Forex Markets Steady as Stocks Dip.
The most notable event to take place in the forex market yesterday appears to have been the lack of any significant movement by the major currencies. As stock markets witnessed a downward correction yesterday, the forex world's latest series of volatile spikes came to an end and most currencies leveled-off. As market news today is anticipated to be much busier, this day of rest in forex may come to an end and we could see a return to the sharp movements witnessed at the end of last week.
Economical News
USD
The Dollar experienced a mild trading session in yesterday's trading. The USD experienced a relatively flat day as it steadily rose against all of its major currency pairs, except for the Japanese Yen. There was a quiet day of news from the U.S. as there were no economic data releases on the calendar. However, Federal Reserve Board Chairman Ben Bernanke spoke about the state of the U.S. economy and the stress test for banks. He pointed out specifically that he was pleased with banks for raising capital. Investors were optimistic as he said that additional capital from the Federal Reserve will be provided if needed.
Despite this positive news from Bernanke, the stock market in the U.S. and around the world experienced heavy losses. However, part of this may be the start of a correction to the global stock market rally in recent weeks. As a result, the Dollar gained against most of its major currency pairs. The USD took 70 pips from the EUR to close at 1.3591 and a healthy 125 pips from the Pound to close at 1.5095. However, against the JPY, the Dollar lost 100 pips, extending its 3 day loss vs. the Japanese currency. The USD gained against the former 2 currencies due to fears of economic instability.
Today we can expect a higher amount of volatility and instability when it comes to trading with the Dollar and its main currency crosses. This may be even more so due to a heavy schedule of economic data releases and the ambitious economic recovery plan of President Barack Obama. The Trade Balance figures will be published at 12:30 GMT, IBD/TIPP Economic Optimism figures are expected to be released at 14:00 GMT, and the Federal Budget Balance results are scheduled to be published at 18:00 GMT. Positive figures may help spur a stock market rally. At the same time, the Dollar may go bearish, as investor fears dissipate and the global economy continues its slow recovery.
EUR
The European currency stumbled against the Dollar in Monday's trading, ending its 3 day winning streak against the USD. This comes around the same time the President of the European Central Bank (ECB), Jean Claude Trichet, stated that the main developed economies are starting to show signs of growth. For example, The Organization for Economic Co-operation and Development (OECD) recently released figures showing that Britain, France, and Italy's economies recorded some growth in the previous month. However, Germany continues to lag behind in negative territory. This may be one of the factors that could prevent the EUR from gaining the long-term confidence of investors.
As long as Germany, Europe's largest economy, is deep in the red there will continue to be a prolonged burden on the Euro-Zone and its currency. The EUR slipped 70 pips vs. the Dollar to finish yesterday's trading at 1.3591. The EUR slid by a dramatic 200 pips vs. the JPY to 132.23. The 2 reasons for these results are the overvalued EUR/JPY as of late, and the safe-haven bullish JPY. The Japanese currency also experienced similar behavior against the Pound as fears grew yesterday. The EUR/GBP rate rose by a moderate 30 pips, as traders continue to weigh in on the health of the British and Euro-Zone economies.
In today's forex trading, traders are advised to follow economic news releases from the Euro-Zone and Britain closely as the results will help determine the bullishness of the Pound and EUR in today's trading. The most important news events from Britain are the release of the Manufacturing Production and Trade Balance figures at 8:30 GMT simultaneously. From the Euro-Zone, the most important news events are German Final CPI at 6:00 GMT and the speech by Budesbank President Axel Weber at 15:00 GMT. Forex traders are also advised to follow unexpected speeches by President Obama or Ben Bernanke, as this could have a strong impact on trading in the forex market for the main currencies.
JPY
The JPY made moderate gains against the Dollar in yesterday's trading as there was panic when global stock markets made heavy losses as a correction may be under way, and as the banking system continues to be unstable. The Yen was also boosted by the weak Japanese economic figures, prompting investors to put money into the Yen. Thus the Yen returned yet again to the forefront as a safe-haven currency. This was compounded by HSBC announcing that despite high profits, the coming year will be a tough. This helped push down other banking stocks, and stocks such as Sony, Toyota, and Mitsui, as they also lost some ground in Monday's trading.
The Yen took nearly 100 pips away from the Dollar to close up 1% at 97.29. The JPY made large inroads into the EUR to close up nearly 200 pips at 132.23. The gains against the GBP were even more impressive at 250 pips to close at 147.08. This all comes about as the fears of economic uncertainty fail to disappear. Thus if there is a stock market correction in the coming weeks, then there is a likelihood that the Yen will continue its bullish trend in the medium-term. If this is the case, then within the next several days, the USD/JPY rate may hit below 96.00. As of today, traders are advised to follow the Current Account and Bank Lending data releases at 23:50 GMT.
