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Forex Daily Analysis

Forex Trading − Dollar to be at the Forefront of Forex Trading Today

Fri, Oct 30 2009, 08:03 GMT
by Greg Holden

ForexYard

The Dollar is set to be at the forefront of forex trading today. This is after The USD fell against its major counterparts on Thursday, after a string of gains in recent trading sessions. Yesterday's behavior was the results of the confirmation that the U.S. economy returned to growth in the 3rd quarter, boosting investor optimism, leading to the equity market to rally, and curbing the need for the greenback's relative safety.

Economic News

USD - Dollar Slides on Better than Expected U.S. GDP
The USD headed for a 4th monthly drop against the EUR, its longest stretch since 2004, as America's return to growth renewed optimism that a global recovery will quicken, aiding demand for higher-yielding assets. The Dollar weakened as much as 1% to $1.4859 per EUR in the biggest intraday drop since September 8.

The U.S Dollar rose against the EUR in the previous three sessions as evidence of a stalled U.S. economic recovery, including an unexpected decrease in New Home Sales in September reduced demand for riskier assets. The greenback dropped against the EUR for the first time in 5 days, as investors saw data showing the U.S. economy returned to growth in the third quarter. U.S. Gross Domestic Product (GDP) grew at a 3.5% annual rate in the 3rd quarter, after shrinking in the previous four quarters, the U.S. Commerce Department reported.

The solid Gross Domestic Product reading renewed optimism about a global economic recovery, prompting traders to buy higher-yielding currencies, eroding the greenback's safe-haven allure. The U.S Dollar will be under heavy pressure on Friday, as investors may continue selling-off the USD on Thursday's optimistic news. Traders are advised to follow key U.S. releases later today, such as the Chicago PMI and Revised UoM Consumer Sentiment report. These publications will be crucial in determining the USD's key crosses today.

EUR - European Currency Remains in the Uptrend
The EUR traded higher against the U.S Dollar and the JPY after a report showed German unemployment unexpectedly fell in October to 8.1%. The nation's economy, the Euro-Zone's largest, returned to growth in the 2nd quarter. The currency rose for the first time in 4 days to $1.4859 vs. USD compared to $1.4713 late Wednesday.

The EUR was also supported by other economic data. The European Commission's economic sentiment indicator posted a bigger-than-expected October rise. The index for the 16-nation Euro-Zone rose to 86.2 from 82.8 in September, compared to expectations for an increase to 84.5.

The 16-nation currency may rise for the first time in 4 days against the British Pound today on speculation that a German report will show retail sales rebounded in September, adding to signs the recession in the 16- nation region is over. Retail sales in Germany, Europe's largest economy, rose 1% in September after a revised 2.4% decline in August, signaling a recovery in the Euro-Zone economy.

JPY - Yen Records Mixed Results against the Majors
The Japanese Yen is set for the biggest monthly slide against the EUR since May, after a government report showed Japan's jobless rate unexpectedly dropped for a 2nd month, reducing demand for the relative safety of the Japanese currency. The Japanese Yen has been the most sensitive to risk aversion trading, falling when investors are more interested in riskier assets such as equities. Against the Dollar, the JPY slid to 91.27 Yen, from 90.33 Yen on Wednesday.

The Yen extended gains vs. the Australian and New Zealand Dollars, as investors took profits on a number of growth-linked trades that had been in vogue in recent months. Both currencies have been favored plays against the low-yielding Japanese Yen this year as investors have anticipated higher Interest Rates in economies seen as recovering faster from the global downturn. The JPY hit a 3-week high of 80.85 per Australian Dollar, before trimming gains to 81.05 Yen. Against the NZD, the Japanese Yen rose 0.8% to 64.80 Yen.

Crude Oil - Oil Gains Due to Optimistic U.S. GDP
Crude prices rallied more than 4% Thursday, briefly lifting the price of a barrel above $80, as confirmation the U.S. economy returned to growth boosted optimism over energy demand. Crude Oil rose by $2.91, or 4%, to $79.97 a barrel, after rising as high as $80.43. It last traded above $80 a barrel on October 23.

Oil rose sharply due to optimistic U.S. GDP data, which in turn raised hopes that economic conditions will improve and raise demand for petroleum products. The U.S. economy data was higher than expected, leading to a rebound in the commodities market. The focus now is on potential economic growth, which may support the Crude prices further.

Technical News

EUR/USD
The daily chart is showing mixed signals with its RSI fluctuating in the neutral territory. However, the 4-hour chart's Slow Stochastic is indicating a fresh bearish cross suggesting that a downwards correction might take place in the nearest time frame. When the downwards breach occurs, going short with tight stops appears to be the preferable strategy.

GBP/USD
The pair has been range-trading for a while now, with no specific direction. The daily chart's Slow Stochastic provides us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.

USD/JPY
The typical range trading on the hourly chart continues. The daily chart's Slow Stochastic is floating in neutral territory. However, the 4-hour chart's Slow Stochastic is indicating a fresh bullish cross, suggesting that an upwards correction might take place in the nearest time frame. When the upwards breach occurs, going long with tight stops appears to be the preferable strategy.

USD/CHF
There is a fresh bullish cross forming on the 4-hour chart's Slow Stochastic, indicating bullish correction might take place in the nearest future. The upward direction on the weekly chart's Momentum oscillator also supports this notion. Going long with tight stops might be the right strategy today.

The Wild Card

Gold
Gold prices rose significantly yesterday and peaked at $1049 an ounce. And now, all oscillators on the hourly chart are giving bearish signals, indicating that Gold prices might go down. This might give forex traders a great opportunity to enter a very popular trend.

Published on  Fri, Oct 30 2009, 08:06 GMT