growth rate. The metric has seen atypical volatility over recent months as rising unemployment grappled with rebounding asset prices and government stimulus for dominance over consumer sentiment. Looking ahead, we see the downside scenario as more plausible. Fiscal support is inherently limited with the UK budget deficit already set to average close to 13% of GDP though 2010, threatening the country’s sovereign credit rating. Meanwhile, global equities are looking increasingly overdone having finished August at the highest level relative to earnings since May 2003. The upward trend in unemployment looks far more permanent, however, with a survey of economists polled by Bloomberg expecting the jobless rate to top 9% by the end of next year. This will trim incomes and discourage spending, weighing on retail activity in the months ahead.

The Euro Zone Trade Balance surplus is set to expand to 6.4 billion euro in July, the most in over two years. Exports figures may prove disappointing, however: industrial production fell more than economists expected in the same period while the currency has been pushing higher in trade-weighted terms since late April, now up over 5.6%, making European-made goods comparatively more expensive and thereby less attractive to foreign buyers. A drop in imports seems like a much more plausible driver for an improvement in the headline figure, especially considering the sharp decline in Swiss industrial output reported earlier this week. As we have previously noted, manufactured goods top the list of Swiss export commodities, so the drop in production is indicative of lackluster demand in key overseas markets, where the top three Euro Zone economies alone account for close to 50% of demand.

Written by Ilya Spivak, Currency Analyst
Swiss Franc in Focus as SNB Announces Rates, Currency Policy (Euro Open)

USD Hits 1-Year Low on U.S Economic Pessimism

2009-09-16T10:40:00.002+02:00

The U.S Dollar struck a one-year low against a basket of currencies on Wednesday, as investors reduced dollar holdings on views that the U.S. currency may weaken for now due to pessimism over the U.S. economy. Investors have been selling the greenback across the board as they speculate the Federal Reserve will be forced to keep its Interest Rates low for the time being to support the country's fragile economy. Looking ahead, currency players will watch for the U.S. consumer price index (CPI) for August to be released later in the day. The CPI data has the biggest potential to move forex markets, since a weak figure could lead to lower long-term U.S. interest rates, and that might prompt more Dollar selling.

USD - Dollar Reaches Lowest from Improving Risk Appetite

The U.S Dollar declined Tuesday, pushing the currency to the lowest level in a year and reversing earlier gains versus major counterparts after a pair of economic reports said U.S Retail Sales and Producer Prices rose more than economists expected, encouraging speculation that the economy is reviving.

As the global recovery continues, and risk diversification takes place, traders could see the U.S. Dollar remain under pressure for the upcoming months. Against the Japanese yen the Dollar also gave up earlier gains to trade at 91.07 yen, little changed from 91.02 yen late Monday.

The greenback was also undermined by gains in global stock markets, which reduced the USD appeal as a safe haven. For months, the greenback has tended to move in the opposite direction as equities as investors' willingness to buy riskier assets fluctuates. That trend has shown signs of diminishing in the past month or so, and resuming its more traditional correlation to economic data.

Traders have sold the U.S. currency heavily so far this month as optimism about a global economic recovery diminished safe-haven demand. The prospect of low U.S. yields and concerns about the widening U.S. fiscal deficit fueled Dollar selling.

Today in focus will be a slew of U.S. data to be released later in the day. The U.S. consumer price index (CPI) for August, 2nd quarter current account data, August industrial production numbers and September NAHB housing data are all due.

EUR - Pound Drops versus USD and EUR

The EUR dropped early Tuesday versus the Dollar after the ZEW German Economic Sentiment index showed weaker than expected results; however, the common currency later trimmed its losses, trading at $1.4671, from $1.4614 versus the Dollar on Monday.

The British Pound was the big mover on currency markets, dropping versus the greenback and falling to a 3-month low versus the European single currency after Bank of England (BOE)Governor Mervyn King said the Monetary Policy Committee was considering a cut in the deposit rate paid on some reserves held by commercial banks at the BOE. The GBP fell 0.5% versus the USD to $1.6498. The EUR advanced to its highest level against the GBP since June, trading at 88.94 pence

While a slow news day is expected from the Euro-Zone today, the release of the British Unemployment data at 8:30 GMT might help the Pound to regain some of its losses. The release of the Euro-Zone CPI report might weigh down on the common currency if the number is worse than expected, sparking fears of deflation.

JPY - JPY Down after Release of Encouraging US Data

Japan's currency traded at 133.45 per EUR early morning, from 133.47 yesterday in New York. It traded at 91.02 per USD from 91.05. The Yen is being sold as investors move away from risk averse trading and into higher yielding assets following encouraging economic data from the US which signaled the recession is coming to an end.

The release of the Industrial Production report today at 13:15 GMT is predicted to show an increase of 0.6%, the most since October. This will likely contribute to further sell off of the Yen versus its riskier counterparts.

Crude Oil - Crude Prices Near $71 a Barrel

Crude Oil fell nearly 1% toward $71 on Wednesday, giving up some of the previous day's gains of 3%, as a higher-than-expected rise in oil product stocks outweighed news signaling a U.S. economic recovery.

Though Crude Oil has more than doubled from this year's low of $32.70 hit on January 20, it is trading 72$ below the record high of more than $147 struck in July 2008. Economists expect Crude prices to hover between $60 and $70, as demand has still not recovered to the extent that would help to sustain prices above $70.

The American Petroleum Institute said in its weekly inventory report after Tuesday's close that crude stocks rose by 631,000 barrels last week, against the forecast for a 2.4-million-barrel drawdown. The oil market is currently focusing more on EIA data than equities or the Dollar, analysts have said.

While today's release of US inventory data due at 14:30 GMT is expected to show a drop in stockpiles, a modest drop might not be enough to push Oil on another rally as inventories are still at their highest level.

Article Source - USD Hits 1-Year Low on U.S Economic Pessimism

British Pound Selling Continues With Unemployment to Set 12-Year High (Euro Open)

2009-09-16T10:19:00.002+02:00

The British Pound fell against the US Dollar in overnight trading ahead of a report that is set to show the unemployment rate hit a 12-year high of 5% in August. The Euro Zone Consumer Price Index and Swiss Retail Sales are also on tap.

Key Overnight Developments

• Australia Won't Raise Interest Rates Until Next Year, Says Westpac
• Euro Flat, British Pound Lower Against USD in Overnight Trading

Critical Levels

The Euro consolidated in a narrow range below the US session high at 1.4686 in overnight trading. The British Pound moved lower, slipping as much as -0.4% against the US Dollar.

Asia Session Highlights

Australia’s Westpac Leading Index added 1.1% in July, rising to the highest level in seven months. The index fell -1.8% from a year ago, the smallest decline since October 2008. The metric seeks to forecast how the economy will perform over the coming three to nine months. Westpac chief economist Bill Evans said the upswing in the index over recent months points to “a significant improvement in [Australian economic] growth prospects in 2010.” However, Evans noted that the bank does not expect future growth will be “sufficiently robust” to warrant to raise interest rates before next February, reinforcing the cautious tone of the minutes from September’s RBA monetary policy meeting.

Euro Session: What to Expect

The UK labor market is likely to show continued weakness as Jobless Claims rise by 25,000 in August, pushing the unemployment rate (known in the UK as the Claimant Count) to a 12-year high at 5.0%. More of the same is expected going forward: a survey of economists polled by Bloomberg forecasts the jobless rate will top 9% next year. Continued job losses will trim incomes and discourage spending, threatening the economy’s ability to sustain recent improvements and potentially adding to selling pressure on the British Pound after yesterday’s damaging comments from Bank of England Governor Mervyn King. For our part, we sold GBPUSD at 1.6617.

In the Euro Zone, the Consumer Price Index is set to show inflation shrank at an annual pace of -0.2% in August, confirming initial estimates. To that effect, the reading may already be priced into the exchange rate and, barring unforeseen revisions, looks unlikely not produce a meaningful response from the currency markets. The longer-term view is not encouraging for the single currency, however: while the August reading amounts to a slight improvement from the previous month’s -0.7% contraction, the bottom line is that prices are set to decline for the third consecutive month, threatening to bring economic growth to a virtual standstill if expectations of lower prices in the future encourage consumers and businesses to perpetually delay spending and investment. This leaves the door open for traders to punish the Euro in the months ahead if it becomes clear the currency bloc is heading for a long-term period of sub-par performance and low interest rates.

Swiss Retail Sales are expected to add 0.7% in the year to July, a reading slightly lower than the previous month’s 0.9% result. Shrinking prices have boosted consumers’ purchasing power in recent months, encouraging spending, but continued deflation threatens to work against retail activity if it translates into entrenched expectations of even lower prices in the future. Rising unemployment is also setting up to be a formidable obstacle: the jobless rate surged to 3.8%in August, the highest in over three years, and is expected to hit 5% next year.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound Selling Continues With Unemployment to Set 12-Year High (Euro Open)

Dollar Down to Weakest Level of 2009

2009-09-15T09:57:00.001+02:00

The U.S. Dollar fell versus the EUR but clung to small gains against other major rivals on Monday. This came as traders turned their focus to data coming this week and as the EUR and Yen hit technical levels that triggered some buying. The market focus now shifts to a slew of U.S. indicators to be released between Tuesday and Thursday that could determine whether the Dollar will continue to trade lower, or experience a pause.

USD - Dollar Tumbles to 1-Year Low vs. EUR

The Dollar tumbled to a 1-year low vs. the EUR in Monday's trading. However, the USD did make some gains against other currencies, despite the USD falling in early trading, as Monday was a very volatile trading day. The main factor that pushed the U.S. lower against the EUR yesterday was that U.S. stocks made significant gains, led by industrial and financial shares that helped the market prevail over an earlier slump. This led investors to drop the USD in some cases for higher yielding currencies and equities.

