The USD surrendered slim gains on Friday, resuming its bearish momentum against a basket of currencies on expectations Interest Rates will remain low in the U.S. Low rates make the U.S. Dollar less attractive than higher-yield currencies more closely correlated with economic recovery.
Economic News
USD – The Dollar Trades near 14-Month Low
The U.S Dollar held onto modest gains on Thursday, but pared most of its earlier advance as U.S. equities rallied, signaling more willingness among investors to buy riskier assets. The Dollar’s earlier gains were triggered overnight by concerns about future Chinese growth. The move came just a day after the U.S. currency sank to a fresh 14-month low against the EUR, which breached the key $1.50 level for the first time since August 2008.
Analysts expect greenback’s downtrend to continue, with the Dollar vulnerable on expectations of low rates, a view reinforced after Chicago Federal Reserve President Charles Evans said on Thursday the Fed’s focus remained on an accommodative rate policy. The USD is poised for another weekly decline against the currencies of Australia and New Zealand as regional equities extended an earnings-sparked rally in U.S. shares.
The U.S dollar may be set for a 3rd weekly drop against the 16-nation currency before reports today forecast to show improvements in German business confidence and U.S. home sales. Also scheduled are UK 3rd quarter Gross Domestic Product numbers while in the U.S. Federal Reserve chief Ben Bernanke speaks at 12:30 GMT.
EUR – EUR Trades at $1.50 as Risk Demand Improves
The EUR traded near a 14-month high against the U.S dollar as a recovery in corporate earnings and improved prospects for the global economy revived demand for riskier assets. The European currency is also headed for a 3rd weekly gain against the Japanese yen on optimism that the 16-nation economy is on the mend.
The EUR rose before reports forecast to show improvements in an index of U.S. leading indicators and German business confidence. It appears that the Euro-Zone’s economy is recovering more quickly than what is seen in the U.S. and Japan, and the 16-nation currency will likely gain further. Adding to signs that the economic recovery is gaining traction, the Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 the previous month, according to a separate survey.
The British pound is set for a 2nd weekly gain versus the USD as the Office for National Statistics may say today that the U.K. economy expanded 0.2% in the 3rd quarter from the previous period, according to economists.
JPY – The Yen Declines vs. Majors
The Japanese Yen slipped to 91.40 per Dollar, having fallen 0.3% in the previous session. The JPY could come under a bit of pressure on expectations Japanese investors will step up overseas bond purchases. Traders are eyeing support at 91.75 and then at around 92.30 per Dollar.
The Yen may slide for an 11th day against the EUR, its longest losing run since December 2004, after a Finance Ministry report showed Japan’s shipments abroad fell 30.7% in September from a year ago, compared with a 36% drop in August.
In Asia, it seems that the pace of deceleration in exports is slowing, which is encouraging, analysts said. Therefore the Yen may tend to under perform other major currencies except for the U.S Dollar when risk appetite is pretty strong.
Crude Oil – Oil Falls Slightly on Stronger Dollar
Crude Oil prices were slightly lower Thursday, pulling back from their 1 year high of $82 a barrel, as weekly data showed a worse-than-expected picture in employment and as the U.S. Dollar rebounded against other major currencies.
Crude prices jumped on Wednesday after weekly U.S. government data showed a large drop in gasoline inventories over the past week and fuel demand rising about 4% year-on-year. The Energy Information Administration reported Wednesday that petroleum demand remained weak in the U.S., with demand for gasoline falling to the lowest level in more than 5 months.
Energy markets have looked to economic data for signs of a rebound in the economy that could bolster flagging oil demand. A stronger Dollar tends to push down Dollar-denominated commodities prices.
Technical News
EUR/USD
The EUR/USD cross has been experiencing much bullish behavior in the past 2 days. However, there is much technical data that supports a bearish move for today. The RSI of the daily and weekly charts indicates that the pair floats in the overbought territory, leading to the conclusion that a downward correction is imminent. The MACD of the weekly chart also supports this view. Going short with tight stops may turn out to pay off today.
GBP/USD
The pair has been going higher for the past 2 weeks, and it now stands at the 1.6625 level. A bearish cross has recently formed on the Slow Stochastic of the 4-hour chart, signaling that a downward move will happen anytime soon. The RSI of the weekly chart signals that the pair has run out of steam, and that a downward correction is impending. Going short with tight stops seems to be the wise choice today.
USD/JPY
The chart’s oscillators seem to be showing overwhelming evidence that a bearish move for the USD/JPY cross today is imminent. The pair is approaching the upper border of the Bollinger Bands of the 4-hour chart, indicating that a bearish move is imminent. The RSI of the 4-hour chart shows that the pair is floating in the overbought territory. Going short with tight stops may turn out to bring big profits for traders today.
USD/CHF
There is a bullish cross forming on the 4-hour chart’s Slow Stochastic indicating a bullish correction might take place in the nearest future. The upward direction on the weekly chart’s RSI also supports this notion. When the upward breach occurs, going long with tight stops appears to be preferable strategy.
The Wild Card
Crude Oil
Crude oil prices rose significantly in the last two weeks and peaked at $81.60 per barrel. However, the daily chart’s RSI is floating in an overbought territory suggesting that the recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex raders to enter the trend at a very early stage.
Written by: Forexyard.com