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Forex Daily Analysis

Forex Trading − European Currencies on the Rise along with Risk Appetite

Wed, Aug 19 2009, 07:20 GMT
by Greg Holden

ForexYard  |  View company's profile

Yesterday's sudden boost in equity markets world-wide has helped drive many of the riskier currencies, such as the EUR and GBP, higher versus their primary currency rivals. Safe-havens such as the Dollar and Yen took a small beating yesterday as well from this news. With investor confidence on the rise in Europe, a rally for the European currencies may be overdue. This in turn could also push commodity prices higher in the short-term.

Economic News

USD - Dollar Plummets on U.S. Equity Market Rally
The Dollar fell during much of Tuesday's trading against a number of its major currency pairs, as U.S., European and Japanese equities rallied. This was partially sparked by a sharp increase in German investor confidence, and better than forecast earnings from top U.S. companies such as Target and Home Depot. Demand for the greenback slumped versus a number of major currencies in early trading, as the rally in equities led to a fall in demand for safe-haven assets.

The USD declined against the British Pound by a massive 200 pips to 1.6550. This performance was owed to mounting British inflation. Against the EUR, the USD also saw much bearishness, as the EUR/USD pair slided significantly in early trading. However, this was in some senses short-lived, as U.S. Building Permits and other
weak housing data poured some demand back into the USD. Thus the
USD did make a short recovery, as the EUR/USD cross finished trading at the 1.4128 level. The USD/JPY pair finished even for the day at 94.75, as demand for these low-yielding currencies was lower yesterday.

Looking ahead to today, there is much data that is likely to determine the volatility of the forex market, and the strength of the U.S. Dollar; the most important of these being the publication of U.S. Crude Oil Inventories at 14:30 GMT. A lower figure could help push-up Oil prices, whilst putting downward pressure on the USD. The opposite result could in-turn strengthen the USD. Data from across the Atlantic, such as British CBI Industrial Orders Expectations and the Current Account publication from the Euro-Zone is also likely to have important implications for the USD in Wednesday's trading.

EUR - Pound Climbs on Higher Inflation Figures
The Pound climbed yesterday on higher inflationary figures, as the Office for National Statistics reported that the Consumer Price Index was at 1.8% in July, significantly higher than the forecasted 1.5%. This proves that the Pound has been far more resilient in this economic crisis than many analysts had forecast. This led currency analysts to the conclusion that the Bank of England (BoE) may come up with a much more disciplined monetary policy in the near future.

The British currency jumped against the Dollar by 200 pips to the 1.6550 level, and the GBP/JPY pair rose by 200 pips to the 157.00 level, as demand for the lower-yielding/safe-haven JPY fell in Tuesday's trading. The GBP gained about 90 pips vs. the EUR, as the pair reached the 0.8535 level. Much of this was owed to data from Britain. Also, it proves that even the strong European economic data on Tuesday was unable to help the EUR make inroads into the GBP. The EUR/USD finished trading slightly higher near the 1.4130 level, despite making inroads into the Dollar in earlier trading.

Today, there are several economic publications that are expected to drive-up the GBP and EUR crosses. From Britain, there is the MPC Meeting Minutes and CBI Industrial Order Expectations at 08:30 GMT and 10:00 GMT respectively. From the Euro-Zone, there is the release of the German PPI figures at 06:00 GMT, and the publication of the Current Account at 08:00 GMT. These key releases are expected to set the trend for both the British and Euro-Zone currencies in today's trading. In order to make big profits today, it's advised that you open your EUR and GBP positions now.

JPY - Yen Collapses against the Pound
The Yen collapsed against the Pound on Tuesday, as the pair finished 200 pips higher at the 157.00 level. This rise in the GBP and fall in the JPY was largely due to higher than expected GDP figures from Britain. However, the JPY bearishness yesterday was also owed to global stock market rallies owed to higher than forecast earnings for a number of top U.S. companies. This reduced the demand for lower-yielding assets, such as the JPY.

The JPY actually finished trading almost unchanged against the USD, but lower vs. the EUR. There have been fears recently that the Yen may be in for a steep decline if Japan doesn't continue increasing its exports. These fears have been exasperated despite the Japanese economy officially rising out of recession in the previous quarter. The JPY is set to move today on important economic releases from Britain, the U.S. and the Euro-Zone.

Crude Oil - Crude Oil Soars to Over $72 a Barrel
The price of Crude Oil soared by about $3.25, or over 4%, to just over $72 a barrel, reversing 3 consecutive days of losses. Crude was boosted as the Dollar was bearish in much of Tuesday's trading, which increased demand for commodities. The weakened USD was caused by global stock market rallies led by the U.S. This was also caused by optimistic economic data from Germany, the largest economy of the Euro-Zone. Furthermore, the weak USD led to higher demand for riskier assets.

Oil prices may continue rising for a number of reason's in today's trading. We have seen the commodity over-sold in recent trading days. Additionally, many optimistic signs from leading and fast-growing global economies have led many investors to realize that there may be a big jump in Crude Oil demand in the near future. Additionally, as long as market optimism stays high, so will the demand for Crude Oil.

Technical News

EUR/USD
This pair has been trading inside a bullish channel for the past two days and appears poised to continue doing so today. Short-term indicators show neutrality while the 4-hour MACD signals a bullish cross. However, long-term indications point slightly downward. Staying within the current channel might be wise. Traders should buy on lows and sell on highs within this trend.

GBP/USD
There appears to be a fresh bearish cross on the hourly MACD and 4-hour Slow Stochastic, giving off strong indications for an impending bearish movement. Weekly momentum remains flat signaling that there may be a lack of real pressure in either direction, which adds weight to the other technical indicators. Going short might be preferable today.

USD/JPY
This pair's indicators are showing signs of an imminent bullish movement. The daily Slow Stochastic recently formed a bullish cross and the 4-hour MACD has done so as well. With other indicators turning into an upward posture, it is clear that going long might be the best strategy today.

USD/CHF
This pair's mild bearish channel continues unabated today. All indicators are showing neutrality with the MACD on the hourly and 4-hour charts floating near 0.0. Weekly momentum has also turned downward from the recent uptrend seen last Friday. Trading within this range may not be a bad choice today.

The Wild Card

Crude Oil
There seems to be a fresh bearish cross on the hourly MACD, 4-hour Slow Stochastic, and daily MACD, each signaling that a downward correction is imminent. With the price floating near the over-bought territory on the 4-hour RSI, this downward movement may indeed be on its way. Forex traders should try to not miss out on the opportunity to call the reversal and ride out the crashing wave for profits.

Published on  Wed, Aug 19 2009, 07:24 GMT