The EUR/USD pair closed higher by 70 pips at the 1.4614 level, which was slightly lower than the high reached yesterday of 1.4652. Obama's speech about the U.S. financial rules overhaul on Monday helped the USD strengthen against several major currencies. The USD/JPY cross finished trading at 91.10, the first daily rise in a week-and-half. This all shows that the USD was unable to gain considerable strength yesterday, as no economic data was released from the U.S., which put the greenback on the backburner.

Looking ahead to today, there is expected to be much economic data released from the U.S. economy. Core Retail Sales, PPI and Retail Sales figures will be released simultaneously at 12:30 GMT. If the figures are better than expected, then this may lend a lot of support to the greenback. However, worse figures could send the USD lower again the EUR for a second day in a row. Later on, Treasury Secretary Timothy Geithner is expected to speak about the U.S. economy at 14:00 GMT. Any clues about future U.S. Interest Rates are likely to create to great volatility in the U.S. Dollar going into mid-week trading.

EUR - EUR Soars despite Poor Fundamentals

The Euro-Zone Industrial Production fell for a 2nd straight month in July, stressing the frailty of the Euro-Zone economic recovery. The data was -0.3% lower from the previous reading, sparking possible fears that European Central Bank (ECB) President Jean-Claude Trichet will raise Euro-Zone interest rates later than originally forecast. Yesterday, all of this actually led to a buy-up of the EUR, as the European currency's safe-haven status returned to the forefront.

The EUR made significant inroads into the U.S. Dollar, as the pair rose to 1.4614 level, it's highest in nearly a year. The EUR also gained against the GBP by nearly 50 pips, as investors favored the EUR over the British currency in yesterday's trading. It seems that despite yesterday's lack of confidence in Europe, the European currency seemed to act the opposite way to the equity market. The EUR marked its first bullish trading day vs. the JPY since Wednesday, as the cross closed significantly higher at the 133.20 level.

Today, the most significant release from the Euro-Zone will be the German ZEW Economic Statement at 9:00 GMT. This is expected to be the main source of volatility for the EUR in early trading, as it is a leading measure of economic health for both the German and Euro-Zone economies. From Britain, the main releases today are the CPI figures at 8:30 GMT and the Inflation Report Hearings at 8:45 GMT. Optimistic results may push the GBP significantly higher today. This would be a much needed boost for the Pound, as it seeks to reverse yesterday's losses against its major currency crosses.

JPY - Yen Slips against the Majors

The Yen slipped against the majors on Monday, as Japan's currency failed to extend its recent gains. It is important to note that the Yen has gone very bullish against its major currency pairs in recent days. Therefore, yesterday's behavior may be a correction due to the JPY being overvalued lately. Also, investors dropped the JPY on Monday, as they seeked to make profits in higher yielding currencies and commodities such as Crude Oil.

In yesterday's trading, the Yen fell by 70 pips against the USD to the 91.10 level. The Yen closed 110 pips lower against the GBP at the 151.33 level, Also, the EUR/JPY cross finished trading 175 pips higher at 133.20. Today, the JPY is set to move on news coming out of the major economies. If there are good figures from these countries, the Yen's downward correction may continue.

OIL - Crude Oil Steady Bellow $69 a Barrel

Crude Oil closed higher by 55 cents, or nearly 1%, to make a mini comeback by closing at $69.05. This was despite being down for much of yesterday's trading session. Crude was helped by the USD's weakness on Monday, as investor's seeked an alternative investment for higher returns. The black gold also gained due to higher confidence owed to President Obama's speech on Monday over financial regulation.

Crude is set for another mouthwatering and volatile day of trading today. If the USD continues to collapse today, Crude may go higher. Also, Oil may also continue rising if there is an equity market rally led by the U.S. Oil seems undervalued lately, so you traders are advised to buy into this popular commodity now as today's trading gets under way.

Article Source - Dollar Down to Weakest Level of 2009

Euro, British Pound May Decline Against US Dollar as Equity Futures Point Lower (Euro Open)

2009-09-15T09:54:00.002+02:00

The Euro and the British Pound may see selling pressure with US stock index futures are trading down nearly 1% ahead of the opening bell in Europe, pointing to sagging risk appetite that stands to boost the safety-linked US Dollar. Germany’s ZEW survey of investor confidence, Swiss Industrial Production, and UK CPI highlight the economic calendar.

Key Overnight Developments

• New Zealand Manufacturing Falls Most on Record in Second Quarter
• UK House Prices See First Gains in Two Years on Low Supply, Says RICS
• Australian Dollar Falls as RBA Minutes Weigh on Rate Hike Expectations

Critical Levels

The Euro traded lower in Asian trading, slipping as much as -0.3% against the US Dollar. Meanwhile, the British Pound advanced, adding 0.4% to test as high as 1.6629 against the greenback.

Asia Session Highlights

New Zealand’s second quarter Manufacturing Activity report showed that sales fell -4.8%, the most on record, while the outcome for the first three months of the year was revised down to reflect a -1.3% drop from the -0.9% result that was originally reported. The reading reinforces last week’s comments from Reserve Bank of New Zealand Governor Alan Bollard, who said the stronger currency puts business profits “under pressure” and warned that “If the exchange rate were to continue its recent appreciation…the sustainability of the present recovery will be brought into question.” The New Zealand Dollar has appreciated 27.3% in trade-weighted terms to date since hitting a record low in January as a broad rebound in risk appetite drove demand for the high-yield currency.

UK House Prices grew for the first time in over two years, adding 10.7% in August according to a survey from the Royal Institution of Chartered Surveyors (RICS), an industry association for real estate agents. Economists were forecasting a flat result ahead of the release. The rebound may not reflect a rebound in demand however: RICS chief economist Simon Robinsohn said “Its fair to say that a lack of supply is driving the rise in house prices,” adding that it would be “foolish to believe prices are going to go up in a straight line” from here and predicting that “2010 will be a more difficult year.” Indeed, the number of for-sale properties per real estate agent fell by about 23% from a year earlier. Rising unemployment looks to be the central challenge to a sustainable recovery in housing, trimming incomes and weighing on purchasing power. The jobless printed at 4.9% in July, the highest in nearly 12 years, and is expected to top 9% next year.

Minutes from the September policy meeting of the Reserve Bank of Australia weighed on the Aussie dollar as Glenn Stevens and company said they were seeking to avoid “premature tightening”, upsetting expectations that the central bank was ready to hike interest rates in the near future. An index measuring traders’ priced-in expectations of RBA rate hikes over the next 12 months dropped by a hefty 8% (13 basis points) after the announcement.

Euro Session: What to Expect

Switzerland’s Industrial Production is set to shrink at an annual pace of -11.1% in the second quarter, the most in at least 18 years. This is quite telling: manufactured goods top the list of Swiss export commodities, so the drop in industrial output is indicative not only of a sagging domestic economy but of lackluster demand in key overseas markets. The top three Euro Zone economies alone account for close to 50% of Swiss export demand; considering EURCHF has been trading sideways in a fairly narrow range since the SNB took hold of the exchange rate in mid-March and therefore is unlikely to have significantly impacted European preferences for Swiss-made products, it would seem that the forthcoming Industrial Production figures stand in contrast of the surface-level improvements in second-quarter GDP readings out of the Euro area.

In the UK, the Consumer Price Index is expected to show the annual pace of inflation slowed to 1.4% in the year to August, the lowest in five years. The Bank of England has said that CPI will fall below 1% at some point in the third quarter in its latest quarterly inflation report. From there, Mervyn King and company expect inflation to be “unusually volatile”: upward pressure is seen as past changes in energy prices drop out of year-on-year comparisons and from firms’ continued adjustments to a weaker British Pound (as compared to the peak in late 2007); meanwhile, downward pressure is seen as rising unemployment depresses wages. The central bank concluded that “inflation is more likely to be below [the 2% target level] in the medium term [than above it]”. On balance, such open-ended accounting of what to expect in the coming months suggests that, barring a wild deviation from the forecast, the CPI result is unlikely to prove considerably market-moving having probably been priced into the exchange rate at this point. Indeed, with interest rates already at 0.5% and a 175 billion pound asset-buying scheme firmly in place, lending growth figures (showing the degree to which aggressive easing is filtering into the broad economy) are far more important to gauge future monetary policy than inflation data.

The forward-looking Expectations component of Germany’s ZEW Survey of investor sentiment is forecast to rise to 60.0 in September, the highest in over three years. The broader Euro Zone equivalent is set to follow suit. Still, a survey of economists polled by Bloomberg reveals that most market-watchers expect the Euro Zone to underperform the spectrum of industrial economies next year, so any optimism born of growing confidence that an “Armageddon scenario” has likely been averted seems temporary at best, with European sentiment figures likely to head lower as analysts focus on questions of who will recover first.

On balance, risk sentiment may prove to be the key driver for currency markets in the coming session: US stock index futures are trading down nearly 1% ahead of the opening bell in Europe, pointing to sagging risk appetite that stands to boost the safety-linked US Dollar against the likes of the Euro and the British Pound.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro, British Pound May Decline Against US Dollar as Equity Futures Point Lower (Euro Open)

Obama Speech to Impact Dollar

2009-09-14T08:56:00.001+02:00

The Dollar is likely to go volatile during and following the speech by President Obama today at 16:00 GMT. Meanwhile, forex traders are advised to take positions on trades, as a few of data releases coming out of Euro-Zone and Britain are likely to affect the greenback's main currency crosses.

