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Forex Daily Analysis − Dollar Wins Amid Greek Debt Concerns

Fri, Mar 19 2010, 10:20 GMT
by Greg Holden

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The U.S dollar rose on Thursday amid signs of increasing tensions within Europe over an aid plan for the debt-strapped Greek government. The Dollar also received support from some discussion in the market about the possibility that the Federal Reserve will raise the discount rate sooner than previously slated.

Economic News

USD - Dollar Rises to a 1 Week High vs. the EUR

The U.S currency was near a one-week high against the EUR as a report showed that manufacturing in the Philadelphia region expanded in March at the fastest pace this year. The improved U.S. economic outlook and very modest policy tightening outlook continue to highlight the U.S.'s relative economic growth, providing support for the U.S currency.

The currency was also bolstered as economists said the Federal Reserve may raise the discount rate, charged on direct loans to banks, before the start of the next two-day meeting on April 27.

The greenback also got a boost versus the EUR Thursday after a spokeswoman for the International Monetary Fund said Greece hadn't approached the IMF for financing, prompting some USD buying.

EUR - EUR Down to 17-mth low vs. Swiss franc on SNB comments

The EUR stabilized but remained under pressure on Friday on renewed concern about Greece after Athens said it may not be able to achieve its promised deficit cuts if its borrowing costs remain so high. The European currency was set for its biggest weekly loss since the start of February on concern Greece will fail to secure financial assistance from the European Union. The EUR declined to $1.3620 from $1.3735 and slipped 0.9% versus the Japanese currency to 122.95 yen.

The European single currency also hovered around a 17-month low against the Swiss franc after Swiss National Bank officials said on Thursday that Swiss firms and consumers should prepare for rising borrowing costs as interest rates cannot stay low forever. The EUR edged down 0.1% against the Swiss franc to 1.4390 after falling as far as 1.4355 francs Thursday,, its weakest level since October 2008.

The EUR remains on a downward trend as the market has been redirected to worries over Greece. Uncertainties over the prospects for a Greek debt bailout have not been wiped away, analysts said. As for today, without major economic events the market will likely be driven mostly by supply and demand. Near term support for the EUR is seen around $1.3500 as the currency stayed above that level last week.

JPY - Yen Gains as Uncertainty over Greece Persists

The Japanese yen gained broadly after investors found no new reason to sell the currency further after a flurry of media reports that the Bank of Japan is leaning towards monetary policy easing this week, prompting traders to trim short yen positions. The Yen inched up as investors locked in profits against the EUR due to a lack of progress on a financial aid package for debt-laden Greece. The currency rose to 123.80 per euro from 124.06 yesterday and 0.3% against the USD.

The JPY may fall to as low as 100 per U.S. dollar as the Federal Reserve raises interest rates faster than the Bank of Japan, according to analysts. The Fed may increase its benchmark as early as the fourth quarter while higher rates in Japan are still some time away, they said. The BOJ will not begin to increase rates until the latter half of the fiscal year, thus weakening the Yen as higher yields in the U.S. lure away investors.

OIL - Crude Declines on Firmer Dollar

Crude oil traded lower on Thursday, down 73 cents, or 0.9% as hesitations over European plans to help Greece pressured the EUR, lifted the U.S dollar and weighed on commodities.

Crude oil dropped for a 2nd day amid low fuel demand in the U.S., the world's biggest energy consumer. The commodity's price was slipping and as a firmer dollar damped the investment appeal of commodities. Oil traded around $82 a barrel after the dollar gained against the euro on speculation Greece may fail to secure financial assistance from the European Union. Adding pressure to Crude was a report showing seaborne oil exports by OPEC, excluding Angola and Ecuador, will rise by 70,000 barrels per day in the four weeks to April 3.

Technical News

EUR/USD

The daily chart shows the price has made a significant downward move back inline with its long term downward trend. The breakout that began at the upper border of the Bollinger Band has crossed below the 20-day moving average line, indicating a price move to the lower Bollinger Band is possible. The MACD histogram is also sloping downwards, indicating strong momentum for the pair. Traders may want to go short with a price target of the lower Bollinger Band.

GBP/USD

The pair has made a move lower as the daily chart's upward sloping trend line on the 7-day Relative Strength Indicator has been broken. However, the pair has stalled repeatedly at the support level of 1.5010. Traders should watch for a break below this support line and enter short with a price target of 1.4850.

USD/JPY

Traders can see from the daily chart's Bollinger Bands that the pair has been consistently trading above the 20-day moving average for the past 2 weeks. This indicates a strong up trend. But the pair faces a staunch resistance line at the price of 90.80. Traders may want to wait for the price to rise to this resistance level and go short with a take profit level at the 20-day moving average line of the Bollinger Bands.

USD/CHF

While the pair is currently range trading between 1.0560 and 1.0590 and with most indicators floating in neutral territory, an upward correction may take place later today as the RSI on the daily chart is floating near the oversold territory, indicating an imminent upward movement. Going long for today may be advised.

The Wild Card

NZD/JPY

The pair may experience some downward correction today as the 8 hour and daily chart's RSI is floating in the overbought territory, signaling an imminent downward movement. Forex traders may be advised to go short on the pair.

Published on  Fri, Mar 19 2010, 10:25 GMT