Yesterday marked the inauguration of President Barack Obama to the White House in Washington D.C. While markets anticipated this event with moderate volatility throughout the prior week, the event had little impact on previous market trends. The economy appears to be continuing down its path of deceleration and recession while the world waits to hear Obama’s economic recovery plan. Does he carry the silver bullet to end this crisis?
Economic News
USD – USD Makes Moderate Gains; Obama Takes Office
The USD has strengthened against most of its major counterparts, continuing to prove that, for the time being, this is the solid currency that traders can rely on to provide them with steady profits. The EUR/USD stopped the upside move at a good resistance level of 1.2930 and from then on it fell more than 100 points all the way down to the 1.28 level. Risk aversion continues to give the Dollar strength and that is likely to continue until we see signs of stabilization. The USD also saw gains against the GBP.
The Dollar has rallied as the U.S. and global outlook has worsened, with investors pulling money out of commodities, stocks and higher-yielding currencies and parking it in safe-haven assets such as U.S. Treasuries. As a result, global stocks plunged and bond prices fell yesterday as fears about a deep recession and a battered financial sector gave President Barrack Obama sobering welcome on his first day in office.
Barrack Obama took office yesterday with the world’s banks free-falling, the auto industry gasping, and Wall Street greeting the new president with its worst inauguration day ever.
Today will also be a very quite news day for the greenback. Traders should follow overseas events in order to determine the USD’s direction for today. Special attention should be given to European Central Bank President Jean-Claude Trichet’s speech which will be given at 9:30 GMT, and will be today’s leading publication to affect the USD’s crosses.
EUR – EUR Remains at Low Levels against the USD
The Euro-Zone’s economic woes don’t seem to be running out of steam as the EUR continued its fall during yesterday’s trading session against the USD. Overall there seemed to be a lack of significant data releases coming out of the Euro-Zone compared to the average week. Despite the fact that most economic indicators came out slightly better than forecasted, the EUR continued to fall from fears of economic weakness and recession.
The EUR was also hurt by the USD’s recent success, which caused the pair to trade in the mid 1.2800 range throughout the last hours of yesterday’s trading session. The pair now sits, for the moment, at 1.2912, and is still giving off bearish signals. The German ZEW Economic Sentiment indicator rose to -31.0 in January from -45.2 in December yesterday, beating market forecasts. The EUR briefly jumped against the Dollar after the release of this indicator, which reflects the difference between the proportion of analysts and investors who are optimistic and those who are not. Unfortunately, the rise didn’t last long.
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 – JPY Makes Early Gains and Late Losses; Remains Flat
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 at around the 115.00 level. The JPY also saw bullishness against the GBP as it jumped around 100 pips and closed at 124.80.
The Japanese government warned yesterday that the economy was worsening rapidly as a deepening recession hits jobs and incomes, sending consumer confidence to a record low. The bleak government assessment, the fourth downgrade in as many months in its outlook, comes as exports and industrial production, key engines of the world’s second-biggest economy, slide at a record pace and force manufacturers such as Toyota Motor Co. to slash production and cut jobs.
Traders today have very little fundamental news emanating from Japan as the only indicator being released is the trade balance report. Analysts forecast the figure to increase from its previous reading. This indicator typically generates small amounts of volatility. However, the EUR and the GBP appear to be clutching the reins of today’s market. Traders would be wise to note its future direction as it usually carries a heavy impact on the other currencies.
Crude Oil – Crude Oil Prices Continue to Decline
Crude Oil prices experienced another day of depreciation as the oft-traded commodity dropped slightly to $41 during yesterday trading session. Oil prices traded down for the second straight day. Much of the bearish movement in Crude Oil can be attributed to fears of a drop in fuel consumption due to poor economic outlook in the major world economies. Also Russia’s resumption of natural gas flow to Europe via Ukraine helped ease tensions over heating oil and energy consumption.
With economic growth slowing in the U.S. and Europe, Crude Oil may continue to see a depreciating value. For now it seems that Crude Oil prices will continue to drop for as long as the global economy continues to bog down in recession. Traders are strongly advised to follow the USD against its major pairs and crosses in order to try to predict today’s developments.
Technical News
EUR/USD
The pair continues to float in the over-sold territory on the 4-hour and daily charts’ RSI, indicating that the recent upward movement may soon be back in play. A fresh bullish cross on the 4-hour chart’s Slow Stochastic supports this notion as well. Going long might be the right choice today.
GBP/USD
It appears a violent breach of the lower border on the daily chart’s Bollinger Bands has occurred, signaling that there may be some upward pressure on this pair. The RSI on the 4-hour chart also indicates that the pair is currently being over-sold; this may cause an upward correction to occur in the near future. Going long with tight stops might be the right choice today.
USD/JPY
The pair continues to range-trade as technical indicators offer contradictory evidence. The hourly chart’s Slow Stochastic shows a recent bearish cross, signaling an imminent downward movement. However, the 4-hour chart’s Slow Stochastic reveals a bullish cross, indicating an upward correction may occur later in the day. Waiting for a clearer signal might be the right choice today.
USD/CHF
The price of this pair currently floats in the over-bought territory on the 4-hour chart’s RSI, indicating the recent downward movement may have room to run. The recent bearish cross on the 4-hour chart’s Slow Stochastic supports this notion. Going short might be a good strategy today.
The Wild Card
USD/CAD
It appears the price of this pair currently floats in the over-bought territory on the RSI of both the 4-hour and daily chart, indicating that a downward correction may occur in the near future. The weekly chart’s Momentum oscillator shows a downward pressure on the price. The recent bearish cross on the 4-hour chart’s Slow Stochastic also supports the imminent downward correction. It appears the recent upward movement has reached a peak and forex traders can make solid profits by entering their sell positions early and riding out the downward correction.
Written by: Forexyard.com