USD - Dollar Finishes a Week of Falling Trends

During last week's trading session, traders that went short on the dollar made profits. The dollar dropped over 300 pips against the Euro, around 400 pips against the Pound, and slid about 350 pips against the Yen.

The Dollar weakened in light of some negative data published from the U.S economy. The U.S Trade Balance report for July showed that the difference between imports and exports increased by 16 percent, the most since 1999. The gap rose to $32 billion from a revised $27.5 billion in June. Also last week, The U.S Consumer Credit, which measures the change in the total value of outstanding consumer credit that requires installment payments, dropped by 21.6$ billion in July.

The end result of this indicator was five times lower than forecasted by analysis, and thus has a negative impact on the Dollar. The Unemployment data from the U.S continues to be bleak. It's been the 35th week in a raw on which over 500,000 individuals have filed for unemployment insurance for the first time. It appears that until the employment condition will take a turn for the better, the Dollar might continue to weaken.

Looking ahead to this week, a batch of data is expected from the U.S economy, including the Retails Sales Indices, the Producer Price Induces, the Consumer Price Indices, the Long-Term Purchases, the Building Permits and the weekly Unemployment Claims. Traders are advised to follow all these publications very closely as positive result from these indicators might have the potential to reverse the current bearish trend of the greenback.

EUR - Mixed Results from the Euro-Zone Creates Volatility for the EUR

The Euro underwent a very volatile session during last week's trading. The EUR rose significantly against the Dollar, lifting the EUR/USD pair above the 1.4600 level. However the Euro dropped against the Yen, and saw mixed results against the Pound.

The Euro began last week's session with rising trends against the major currencies thanks to a positive Factory Orders figures from the German economy. This indicator measures the change in the total value of new purchase orders placed with manufacturers. Analysts predicted a rise of 2.0% during July, yet the end result showed that factory orders rose by 3.5%, increasing for the fifth consecutive month.

However the bullish trend reached its end following poor Industrial Production data from both Germany and France. This indicator is a leasing indicator of economic health as production reacts quickly to ups and downs in the business cycle. Thus, the negative figures showed that it is still soon to declare that the Euro-Zone has pulled out of recession, and that the leading economies of the Euro-Zone are still tumbling.

As for this week, many interesting publication are expected from the Euro-Zone. The data which seems to have the potential to impact the Euro the most is the German ZEW Economic Sentiment report, expected on Tuesday 09:00 GMT. It is a survey of about 350 German institutional investors and analysts who are asked to rate the next 6-months economic outlook for Germany. This report usually has an immense effect on the market, and a positive figure might have the potential to boost the EUR.

JPY - JPY Rises Against the Majors

The Yen rose last week against all the major currencies. The Yen appreciated about 350 pips against the Dollar, sending the USD/JPY pair as low as the 90.16 level. The Yen also soared around 200 pips against the Euro and about 350 pips against the Pound, marking an all around bullish session.

The Yen's sharp bullish movements last week appears to be a correction to the over-weak Yen. It is a widely known that the Bank of Japan (BoJ) sees the weak Yen as the main tool to support the Japanese exporters in the attempt to recover the economy. Japan continues to hold the lowest Interest Rates in the industrial world, and the BoJ is making other steps as well, all in the effort to weaken the Yen. The key target that exporters are holding for the USD/JPY pair is around 94.50, and a lower rate might have severe consequences on the Japanese economy. However for now it seems that investors are still seeing the Yen as a safer haven then most of the major currencies and thus the JPY continues to strengthen.

As for the week ahead, The Japanese Interest Rates for September will be declared on Thursday. The BoJ is likely to leave interest rates, also knows as Overnight Call Rate at 0.10%. However, in case that the BoJ will surprise and will choose to alter rates, this is likely to have a large impact on the Yen. Either way, traders are advised to follow the press conference which is expected short after, as some interesting slues regarding future monetary system might be scattered.

Crude Oil - Crude Oil Drops towards $68 a Barrel

Last week's trading session started with a massive bullish trend for crude oil, which lasted until Friday. A barrel of crude oil was traded for 72.50 at its peak. However, a sudden change happened then, dropping crude oil towards $68 a barrel.

It seems that oil prices dropped as a result of an appreciation of the Dollar since Friday, and some concerns that Crude Oil became over-valued following a week of straight rising trends. It also looks that a few unsatisfying results for financial indicators have increased fear that global economies may not recover as soon as expected, which will likely weaken demand for oil.

Looking ahead to this week, traders are advised to follow the Dollar's value, and the U.S equity markets, as they tend to set the tone in crude oil trading. In addition, traders should also pay attention to the Crude Oil Inventories report scheduled for Wednesday, as its result has proven to have a large impact on crude oil's value.

Article Source - Obama Speech to Impact Dollar

US Dollar Surges as Stocks Drop in Asian Trading, Boosting Demand for Safety (Euro Open)

2009-09-14T08:53:00.001+02:00

The US Dollar raced higher to start the trading week as stocks sold off in Asian trading and US equity index futures pointed to a sharply lower open on Wall St in the day ahead. New Zealand Retail Sales unexpectedly fell in July. Swiss PPI and Euro Zone employment and industrial production figures are on tap ahead.

Key Overnight Developments

• New Zealand Retail Sales Unexpectedly Drop in July as Unemployment Rises
• US Dollar Surges As Stocks Drop in Asian Trading, Boosting Demand for Safety

Critical Levels

The US Dollar pummeled both the Euro and the British Pound to start the trading week, with both currencies falling as much as -0.6% against the greenback as stocks sold off in Asian trading and US equity index futures pointed to a sharply lower open on Wall St in the day ahead. The MSCI Asia Pacific Index slid -1.5% while futures tracking the Dow Jones Industrial Average suggested US issues would open down 1.6%.

Asia Session Highlights

New Zealand Retail Sales unexpectedly fell in July, shrinking -0.5% and disappointing expectations of a 0.4% result. The previous month’s result was also revised lower, showing sales fell -0.1% rather than grew by the same magnitude as was originally reported. The release reinforces last week’s comments from Reserve Bank of New Zealand Governor Alan Bollard, who said the medium term outlook for retail spending “remains weak” as unemployment continues to rise. Indeed, the jobless rate hit a 9-year high of 6% in the second quarter and central bank expects it to surpass 7% by the end of next year. Bollard also linked continued turmoil in the labor market to the New Zealand Dollar, saying the stronger currency puts business profits “under pressure” and warning that “If the exchange rate were to continue its recent appreciation…the sustainability of the present recovery will be brought into question.”

Euro Session: What to Expect

The annualized pace of contraction in Switzerland’s Producer and Import Prices is expected to have slowed to -5.5% in August from the record-low -6.1% set in July. The outcome follows a similar moderation in consumer prices during the same period and foreshadows slightly better results for the headline inflation gauge in the months ahead. However, as we detailed in our weekly Swiss Franc forecast, it is much too early to say that the specter of deflation has dissipated, so the Swiss National Bank is unlikely to abandon their commitment to direct intervention into the currency markets to keep down the value of the Franc when monetary policy is announced later this week.

The second-quarter Euro Zone Employment report is unlikely to prove market-moving: traders have likely priced in the state of the market already having seen the monthly unemployment gauge rising steadily higher since June of last year, most recently hitting a record 9.5%. Separately, Industrial Production is expected to shrink -16.7% in the year to July, extending the moderation in the pace of contraction that began after the record -21.2% annualized drop in April driven by both domestic and global fiscal stimulus as well as the inventory restocking cycle. However, a downside surprise may be in the cards after German industrial production unexpectedly fell during the same period.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Surges as Stocks Drop in Asian Trading, Boosting Demand for Safety (Euro Open)

Forex Weekly Trading Forecast - 09.14.09

2009-09-13T11:31:00.003+02:00

US Dollar Forecast Bearish on Clear Downward Momentum

Fundamental Outlook for US Dollar: Bullish

- US Dollar hits new lows, but do fundamentals support declines?
- Greenback falls against Euro for six consecutive trading days
- Forex sentiment points to further US Dollar declines

The US Dollar dropped like a stone on its way to fresh 2009 highs against nearly all major forex counterparts, breaking its long-standing trading range against the Euro in fairly dramatic fashion. The first full week of post-summer trading finally brought the sustained price moves we have long been waiting for. FX Trading volume increased notably through mid-week trade and fueled US Dollar losses, but fundamental “justification” for renewed US Dollar weakness was far less clear. According to FXCM execution desk data, open interest in the Euro/US Dollar jumped by as much as 20 percent before the week was through. A busy economic calendar in the week ahead suggests that the US Dollar may remain volatile, and it will be critical to see whether its recent downtrend may be sustained.

Demand for the safe-haven US Dollar dropped sharply on the week as the US S&P 500 and other major risk barometers reached fresh year-to-date peaks, and overall momentum favors USD losses. Indeed, forex options markets show that option traders are betting on further US Dollar weakness against almost all major counterparts. Yet those same options prices show short-term volatility expectations have dropped to their lowest levels in the past year. The fact that US Dollar weakness has not coincided with a general rise in forex volatility expectations suggests that currencies could return to sideways trading, but this will likewise depend on developments in financial market risk appetite. The 20-day correlation between the Euro/US Dollar and S&P 500 currently trades almost exactly at record-highs.

To that effect, traders should keep close tabs on S&P 500 reactions to the coming week of key US event risk. Highlights will likely include the historically market-moving Advance Retail Sales, Consumer Price Index, and Treasury International Capital System reports. Consensus forecasts call for a noteworthy pickup in domestic Retail Sales, but the expected surge is mostly a function of the highly-publicized “Cash for Clunkers” program that strongly boosted Auto Sales. Traders should instead watch for surprises out of the “Ex Autos and Gasoline” figure—predicted to gain a paltry 0.1 percent on the month. If numbers prove better than expected, the S&P will likely rally and the US Dollar may actually decline.

