The U.S. dollar gained versus the EUR but extended losses against the Japanese yen on Friday after the U.S. Consumer Sentiment index unexpectedly declined in early August. The data pushed U.S. stocks lower, aiding the Dollar which has tended for months to move in the opposite direction as equities as investors’ willingness to buy riskier assets fluctuates. Risk aversion is back with the U.S dollar appreciating vs. the EUR and British Pound but weakening against the Japanese Yen.
Economic News
USD – The U.S Dollar Turns Higher against the EUR on Friday
After going through a week of falling trends, the Dollar finished last week with significant strengthening against most of the major currencies, closing the week at similar levels to ones it started at. Nevertheless, against the Yen the Dollar continued to drop, and the pair slid to beneath the 95.00 level.
The Dollar’s early downfall came mostly as a result of the negative U.S economic data. The Federal Budget Balance continues to show overstating negative figures, proving that the federal budget is well in deficit. In addition, both the Retails Sales indices, the general report and the core report, delivered negative figures, emphasizing that the U.S consumers have yet to regain their faith in their financial security. The fact that the Fed avoided from hiking Interest Rates, despite its record low, also supported the weakening Dollar.
However, it seems that the relatively positive inflation data, which were delivered due to the Consumer Price Indices (CPI), have managed to reverse the Dollar’s downtrend. The drop in commodities value, such as Gold and Crude Oil, was another main factor in the USD recovery.
Looking ahead this week, many impacting data is expected from the U.S economy. It seems that the main publications might be the Building Permits and the Producer Price Index (PPI) on Tuesday, and the Existing Home Sales on Friday. The Building Permits are expected to report the best figures in 8 months, and the Dollar is likely to strengthen as a result. However, the PPI is forecasted to deliver its first negative figure since March. Negative inflation data could erase the Dollar’s recent recovery. The Existing Home Sales are another economic indicator that could support the Dollar. Analysts forecast that 5.03M residential buildings were sold during July, in what could be the best result in 10 months. Traders are advised to follow the publications of these indicators in order to manage their trading this week.
EUR – EUR Finishing a Volatile Week
The EUR saw an incredibly volatile session during last week’s trading. The European currency began the week with a sharp bullish trend against the Dollar, just to lose its gains close to the weekend. The EUR saw a significant uptrend against the British pound on one hand, yet a sharp drop against the Yen on the other hand.
It seems that the EUR volatility came as a result of the mixed data form the Euro-Zone’s major economies. The following data was all published during last week: the French economy saw first signs of recovery as the French Industrial Production rose by 0.3% in June, suggesting an increasing inflation. However the European Industrial Production dropped by 0.6% in June. The German Gross Domestic Product rose by 0.3% in the last quarter, showing that the German economy is unexpectedly expending. And then another weak data was released as the European Consumer Price Index dropped by 0.7% in July, proofing that inflation is dropping in the Euro-Zone.
As for the week ahead, a batch of data is expected from the Euro-Zone economy. The German ZEW Economic Sentiment will be reported on Tuesday, and analysts forecast that its result will stand at 45.2 mark. If the actual result will be similar, it has the potential to boost the EUR, as this will show that the German economy is leaving the recession behind, and indeed facing an expanding period. Considering that the German economy is the strongest economy in the Euro-Zone, this result could have a massive impact on the EUR. Also next week, traders are advised to follow the German PPI on Wednesday and the French and German indicators on Friday.
JPY – Yen Rises Against All the Major Currencies
Last week, the Yen rose against all the major currencies. The USD/JPY dropped around 300 pips to the 94.50 level. The Yen rose about 500 pips against the EUR, and saw an 800 pips rise against the Pound!
The Yen’s string uptrend came as a result of some positive data from the Japanese economy. The monthly Core Machinery Orders report showed a 9.7% figure, well above the expected 2.8% mark. The Japanese Current Account showed that the difference in value between imported and exported goods and services during June stood at 1.80T. This result has an immense impact on the Yan, as the Japanese economy relies greatly on its exporting activity. The main reason that the Bank of Japan is holding on its low Interest Rates is merely to support the export, and such a positive result shows that the bank succeeds in its mission. Also last week, the Japanese Industrial Production report showed that the inflation continues to rise in Japan, this time by 2.3% during June. This added to the previous positive data from the Japanese economy, further supporting the Yen.
Looking ahead to this week, the main publication which is expected from the Japanese economy is the All Industries Index, scheduled for Wednesday 04:30 GMT. Analysts forecast that the total value of goods and services purchased by business in Japan during June rose by 0.4% as opposed to May. If the actual result will be similar, the Yen is likely to strengthen against its major currency counterparts.
OIL – Crude Oil Extends Decline Below $70
Crude Oil’s high volatility continues, and a barrel of oil has once again dropped below $70. Crude Oil continued to drop as this trading week kicked off on speculations that reduced demand and rising stockpiles in the U.S will lead to relatively regular supplies during the North Atlantic hurricane season. During the following weeks, the notifications regarding the hurricanes that aim to strike the U.S will play a leading role in Crude Oil’s value. The safer the pipelines will remain, the lower the price of a barrel of oil is likely to be.
In addition, the recent strengthening of the Dollar also had its effect on Crude Oil. Dollar strength typically weighs on dollar-denominated commodities because it makes them more expensive for holders of other currencies. If the Dollar will continue to strengthen during the next few days, Crude Oil’s drop in value might be extended.
Technical News
EUR/USD
A bearish formation on the daily chart is still intact; however the momentum is already quite low. The 4 hour chart is also maintaining a slightly bearish configuration yet with no distinct conclusion. Traders are advised to hold for the break and then swing into it.
GBP/USD
The price of this pair appears to be floating in the over-sold territory on the RSI of the 4-hour chart, signaling an impending bullish move. The fresh bullish cross on the hourly chart’s Slow Stochastic also supports this notion. Going long appears to be a good strategy today
USD/JPY
A correction on the hourly chart could be fore coming as a price move has originated at the bottom border of the Bollinger Bands. This may signal a move from the lower border all the way to the other border. Going long with a tight stop may be the right choice today.
USD/CHF
On a daily chart RSI the pair is showing consistent bullish momentum for a while now and today is no difference. Although the signal is not strong the pair might have a local target at 1.08 level, which might make it feasible for forex traders to go long with tight stops
The Wild Card
EUR/NOK
The price of this pair has just entered the over-sold territory on the 4-hour chart’s RSI, signaling upward pressure. The fresh bullish crosses on the MACD of the hourly and 4-hour charts support the notion of an impending bullish correction. By entering early long positions, forex traders can enter the market on this pair, and at a great starting price.
Written by: Forexyard.com