Technical Analysis
EUR/USD
The price of this pair appears to be floating in the over-bought territory on the RSI of the 4-hour chart, signaling a downward correction may still be relevant. The imminent bearish cross on the daily chart's Slow Stochastic supports this notion. Going short might be a wise choice today.
GBP/USD
The Bollinger Bands on the hourly chart appear to be tightening in expectation of a volatile movement. As the daily chart's RSI shows the price of this pair floating in the over-sold territory, and as the recent bearish crosses on that chart's Slow Stochastic demonstrate, we may be in for a sharp downward movement. Going short with tight stops might be a good strategy.
USD/JPY
The recent bearish run for this pair may be coming to an end. There appears to be a bullish cross on the 4-hour chart's Slow Stochastic signaling upward movement is imminent. The price also appears to be floating in the over-sold territory on the 4-hour chart's RSI. With a bullish cross also forming on the daily chart's Slow Stochastic, going long might not be a bad choice today.
USD/CHF
The price of this pair appears to be floating in the over-sold territory on the RSI oscillator of the 4-hour and daily charts. As the Bollinger Bands on the hourly chart begin to tighten, the impending volatile movement may very well be in an upward direction. Going long might be a wise choice throughout the trading day.
Wild Card
Crude Oil
After a few days of sustained upward movement, the price of this commodity now appears to be floating in the over-bought territory on the RSI of the 4-hour, daily and weekly charts, signaling a downward correction is long overdue. There also appears to be fresh bearish crosses on the daily chart's Slow Stochastic, which signifies that forex traders may be capable of entering the impending downward correction at a great entry price by going short on this commodity today.
Market Trend
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
|---|---|---|---|---|---|---|
| Daily Trend |  |
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| Weekly Trend |  |
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| Resistance | 1.3675 | 1.5200 | 98.00 | 1.1175 | 0.7650 | 0.9075 |
| 1.3650 | 1.5175 | 97.75 | 1.1150 | 0.7625 | 0.9050 | |
| 1.3625 | 1.5150 | 97.50 | 1.1125 | 0.7600 | 0.9025 | |
| Support | 1.3550 | 1.5075 | 97.00 | 1.1050 | 0.7550 | 0.8950 |
| 1.3525 | 1.5050 | 96.75 | 1.1025 | 0.7525 | 0.8925 | |
| 1.3500 | 1.5025 | 96.50 | 1.1000 | 0.7500 | 0.8900 |
Indicators
| Date | Time GMT | $€£¥ | Event | Period | Prev. | Forecast | Imp |
|---|---|---|---|---|---|---|---|
| 2009-05-12 | 01:30 | AUD | Home Loans | 0.4% | 4.5% |  | |
| Home Loans This report measures the number of commitments for owner occupied home financing. A bettern than expected result has a positive impact on the local currency because large purchases are usually made by consumers that are confident in their financial position. | |||||||
| 2009-05-12 | 05:00 | JPY | Leading Indicators | 75.0% | 77.1% |  | |
| Leading Indicators This report is combining ten leading indocators in order to measure overall economic health. The leading indicators includes average weekly hours, new orders, consumer expectations, housing permits, stock prices, and interest rate spreads. | |||||||
| 2009-05-12 | 06:00 | EUR | German Final CPI | m/m | 0.0% | 0.0% | |
| German Final CPI The German Final Consumer Price Indicator measures the change in price of goods and services purchased by consumers. Frequency Released monthly, about 15 days after the month ends; FF Notes The 'Previous' listed is the 'Actual' from the Preliminary release and therefore the 'History' data will appear unconnected. There are two versions of CPI released about 15 days apart - Preliminary and Final. The Preliminary release is the earliest and thus tends to have the most impact; Acronyms Consumer Price Index (CPI); | |||||||
| 2009-05-12 | 06:00 | JPY | Prelim Machine Tool Orders | y/y | -85.2% | - | |
| Prelim Machine Tool Orders This is a report which Measures the change in the total value of new orders placed with machine tool manufacturers. There are 2 versions of this report, the Preliminary and Final. The Preliminary release is the earliest and therefore tends to have the most impact. | |||||||
| 2009-05-12 | 06:00 | EUR | German WPI | m/m | -0.9% | 0.0% | |
| German WPI The Wholesale Price Index (WPI) measures the inflation rate incurred by wholesalers. It is published monthly and acts as a decent indicator of wholesale price inflation. | |||||||
| 2009-05-12 | 06:45 | EUR | French Gov Budget Balance | -29.9B | - | | |
| French Gov Budget Balance This indicator measures the difference in value between the central government's income and spending for the year-to-date. | |||||||
| 2009-05-12 | 08:30 | GBP | Manufacturing Production m/m | m/m | -0.9% | -0.8% | |