The following day’s Consumer Price Index numbers are less likely to force major US Dollar volatility, but traders should nonetheless keep an eye out for any especially large deviations from consensus expectations. The true fireworks may come on subsequent Treasury International Capital System (TICS) data. Analysts have long argued that massive US fiscal deficits could harm the US Dollar as the government floods markets with debt securities. Yet recent data shows that foreign demand for US Treasury bonds remains robust, and the US Dollar has thus far averted disaster. It remains important to watch for continued demand for Treasuries, and any disappointments could further fuel dollar losses.

Momentum plainly favors further US Dollar weakness, but key event risk in the week ahead could prove pivotal in deciding near-term direction for the downtrodden currency.

Euro Fundamentally Weak but Still the Dollar’s Counterpart

Fundamental Forecast for Euro: Bearish

- Consistent policy hawk Axel Weber says current rates are ‘appropriate’ and positive growth could be protracted
- Risk appetite weighs on the dollar and invariably bolsters EURUSD
- Momentum must be called into question with EURUSD extending yet another leg of its six-month advance

There are two general assessments of the euro: the strength of the currency of its own accord; and how it is performing against the benchmark dollar. This past week, the euro was actually depreciating against most of its liquid counterparts; yet the market was largely focused on EURUSD – and for good reason. The most liquid currency pair in the market, enjoyed another burst of momentum this past week easily clear 1.45 and set a new high for the year in the process. To discern whether this trend will continue or collapse through the immediate future, we need to discern the fundamental drivers behind the pair and individual currencies. And, it is important to note that these are two separate concerns. There are certainly a range of scheduled economic releases to take account of and the media is keen on attributing each fluctuation on readily available long-term fundamental concerns; but to develop a real sense of the current trend, we need only look to risk appetite.

When we think of currency pairs with a specific connection to investor sentiment, EURUSD rarely comes to mind. It is true that there are pairs with a far greater sensitivity to risk trend due to economic disparity, interest rates potential or other popular measures (like NZDJPY or AUDUSD); but this pair nonetheless retains a clear link to the underlying current. Being the most liquid pair in the market has its advantages. When demand for yield is on the rise, capital is drawn away from the US (which built up through the panic of the past financial crisis in the search of a safe haven) and reinvested elsewhere. Still cautious, investors will not seek out emerging markets or other high return / high risk options but rather a stable investment with a greater potential for return. Naturally, the ECB’s yield advantage, the hawkish lean of its monetary policy authority and the fact that its largest member economies actually grew through the second quarter are all favorable qualities. In turn, EURUSD’s trends follow the bearing on risk; but it manages to filter out a lot of the volatility that is common to some of the yen crosses and other highly active pairs.

Defining the relationship between currency pair and broader market is easy. Trying to speculate on the pace and direction of market sentiment is far more complicated. Looking at the collective influence of the economic calendar; there are few pieces of scheduled event risk that can single-handedly sway broader risk appetite to accelerate or reverse. However, with fundamental forecasts muted and interest in the steady advance cooling; it seems a matter of ‘when’ rather than ‘if’ speculative trends capitulate to solid economic potential.

The all-consumer, elemental trend will no doubt define direction over the coming weeks and months; but that isn’t the only concern for the fundamentally inclined. Event risk traders will have a dearth of indicators to wring volatility from. There are a few general themes to be found in the data scheduled for release over the coming week. Rate watchers will monitor consumer-level inflation data as a recovery from the headline, year-over-year reading could revive the ECB’s hawkish conviction after the authority poured water over speculation of imminent hikes by suggesting they would support growth (no doubt with G20 influence factoring in). The German and Euro Zone ZEW investor sentiment surveys are essentially forecasts from one of the most vested and reactive groups in the economy. A steady improvement is expected here; but where they find this boost is what will really be interesting. Other readings (including Euro Zone industrial production, trade and construction activity) will factor in on the long-term growth outlook; but likely come up short for volatility.

Japanese Yen Attuned to Risk Aversion, But What about the USDJPY?

Fundamental Forecast for Japanese Yen: Bullish

- Final reading on 2Q GDP reports a smaller than expected 2.3 percent pace of expansion
- Cabinet Office says “economy is showing movements of picking up” and lists record unemployment as a difficulty
- Is USDJPY oversold after this past week’s plunge to seven-month lows?

After a strong surge in risk appetite through much of the week, the market finally broke from momentum this past Friday. However, we can’t call this stall a reversal – at least not yet. Gauging the overall sentiment in the market, we find that the benchmark Dow is just off 10-month highs, the dollar set a new low for the year and money-market funds are at their lowest levels since late October of last year. All signs are still pointing to a healthy appetite for yield with relatively little concern for market disruptions. However, the fundamental quality of this rally looks more and more bleak when compared to the fresh highs these assets reach with each week. How far can this divergence extend? That depends on how stable risk appetite is.

There is little doubt that a demand for capital returns is leading the markets higher. For those assets that are considered low-risk or risk-free, we can see yields are still brushing recent historical lows. With the risk-premium of a possible financial crunch left out of the equation, we are left with a reflection of growth potential and an outlook for benchmark lending rates. Considering the generally accepted forecast for a protracted and choppy recovery, it is no wonder that the rate of return is so low. In contrast, capital markets have measured a six-month advance that has paid off with capital gains for earlier adopters. However, when expectations for steadily appreciating speculative securities dies down, we may very well see a wave of profit taking that gathers more momentum than the advance that brought us to our current highs. How long can sentiment build on itself? That is impossible to tell. There is – theoretically speaking - enough fuel to keep the trend going until the fundamental backdrop improves. The money that has been sidelined in Treasuries, money markets, savings accounts and other low-risk coves is only a six to eight month off the highest levels seen in recent memory. For scale, the ICI Investment Company Institute’s measure of total assets in money market funds was at $3.54 trillion at the close of last week – less than 10 percent off its January highs. On the other hand, the limited drawdown in safety funds to this point suggests caution is still the rule of thumb. After a record collapse in cumulative wealth after last year’s financial crisis; it wouldn’t take much to cut the flow of capital from the sidelines off and encourage speculators to take profits.

Another consideration for yen traders that perhaps does not receive enough attention is the unwavering correlation between the Japanese currency and risk appetite. The Japanese yen has retained its status as the primary safe haven currency among the majors thanks to the abundance of funds in the country and a forecast for interest rates being held near zero for far longer than other countries that are just waiting for inflation to perk up and growth stabilize a little more. In the background, though, the Japanese economy will struggle to recover from its record recession and the damage to its already weak financial markets can be long-lasting. Already, we can see that many of the yen crosses are still carving congestion well off recent highs despite the fact that equity benchmarks are climbing higher.

The yen’s link to risk is particularly important for USDJPY. The dollar was considered a safe haven through the worst of the financial crisis thanks to the liquidity and securities of US Treasuries – and yet, the yen maintained its negative correlation to risk trends even against the greenback. It is unusual then that over the past four weeks, USDJPY has steadily plunged nearly 800 points when risk appetite has invariably risen. Long-term risk appetite, policy views (the Japanese want cheap exports) and interest rate forecasts (the Fed has put a hold on rates to mid-2010, but the BoJ hasn’t even discussed hikes) all favor the dollar over time. But, in the meantime, the benchmark three-month US Libor rate is at its lowest level on record – and subsequently at a discount to its Japanese counterpart.

British Pound May Falter on Signs of Falling CPI, Widening Fiscal Deficits

Fundamental Forecast for British Pound: Bearish

- UK industrial production was stronger than expected, showing the first back-to-back increase since September 2006
- The nation’s trade deficit narrowed in August thanks to a 5 percent rise in exports
- The British pound rallied after the Bank of England left rates, QE stance unchanged

The ascent of the British pound against the US dollar over the past week suggests that the currency has experienced broad strength, but this certainly was not the case. In fact, the British pound fell roughly 1.3 percent against the New Zealand dollar, dropped 0.9 percent against the Japanese yen, and slipped a slight 0.3 percent against the euro. Furthermore, the British pound was second only to the greenback in being the weakest of the majors over the past month, with GBPJPY having plunged almost 5 percent. Overall, despite recent improvements in economic data, the combination of the Bank of England’s liberal quantitative easing stance and bleak outlooks regarding the fiscal health of the nation creates significant bearish pressures for the British pound. That said, this isn’t incredibly apparently in GBPUSD, but is more easily seen in pairs like GBPJPY and EURGBP. This could change in the coming week though, as GBPUSD ran into falling trendline resistance drawn from the July 2008 highs at 1.6735.

Looking ahead to next week’s event risk, the UK’s consumer price index (CPI) reading for the month of August is expected to rise 0.3 percent, but the more important part of this report is that the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to 1.4 percent, the lowest since October 2004, from 1.8 percent, keeping inflation within the central bank’s acceptable range of 1 percent - 3 percent, but below their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further before year-end. On the other hand, if CPI holds strong – which seems possibly in light of the rise in both input and output produce prices - the currency could rally in response.

Other notable releases include UK jobless claims, which are projected to have risen for the 18th straight month in August, this time by 25,000. Adding to this potentially disappointing result, the ILO unemployment rate could rise to 8.0 percent, the highest since November 1996, from 7.8 percent, which would not bode particularly well for the consumption outlook. This point may be highlighted by the UK retail sales report, which is only forecasted to rise by 0.1 percent. This indicator only tends to be market-moving upon large surprises, though, and a reading in line with expectations shouldn’t shake up trade too much. Finally, public sector net borrowing is expected to rise by another 17.6 billion pounds, which will only add to evidence that the nation’s fiscal health is rapidly deteriorating and suggesting that risks are growing for a downgrade to the UK’s AAA credit rating.

Written by David Rodriguez, John Kicklighter, Terri Belkas, Ilya Spivak, John Rivera and David Song, Currency Analysts
Article Source - Forex Weekly Trading Forecast - 09.14.09

U.S. Prelim UoM Consumer Sentiment to Lead USD Trading Today

2009-09-11T09:55:00.002+02:00

The publication of the U.S. Prelim UoM Consumer Sentiment report at 13:55 GMT is set to lead USD trading today. This release measures the level of a composite index based on surveyed consumers. The figure is expected to be 67.2, up from last month's 65.7. The other important events that are set to drive the forex market today are GBP PPI Input at 8:30 GMT, the U.S. Import Prices at 12:30 GMT and U.S. treasury Secretary Timothy Geithner's speech at 20:45 GMT. Therefore, if you traders want to make big money now, you should open big positions in the majors now.

USD - Dollar Declines as Equity Market Rallies

The U.S Dollar fell against most of its major currency pairs yesterday, hitting its lowest level in nearly a year against the EUR, as gains in stocks and commodities prompted investors to wade into riskier currency trades. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.4603. The Dollar experienced similar behavior against the GBP and closed at 1.66.99.

The Dollar has fallen every day this week against the EUR and Japanese Yen, and it marked its third straight daily decline against the Pound Sterling yesterday. Analysts attributed the fall in the Dollar, which has been treated as a lower risk, safe-haven investment, to growing optimism that the worst of the financial crisis has passed. This has caused investors to buy commodity-linked and higher-yielding currencies, which rallied earlier this week.

A leading indicator released yesterday was U.S. Unemployment Claims. This number handedly beat last week's result. However, it failed to provide strength to the Dollar as investors may be waiting for key data due to be released today to implement their trading strategies.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Import Prices at 12:30 GMT. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the USD in the short-term. Traders are also advised to follow Treasury Secretary Timothy Geithner's speech at around 20:45 GMT. This speech is very likely to impact USD volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar going into next week's trading.

EUR - EUR/USD Hits One Year High

The EUR rose to session highs against the Dollar yesterday as U.S. stocks extended gains and commodity prices firmed. The 16 nation currency hit 1.4612 against the Dollar, a fresh 2009 high. The EUR was broadly unchanged versus the CHF yesterday, and closed its trading session at around the 1.5140 level.

The EUR was affected by the global stock market rally and the bearish Dollar. The U.S. stock market rally led investors to buy-back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in Thursday's trading.

The Pound Sterling was actually the biggest mover amongst the majors, propelled higher by optimism about the UK economy and financial sector, and helped by a general move into riskier assets. Britain left Interest Rates at a record low of 0.50%, as it tries to get credit flowing again to strengthen an economy that may return to growth this quarter. Some reports show the outlook is brightening for Britain as Manufacturing Production rose 0.9pc in July in comparison to June. This was the biggest increase since January 2008.

Looking ahead to today, the most important economic indicator scheduled to be released from Britain is the PPI Input at 8:30 GMT. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement as a better than expected result may continue to boost the GBP in the short-term.

JPY - Yen Makes Big Gains on the Dollar

The Japanese Yen strengthened against most of its major counterparts on Thursday, continuing to prove that for the time being that this is the solid currency that traders can rely on to provide them with steady profits. The Yen extended gains versus the Dollar on Thursday, to trade at about 91.40 amid a broad sell-off in the USD. The JPY also saw bullishness against the EUR and closed at 133.60.

Investors worry over a recent rise in the JPY as it makes Japanese products less competitive abroad and hurts the value of overseas sales when translated back into the Japanese currency. With steady gains primarily against the Dollar, much of the Yen's bullish movement could be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. This has had a positive effect on major JPY currency pairings, as the rising turmoil in the market is leading to more investment in the Japanese currency.

Crude Oil - Oil Prices Rise as Inventories Fall

Oil prices extended a four-day rally to near $72.30 a barrel on Thursday after a U.S. report showed a surprise decline in Crude Oil inventories, and OPEC said it would maintain official output curbs. Crude Oil rose 31 cents to settle at $72.24 a barrel, topping off a 6% climb since last Thursday.

Expectations that consumers may once again want more Oil when the recession bottoms have partly fueled the rally, with traders watching the stock market for economic telltales. There is a reasonable possibility that Oil prices will continue to be bullish going into next week, providing that the economic situation of the leading economies continues to rapidly improve.

Article Source - U.S. Prelim UoM Consumer Sentiment to Lead USD Trading Today

US Dollar Sold as Chinese Lending Tops Expectations, Boosting Risky Assets (Euro Open)

2009-09-11T09:50:00.001+02:00

The US Dollar extended losses in overnight trading as risk appetite improved after Chinese lending surged in August, soothing fears that the government will clamp down on credit growth and take the fuel out of the Asian giant’s economic recovery.

Key Overnight Developments

• Japan's Economy Grew Less Than Expected in the Second Quarter
• US Dollar Sold as Chinese Lending Tops Expectations, Boosting Risky Assets

Critical Levels

The US Dollar continued to retreat in overnight trading, with the Euro testing above 1.46 while the British Pound pushed higher past the 1.67 level. Equity markets continued to advance in Asian trading, weighing on the safety-linked currency.

Asia Session Highlights

The final revision of Japan’s second-quarter Gross Domestic Product report revealed the economy grew less than economists predicted, adding 0.6% versus the originally reported 0.9%. Output expanded 2.3% from the previous year, much less than the 3.7% expansion quoted in initial estimates. Government spending and net exports drove growth higher for the first time in 15 months, supported by both domestic and overseas fiscal stimulus as well as the inventory cycle, while private demand shrank to shave -1.3% off total output. The question now facing Japan as well as most other developed countries is what happens when restocking runs its course and the flow of government cash invariably dries up. At this point, the likely answer sounds far from encouraging: the jobless picture continues to rise, driving spending lower; the trend in current account figures points lower, suggesting little future support from the external sector; and deepening deflation threatens to engineer another “lost decade” in the world’s second-largest economy.

A large dollop of Chinese economic data proved to weigh on the US Dollar, with the New Loans data of particular interest. Chinese banks lent out 410.4 billion yuan in August, much more than economists’ forecasts for a 320.0 billion result. Traders had been worried that the government would make good on their promises to rein in credit growth on fears that excessively loose monetary policy will produce speculative bubbles in the equities and property markets. The resilience in the loans data suggests there is still ample fuel to drive China’s heretofore robust economic recovery, giving risky assets a push higher and adding yet more selling pressure to the already beleaguered greenback.

Euro Session: What to Expect

The UK Producer Price Index report is set to show that wholesale costs declined for the fourth consecutive month, down -0.5% in the year to August. Excluding volatile items like food and energy however, prices are set to rebound a bit from the 5-year low of 0.2% recorded last month to grow 0.8%. A bit of a pickup is reasonable as economic growth stabilizes after the sharp declines earlier in the year, seeing support from both domestic and overseas fiscal stimulus as well as the inventory cycle. Indeed, London-based think tank NIESR reported yesterday that the economy grew for the first time in 14 months in the quarter to August, adding 0.2%. Still, NIESR director Martin Weale cautioned that “there way well be a period of stagnation now, with output rising in some months and falling in others…the end of the recession should not be confused with a return to normal economic conditions.” If this proves accurate, prices may fluctuate sideways in the months ahead. However, the mounting budget deficit (expected to average over 12% of GDP this year and in 2010) likely rules out any additional fiscal stimulus while any meaningful downward reversal in risky assets is likely to weigh on consumer confidence, coupling with rising unemployment to undermine private demand. Meanwhile, a stronger currency (up about 13% in trade weighted terms since the lows in December) and the completion of restocking are likely to drive export readings lower. Bottom line, while conditions have certainly improved from the lows in the first quarter, the economy’s ability to at least stay put at current levels seems questionable. On balance, this amounts to a dour outlook on price growth in the months ahead.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Sold as Chinese Lending Tops Expectations, Boosting Risky Assets (Euro Open)

GBP Anticipates Volatility before Rate Decision

2009-09-10T16:52:00.001+02:00

With mixed results versus its primary currency counterparts, the British Pound appears to be consolidating many of its trends towards a volatile movement; positioned to take place today, it appears. The Bank of England's rate decision and policy statement at 11:00 GMT may be today's leading news event and forex traders won't want to miss out on the volatility which is sure to follow this release.

USD - USD Down 3.7% against the EUR this Year

The Dollar Index traded near the weakest level in almost a year against the currencies of six major U.S. trading partners as record low borrowing costs encouraged investors to sell the greenback and buy higher-yielding assets. The index was at 77.002, after dropping yesterday as much as 0.7% to 76.803, the lowest level since Sept. 26, 2008.

The USD continues to suffer downward pressure as investors continue to anticipate that the global economy is emerging from recession, which makes them more willing to sell Dollars and invest in riskier currencies and commodities. At the same time, while the Fed's program helped pull the U.S out of the recession, it also pumped a lot of Dollars into the economy and with the continuous rise in the unemployment rate it is unlikely the Fed will raise interest rates any time soon.

Abundance of supply of USD, and a very low return on Dollar denominated assets due to the low interest rate, makes the greenback highly unappealing to investors; possibly replacing the JPY as the carry trade currency of choice.

The release of the Trade Balance and the Unemployment Claims figures is due to be released today at 12:30 GMT. With the unemployment numbers expected to show some improvement, a worse than expected result might help reverse some of the Dollar's recent losses.