| Manufacturing Production m/m Measures the total value of output produced by manufacturers. Manufacturing Production differs from Industrial Production in that it only measures the 13 sub-sectors of production that relate directly to manufacturing. Manufacturing industries make up about 80% of total Industrial Production. | |||||||
| 2009-05-12 | 08:30 | GBP | Trade Balance | -7.3B | -7.2B |  | |
| Trade Balance This report measures the difference between imported and exported goods and services. A positive number indicates the country is exporting more goods than it is importing. A country with a growing positive trade balance may see their currency strengthen as a result. | |||||||
| 2009-05-12 | 08:30 | GBP | DCLG HPI | y/y | -12.3% | -12.7% | |
| DCLG HPI This report offers a general measure for the change in the selling price of homes. | |||||||
| 2009-05-12 | 08:30 | GBP | Industrial Production | m/m | -1.0% | -0.7% | |
| Industrial Production This report measures the change in the total inflation adjusted value of output produced by manufacturers, mines, and utilities. When the actual result is higher than forecasted, it tends to have a positive impact on the local currency. | |||||||
| 2009-05-12 | 09:30 | AUD | AUD Annual Budget Release | * | * | | |
| AUD Annual Budget Release This document outlines the government's budget for the year, including expected spending and income levels, borrowing levels, financial objectives, and planned investments; | |||||||
| 2009-05-12 | 12:20 | USD | FOMC Member Lockhart Speaks | * | * | | |
| FOMC Member Lockhart Speaks Federal Open Market Committee (FOMC) member Dennis Lockhart is due to speak today. As a leader of the central bank he can instantly influence the currency markets with his speeches and off hand remarks on the future of U.S. monetary policy. | |||||||
| 2009-05-12 | 12:30 | CAD | Canadian Trade Balance | 0.1B | 0.5B | | |
| Canadian Trade Balance This report measures the difference between imported and exported goods and services. A positive number indicates the country is exporting more goods than it is importing. A country with a growing positive trade balance may see their currency strengthen as a result. | |||||||
| 2009-05-12 | 12:30 | USD | U.S Trade Balance | -26.0B | -29.3B | | |
| U.S Trade Balance This report measures the difference between imported and exported goods and services. A positive number indicates the country is exporting more goods than it is importing. A country with a growing positive trade balance may see their currency strengthen as a result. | |||||||
| 2009-05-12 | 14:00 | USD | IBD/TIPP Economic Optimism | 49.1 | 51.1 | | |
| IBD/TIPP Economic Optimism The Investor's Business Daily (IBD) TechnoMetrica Institute of Policy and Politics (TIPP) Economic Optimism Index measures the mood of consumers in regard to economic conditions. 900 nationwide adults evaluate their "six-month economic outlook," "personal financial outlook," and their "confidence in federal economic policies." Index readings above 50 indicate optimism, and below 50 indicates pessimism. When consumers are optimistic they tend to purchase more goods and services, which stimulates the economy, and therefore - good for the USD. | |||||||
| 2009-05-12 | 18:00 | USD | Federal Budget Balance | -192.3B | -63.6B | | |
| Federal Budget Balance This is a report which measures the difference in value between the federal government's income and spending during the previous month. | |||||||
| 2009-05-12 | 21:00 | NZD | RBNZ Financial Stability Report | * | * | | |
| RBNZ Financial Stability Report It provides insights into the bank's view of inflation, growth, and other economic conditions that will affect interest rates in the future; | |||||||
| 2009-05-12 | 23:01 | GBP | NIESR GDP Estimate | -1.5% | - | | |
| NIESR GDP Estimate The National Institute of Economic and Social Research (NIESR) Gross Domestic Product (GDP) Estimate is a prediction for the past month's official GDP using statistical projection techniques. | |||||||
| 2009-05-12 | 23:50 | JPY | Bank Lending | y/y | 3.4% | - | |
| Bank Lending This is a report that measures the change in the total value of new bank loans issued to private consumers and businesses. | |||||||
| 2009-05-12 | 23:50 | JPY | Current Account | 0.67T | 0.51T | | |
| Current Account The Current Account is a measure of the trade undertaken by the country. It factors into the Trade Balance and carries an impacton GDP. This is primarily a measure of the quarterly difference in value between imported and exported goods and services. | |||||||
| 2009-05-12 | 23:50 | JPY | M2 Money Stock | y/y | 2.2% | 2.3% | |
| M2 Money Stock This report measures the average amount of outstanding currency, excluding cash and deposits held by securities companies, tanshi companies, nonresident deposits, and cash held by the Japan post bank. | |||||||