EUR - EUR Maintains Momentum, Stays above $1.4500

The EUR has maintained its momentum Wednesday after breaking through its tight summer ranges on Tuesday, particularly the $1.4450 price level. The EUR continued to trade above $1.45 pushing briefly above $1.46; its highest level in more than nine months.

Late Wednesday, the EUR was at $1.4553 from $1.4499 late Tuesday. The EUR was at 134.02 Yen from 133.73 Yen. The U.K. Pound was at $1.6532 from $1.6499.

The EUR is benefiting from a belief that the Euro-Zone economy is improving at a higher pace than the U.S economy which lends support to the common currency. Furthermore, the EUR appears to be a popular choice as an alternative, higher yielding currency than the USD.

The U.K's MPC rate statement and Official Bank Rate is expected at 11:00 GMT. While the rate is not expected to change, the statement is highly important and is likely to have great affect on the GBP. Last month's surprise decision to increase the quantitative easing program set the GBP plummeting against its major currency counterparts. A similar announcement today could do the same.

JPY - Yen at Strongest Level in 7 Months against the USD

Japan's currency gained 0.8% against the Dollar, trading at 91.61; the highest level since Feb.17. The Yen declined 0.2% against the EUR, to 133.98 per EUR. The Yen's support arises from the fact that it is slowly being replaced by the Dollar as the preferred currency for carry trades.

However, as the Bank of Japan (BOJ) is hesitant about allowing the currency to appreciate without further substantial improvement in the economy, the Yen may have trouble's remaining at such a high level since there isn't much economic foundation behind this rise.

With no major news release from Japan today, the JPY's movements will likely be determined by news from the U.S and Europe.

Crude Oil - OPEC to Maintain Production Quotas

Crude Oil's price continues its advance for a fourth day with the contract for October delivery trading up 31 cents, or 0.4%, at $71.67 a barrel on the New York Mercantile Exchange (NYMEX) early morning trading today.

The advance was supported by OPEC's statement to keep oil production quotas unchanged on an expectation that the world economic recovery will keep prices near $71 a barrel. It seems that both consumers and producers are quite comfortable with the $65 to $75 price range. The drop in Dollar value also helped boost oil prices since Crude Oil, which is Dollar denominated, is now cheaper for holders of other currencies. Oil also serves as a protective investment against inflation caused by a weaker Dollar.

Today's release of Crude Oil Inventories is expected to show another drop of 1.5 million barrels, the third drop in four weeks. If results are better than expected we might see another boost for oil prices.

Article Source - GBP Anticipates Volatility before Rate Decision

British Pound Takes Center Stage as Bank of England Announces Interest Rates (Euro Open)

2009-09-10T16:50:00.001+02:00

The British Pound is in European trading hours as currency markets turn their attention to the interest rate decision from the Bank of England. An actual change in borrowing costs is unlikely, with traders paying keen interest to anything that hints at the future course of the bank’s quantitative easing program.

Key Overnight Developments

• Japanese Corporate Goods Prices Disappoint, Signal Continued Deflation
• Australian Jobs Report Disappoints, Weighs on RBA Rate Hike Expectations

Critical Levels

The Euro moved slightly higher in overnight trading, adding 0.1% against the US Dollar. The British Pound followed suit, testing as high as 1.6563 against the greenback.

Asia Session Highlights

Japan’s Domestic Corporate Goods Price Index printed flat in August, showing producer prices continued to shrink at a record annualized rate of -8.5%. Economists had expected prices to grow 0.2% from the previous month to bring the year-on-year figure up to -8.4%. Prices of imported goods led the way lower, down -34.6% from a year before, with raw materials (particularly petroleum and coal) registering the largest losses at -0.8% on the month and -44.1% in annual terms. The outcome foreshadows continued downward pressure on consumer prices, which shrank for the sixth consecutive month in July, hinting that deflation is set to become entrenched once again in the world’s second-largest economy. This is a dire prospect: if consumers and businesses expect prices to be lower in the future, they will perpetually delay spending and investment waiting for the best possible bargain, bringing economic growth to a virtual standstill. At this point, a rebound in exports seems like the only saving grace for the economy, which looks like a distant prospect for the moment considering recent Current Account data but may be helped if the policies of the incoming DPJ government result in a weaker Japanese Yen.

Australia’s labor market data proved disappointing: although the Unemployment Rate remained unchanged at 5.8%, the economy shed 27,100 jobs in August, much more than economists expected. Worse still, the drop was driven by a -30.8k decline in full-time positions, marking the fourth consecutive month of large double-digit losses. More of the same is likely going forward: a survey of economists conducted by Bloomberg forecasts the jobless rate will rise to average 6.25% this year and 7.9% in 2010. Job losses will weigh on incomes and trim consumption, threatening Australia’s nascent economic rebound. Data released just yesterday revealed that retail sales unexpectedly fell in July as the impact of the government’s A$20 in cash handouts began to fade while higher borrowing costs undermined lending. Indeed, the past two days have amounted to a profound wake-up call for financial markets: traders that had been pricing in a 45% chance that the RBA will raise interest rates by 25 basis points in October just three days ago now see just a 16% chance of such an outcome.

Euro Session: What to Expect

Currency markets will be focused on the interest rate decision from the Bank of England in European trading hours, with Mervyn King and company all but sure to keep benchmark borrowing costs unchanged at 0.5%. The release’s market-moving potential hinges entirely on the statement accompanying the announcement, with traders paying keen interest to anything that hints at the future course of the bank’s quantitative easing program. Last month’s release proved pivotal as the BOE took an unexpected turn into dovish territory, expanding their asset-buying scheme by 50 billion pounds: indexes measuring traders' 1-year BOE rate hike expectations and the average value of the British Pound against a trade-weighted basket of top currencies both topped out on the very same day. On balance, it seems unlikely that policymakers would make significant changes now, preferring to first see what happens after last month’s actions have been allowed to work through the economy. However, it is important to note that the BOE had largely failed to affect lending to the real economy having spent 125 billion on quantitative easing prior to the most recent expansion. It seems unlikely that pouring another 50 billion into the program will make much of a difference, leading us to speculate that perhaps the bank’s actions had been intended to establish expectations of a dovish bias, cushioning the impact of a more dramatic change to current policy.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound Takes Center Stage as Bank of England Announces Interest Rates (Euro Open)

Commodity prices Surprise with Bullishness as USD Weakens

2009-09-09T10:15:00.001+02:00

With recent market volatility, the price level for a few currencies and commodities have begun to see prices not seen since last year. For instance, the USD fell to its lowest in almost a year during yesterday trading session after gains in global stocks. Gold has also shocked the market lately with continues uptrend, rising above $1000 for the first time since March 2008. With rallies this large, the forex market becomes more predictable, and traders can reap the benefits!

USD - The Dollar Tumbles to 2009 Low

The U.S. dollar fell to a new yearly low against the EUR and dropped against other major rivals Tuesday as investors continued to show a rising appetite for risk. Better economic data from Germany and Britain also supported investors' risk appetite at the margin. The U.S. dollar, seen as a safe-haven in uncertain times, usually tends to fall when hopes of a global recovery rise.

The greenback's weakness came against a backdrop marked by a push higher in equities and improving economic data abroad, as well as renewed questions about the role of the Dollar as the world's premier reserve currency. The greenback was universally sold on reignited concerns about the capacity of the U.S. dollar to retain its global reserve status. The USD even lost ground to another safe-haven, the Japanese yen, suggesting the selling was more than just a shift to risk. The Dollar was down at 92.30 yen, having shed nearly 0.8% on Tuesday.

Renewed concerns about the status of the U.S dollar as the world's reserve currency sparked by a United Nations agency report on Monday and news out of China expressing concern about printing money to fund Treasury purchases have also weighed on the Dollar. The USD was pushed lower by several news headlines with the UN report and the China news, analysts said. All these things are dollar negative. This is a reminder that the U.S. dollar is poised for some weakness in the months ahead.

EUR - EUR Rises Above $1.45 as Risk Appetite Returns

The European currency rose toward a 9 month high against the U.S dollar before a government report forecast to show French industrial production increased, boosting demand for higher-yielding assets. The EUR extended gains versus the Dollar on Tuesday amid a rise in global stocks and commodities. The currency advanced against the Yen for a 5th day as investors forecast consumer confidence in Japan climbed to 40.2 in August from 39.7 in July, boosting demand for higher-yielding assets.

The EUR is also benefiting from uncertainty about the U.S. economy. The Euro-Zone is likely to see a hike in Interest Rates before the U.S. does. The Euro-Zone currency also advanced as economists said the Paris-based statistics office Insee may report factory output in France gained 0.4% in July after rising 0.3% in June. The data is due Thursday.

The GBP saw a big jump, meanwhile, rising 0.9% against the U.S dollar to trade at $1.6530, as U.K. manufacturing output for July came in much stronger than forecast. The British pound dropped against the Yen for a second day amid speculation the Bank of England (BOE) this week will expand its asset-purchase program, adding to signs the economic recovery will be sluggish. The Bank of England is scheduled to announce its monetary policy decision on Thursday with the central bank widely expected to keep Interest Rates unchanged.

JPY - Yen Extends its Bullish Run against the Dollar

The Japanese yen rose against the EUR and U.S dollar before a government report that economists say will show U.K. industrial production grew in July at a slower pace, boosting demand for Japan's currency as a refuge. The Yen also strengthened after the Ministry of Finance said Japan's current-account surplus fell to 1.27 trillion yen ($13.7 billion) in July from a year earlier.

The Yen has already risen above levels expected by major manufacturers for the current fiscal year, and is showing signs of strengthening again. If the U.S dollar falls below 92 yen the impact may be big and such concerns are weighing on stocks, analysts said.

Crude Oil - Oil Jumps above $71 on Eve of OPEC Meet

Crude prices rallied more than 4% Tuesday, as sharp weakness in the U.S. dollar boosted commodities, and as energy traders looked ahead to the upcoming meeting of the OPEC oil cartel. The gains came as the U.S dollar slumped to its lowest level in almost a year against a basket of currencies and gold rallied above $1,000 an ounce, its highest since March 2008.

The Organization of Petroleum Exporting Countries, which accounts for about one-third of the world's oil production, is scheduled to meet Wednesday in Vienna. Analysts expect the cartel to keep its production quota unchanged while pressuring member countries to comply with their current production limits.

Oil prices, which fell 6.5% last week, have been trading in a range between $65 and $75 a barrel since the start of August, with prices swinging on economic data as investors seek clues about the speed of a recovery from the recession. Investors will be on watch for inventory data, delayed by a day this week due to Monday's holiday. The U.S. Energy Information Administration report will be issued Thursday at 15:00 GMT.

Article Source - Commodity prices Surprise with Bullishness as USD Weakens

Australian Dollar Retreats on Disappointing Retail Sales, Lending Data (Euro Open)

2009-09-09T10:09:00.003+02:00

The Australian Dollar fell sharply lower, losing its grip on the 0.86 level against the US Dollar after Retail Sales, Home Loans and Investment Lending figures disappointed, showing that fading fiscal stimulus and rising borrowing costs may be undermining Australia’s economic recovery.

Key Overnight Developments

• Australian Recovery Losing Steam as Retail Sales, Lending Tumble
• UK Consumer Confidence Rose to Highest in Over a Year, Says Nationwide

Critical Levels

The Euro tried to regain a foothold above the 1.45 level but failed to retain bullish momentum to end the overnight session effectively flat. The British Pound drifted a bit higher, adding 0.2% against the US Dollar ahead of the opening bell in London.

Asia Session Highlights

Australia’s Retail Sales unexpectedly fell -1.0% in July, disappointing economists’ forecasts for a gain of 0.5%. Department store sales led losses to slip -3.6%, the most in five months, while food and apparel sales fell -1.9% and -0.6% respectively. The report suggests the boost to spending from the government’s A$20 billion in cash handouts is beginning to dissipate, with retail activity likely to accelerate lower as unemployment continues higher. Indeed, a survey of economists conducted by Bloomberg forecasts the jobless rate, now at a six-year high of 5.8%, will rise to average 6.25% this year and 7.9% in 2010.

Rising borrowing costs may prove to be another hurdle for the nascent economic recovery: while the RBA has kept benchmark interest rates on hold at 3% since February, the cost of borrowing in Australian Dollars for six months or longer in the interbank market has gradually crept higher over recent months. This will act as a barrier to spending and investment, weighing on economic growth. Indeed, Investment Lending and Home Loans both fell in July, the former by the most since January and the latter for the first time in 10 months.

The Westpac Consumer Confidence index offered a bit of a counterbalance to an otherwise negative batch of Australian economic data, growing 5.2% in September to rise to the highest level in over 2 years. However, it is important to note that the Westpac metric bottomed about five months before the trough in economic growth in the fourth quarter of last year, suggesting sentiment is running well ahead of underlying economic conditions.

In the UK, Nationwide Consumer Confidence rose to the highest in over a year in August, printing at 63 versus a revised reading of 61 in the previous month. Details of the survey did yield some ominous signs however: the number of respondents expecting higher incomes and planning major purchases in the next six months both declined. On balance, the sentiment index has largely tracked the FTSE 100 index, with the two now showing a formidable 91.8% correlation. If consumers’ perception of the economy is driven by the stock ticker, their confidence may prove fleeting if shares were to correct downward. For our part, we’ve argued for some time now that equities have done too much, too fast in recent months: global issues finished August trading at levels unseen since 2003 relative to earnings; the world economy grew nearly 3% in real terms that year, whereas virtually every credible forecast calls for the first post-WWII contraction in real GDP growth in 2009, pointing to lackluster revenues and overvalued equities.

Euro Session: What to Expect

The final revision of Germany’s EU-harmonized Consumer Price Index is set to confirm that the annual pace of inflation held flat in August after slipping -0.7% in the previous month. Still, the threat of deflation remains viable for the Euro Zone’s largest economy: a survey of economists polled by Bloomberg suggests CPI will continue shrinking through the third quarter and return positive growth by the end of the year; this may prove to be too rosy considering the role of fiscal stimulus and the inventory cycle in engineering the latest upswing in economic growth as well as the European Central Bank’s apparent inability to offer effective monetary easing. Indeed, the big question for Germany as well as most anywhere at this stage being whether growth will continue after the flow of government cash dries up. Prices could easily slip back into negative territory if output begins to flounder once again, helped lower by a general slowdown in the pace of economic activity as well as downward pressure on input prices (especially that of oil) that is likely to come if recent stabilization is revealed to be little more than a temporary reprieve in a larger down trend.

Turning to the UK, the Trade Balance deficit is expected to narrow to -2.0 billion pounds in July from -2.18 billion in the preceding month. Traders will be watching to see if the headline improvement comes courtesy of a drop in imports, thereby reflecting continued weakness in domestic spending, or a pickup in exports. However, as we noted yesterday when discussing July’s Industrial Production figures, rising overseas sales would like owe most of their gains to global fiscal stimulus efforts and the inventory cycle. Going forward, it remains to be seen if the rebound will continue absent a meaningful recovery in private demand as countries unwind expansionary policies and restocking is completed.

Written by Ilya Spivak, Currency Analyst
Article Source - Australian Dollar Retreats on Disappointing Retail Sales, Lending Data (Euro Open)

Forex Market to Move on News Coming from Europe and Canada

2009-09-08T16:25:00.000+02:00

In forex trading, the USD is set to have relatively quiet news today. This lack of major news indicates that the other major currencies, such as the GBP, EUR and CAD, may be the market movers today and traders should pay close attention to each of their respective economic news releases.

USD - Dollar Falls as Labor Day Holiday Takes Its Toll

The U.S. Dollar fell against a number of its major crosses due to U.S. markets being closed. Looking at Monday's trading as a whole, the Labor Day holiday in the U.S. took its toll on the American currency. In early trading yesterday, the USD fell to a near 2 week low vs. the British Pound. This was after Kraft Foods stated that it made an offer to buy British chocolate maker Cadbury. Despite the low trading volume on Monday, it seems that risk appetite was high, and high-yielding currencies became more attractive. The Dollar Index dropping by 0.2% to 78.00 yesterday is evidence of this.

The USD/JPY cross fell by 25 pips yesterday to the 92.85 level, as many traders ditched the U.S. currency for the Yen due to the improving global economy and the thin trading of Labor Day. The Australian Dollar hit a 1 year high vs. the U.S. Dollar on Monday. The AUD was helped due to rising Gold and Crude Oil prices as of late, which Australia's currency is highly dependent. In addition, Australia's currency is in much greater shape than that of America. The Canadian Dollar made some inroads into the greenback. By the end of yesterday's trading, the EUR/USD pair closed unchanged at 1.4332.

Looking ahead to today's trading, there is the U.S. Consumer Credit figures at 19:00 GMT. The other releases that are expected to affect the main USD crosses are the British Manufacturing Production at 08:30 GMT, the German Industrial Production result at 10:00 GMT and Canadian Building Permits figures from at 12:30 GMT. The volume today is likely to be high following yesterday's bank holidays in both the U.S. and Canada. We might see the EUR/USD and GBP/USD close over 100 pips away from the opening. If you want to make big profits today, buy into the USD's crosses now.

EUR - EUR Trading Dominated By Optimistic Data

On Monday, EUR trading was driven by German Factory Orders rising for the 5th consecutive month in July by a higher than forecast 3.5%. This was much needed confidence for Europe's largest economy. Major benchmark indexes rose in all the western European markets. The German DAX climbed by 1.5%, and the British FTSE 100 added 1.7%. Despite the positive figures from Germany, Europe's biggest economy is still a long way away from returning to desirable levels. It can be said that the recent G20 Meetings helped return confidence to the European currency.

The EUR snatched a 3rd consecutive day of gains against the British currency, as the pair rose by 30 pips to close at the 0.8777 level. This was largely due to German industrial data helping the EUR, which was much needed boost for the European currency. The EUR/USD cross finished trading unchanged at the 1.4232 level. This was owed to the U.S. Labor Day bank holiday. The GBP/USD pair rose in earlier trading yesterday, but ended up 60 pips lower at the 1.6343 level. The GBP declined yesterday, due to an equity market rally, which led to traders dropping the cable.

Today, there is much economic news that is expected to determine the value of the both the EUR and GBP. There is the British Manufacturing Production at 08:30 GMT, the German Industrial Production at 10:00 GMT, and the British Nationwide Consumer Confidence at 23:01 GMT. There is likely to be a continuation of much of Monday's trends. However, the volatility may increase a lot, as regular trading returns to the forefront. It is advisable to buy into the main EUR, GBP, and CHF crosses, as today's trading kicks in.

JPY - JPY Expected to Slide

The Yen fell to its lowest level in a week vs. the EUR. However, the EUR/JPY eventually finished yesterday's trading 30 pips lower at the 133.18 level. In the coming days, it seems that the Japanese currency may slide as global equities are expected to rise. Analysts expect this to reduce demand for the JPY as a safe-haven. This behavior was already seen on Monday, as the JPY dropped vs. the AUD and the NZD.

The recent election victory of the Democrat Party has led to much speculation amongst investors that the JPY may slide in the coming weeks and months. Many people believe that this inexperienced party will increase taxes too high, and will be unable to handle Japan's finances well. Therefore, these analysts conclude that there may be a downward spiral of the Japanese currency in the near future.

Crude Oil - Crude Oil Eyes OPEC Meeting

Crude Oil finished trading virtually unchanged at $68.12. This behavior was largely owed to the U.S. markets being closed on Monday. Therefore, there was lower than usual volatility in both the forex market and the commodity market. Furthermore, in mid-trading many investors ditched Crude Oil for equities, which was initiated by the announcement of the attempted takeover bid by Kraft Foods of Cadbury.

OPEC is set to meet on Wednesday 9th September, and is expected to maintain the production target of 24.845 million barrels a day in Vienna, according to Kuwaiti Oil Minister Sheikh Ahmed Al-Sabah. As trading volume returns back to normal today, there is likely to be very high fluctuations in the price of Crude Oil. Traders will be keeping one eye on tomorrow's OPEC meeting, and another eye on USD strength.

Article Source - Forex Market to Move on News Coming from Europe and Canada

Euro, British Pound May Gain Against US Dollar as Stock Futures Rise (Euro Open)

2009-09-08T16:17:00.002+02:00

The Euro and the British Pound may gain against the US Dollar in European trading hours with equity index futures trading 0.6% higher and pointing to losses for the safety-linked greenback. Germany’s Current Account and Switzerland’s Unemployment data headline the economic calendar.

Key Overnight Developments

• Japan: Current Account Shows Continued Exports Slump, Merchant Sentiment Falls
• Australian Business Confidence Rises to Highest in Nearly Six Years, Says NAB

Critical Levels

The Euro traded sideways in the overnight session, with prices confined to a narrow 15-pip range above 1.4330. The British Pound followed suit, oscillating in a choppy 40-pip range below 1.6360.

Asia Session Highlights

Japan’s Current Account balance registered at 1.3 billion yen in July, up from the 1.2 billion registered in June. Still, the overall trend continues to point lower: the surplus shrank -19.4% from year earlier as exports fell -37.6%, driven lower as the global economic downturn translated into weaker foreign demand for Japanese cars and electronics. More of the same is likely going forward: although manufacturing has rebounded over recent months, spurred by global fiscal stimulus efforts (including “cash for clunkers” programs in the US and Germany that target autos) and a restocking of inventories, the International Monetary Fund (IMF) has said in its latest world economic outlook that advanced-country exports will rebound just 1.3% after falling by a staggering -15.0% in 2009.

Separately, the Eco Watchers survey revealed that Japanese merchant sentiment declined for the first in eight months in August. The forward-looking Outlook component of the report fell for the second consecutive month, suggesting rising unemployment is starting to overwhelm the effects of aggressive fiscal stimulus on consumer spending.

Australia’s Business Confidence surged to the highest in nearly six years in August according to the National Australia Bank. The bank abandoned its previous forecast calling for the economy to shrink this year, now saying output will gain 0.6% in 2009, while chief economist Alan Oster said the outcome “clearly points to continuing strong growth in demand in the third quarter.” Oster added that sharp improvements in confidence “erode the case for maintaining emergency lows in interest rates.” Details of the report are less encouraging than the headline figure, however. The upswing looks to have been driven by a jump in the Profitability sub-index, which began to rebound along with industrial commodity prices (Australia’s chief export sector) at the beginning of the year. Commodities could reverse lower in the months ahead as China, Australia’s largest trading partner, begins to rein in expansionary economic policy. This would reflect detrimentally on profitability and send the overall confidence metric lower. Indeed, sub-indexes tracking Forward Orders and Export Sales both declined in August for the first time in three months.

Euro Session: What to Expect

Switzerland’s Unemployment Rate is expected to rise to 4.1% in August, the highest in 11 years, pointing to mounting headwinds for consumer spending and thereby overall economic growth. In fact, the jobless rate may actually be understating the total impact of the current downturn on consumers’ spending power as many firms looked to cut costs by switching a portion of the workforce to a “short-time” schedule, which amounts to fewer hours and thereby smaller paychecks. Naturally, this trims disposable incomes and adds to already formidable disincentives to consume. Although exports are heavily represented as a component of Swiss economic growth, domestic demand is still by far the most important driver of activity, contributing about 60% to total output. The government has forecast that the economy will shrink -2.2% this year and rebound just 0.1% in 2010.

Germany’s Current Account surplus is set to narrow to 10.0 billion euro in July, down from 13.3 billion in the previous month. The outcome falls firmly within the downward trajectory that has been in place since the surplus peaked in the third quarter of 2007. As with Japan’s trading terms, this corresponds closely to the cyclical peak in US personal consumption of durable goods (Germany’s top export sector). Rising unemployment suggests it will be some time before a meaningful pick-up in American consumers’ demand for big-ticket items, meaning sales should remain lackluster for German exporters. Indeed, economists polled by Bloomberg predict that the external sector will contribute an average of 4.1% to overall economic growth this year and in 2010, the smallest in 6 years. To that effect, expectations of continued moderation in Industrial Production (set to print down -15.8% in the year to July versus -18.1% in the previous month) may not have much staying power in the months ahead.

The pace of decline in UK Industrial Production is set to slow for the fifth consecutive month, with forecasts calling for output to shrink -10.1% in the year to July. As with similar developments in Japan and Germany, the improvements over recent months have been driven by global fiscal stimulus efforts and the inventory cycle. Going forward, however, it remains to be seen if the rebound will continue absent a meaningful recovery in private demand as countries unwind expansionary policies and restocking is completed.

Turning to risk trends, equity index futures are trading 0.6% higher ahead of the opening bell in Europe, pointing to likely gains for the Euro, the British Pound and the commodity currencies at the expense of the safety-linked US Dollar.

Article Source - Euro, British Pound May Gain Against US Dollar as Stock Futures Rise (Euro Open)

Dollar Expects Low Volatility Today

2009-09-07T09:05:00.001+02:00

Today is a quiet news day for the U.S. and Canada, as there are no economic data releases on the calendar today. However, Britain and Euro-zone appear to be releasing the bulk of today's news, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.

USD - USD Downtrend to Continue; Labor Day Causes Thin Trading

The US Dollar experienced some intense trading sessions last week. Following Friday's Non-Farm Payroll data the USD quickly rose from the better-than-expected results, but ended the day significantly lower against its primary rivals as many investors dumped the greenback in exchange for riskier assets. In fact, the USD dropped against the EUR to above the 1.4300 price level, and the 1.6400 level against the Pound Sterling.

This weekend's G20 Summit also added to the Dollar's bearishness at the start of this week's trading, many analysts have said, as hawkish statements from world leaders has spurred a rally in market optimism and risk appetite. Supporting this notion is the downtrend of the Japanese Yen against all of its rivals, signaling a sell-off in safe-haven currencies - a category which the USD still falls in as well.

With US and Canadian banks celebrating Labor Day, the forex market will be experiencing thin trading today. Without these economic giants pumping liquidity into the market, most current trends will remain as they are for the next day or two, and traders can benefit by jumping into these trends before they finally come to an end.

EUR - EUR Appreciates on Growing Investor Confidence

The EUR gained support last Friday following the US's Non-Farm Payroll data which showed the US jobs sector contracting less than anticipated and enticing traders into riskier assets. The EUR, towards the close of trading last Friday, rose above the 1.4300 price level against the USD, and climbed against the GBP back towards 0.8730, while also clawing its way back to a week high against the JPY, upwards of the 133.40 price level.

Investor confidence in the Euro-Zone has been on the rise for the past few months and September appears to be set for being one of the better months for the 16-nation currency. Some reports have shown this confidence level to have reached a 13-month high, marking this month as the potential turning point in the global recession. The recent strength of the EUR supports this notion as it has begun to appreciate against all of its primary currency rivals.

As for today, the Euro-Zone and Britain will be the leading economies today considering that the US and Canada are on holiday to celebrate Labor Day. With low levels of liquidity, current trends will likely continue, but news about Germany's manufacturing sector could put a damper on recent EUR strength if it comes out much worse than expected.

JPY - JPY Takes a Dive from Positive US Employment Reports

While gaining in value steadily over the past two weeks against all of its primary currency counterparts, the JPY faced a severe downturn at the end of last week's trading. Dropping as low as 93.15 against the USD, 133.45 against the EUR, and even as low as 153.00 versus the GBP, the JPY has taken a hit as a result of the growing market optimism following Friday's employment reports from the US and Canada.

With these two massive economies missing from the market today due to the Labor Day holidays in both, the EUR and JPY may in fact be today's leading currencies. However, with the expected low level of liquidity, and lack of significant economic events, the current downtrend for the JPY will likely continue throughout the trading day. Traders still have an opportunity to enter this trend at a relatively early stage and make healthy profits.

Crude Oil - Crude Oil Price Consolidating Towards Volatile Movement

Despite the drop in the value of the US Dollar last Friday, the price of Crude Oil has actually depreciated to $68 a barrel. This commodity currently trades inside a consolidation trend with a target level of $67.50 as the breaking point. With USD traders pricing in a downward move for the greenback, it is only natural to expect a corresponding upward movement from Crude Oil in the days ahead.

As for today, however, the forex market will likely remain inside of its current trends due to the low levels of liquidity being anticipated as a result of the bank holidays in the US and Canada. As a result, the current consolidation trend being experienced in the price of Crude Oil will likely continue, with a small downtrend in the works for today's early trading hours.

Article Source - Dollar Expects Low Volatility Today