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Forex Daily Analysis

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Forex Trading − U.S. Factory Orders to Dominate USD Trading

Tue, Nov 3 2009, 09:23 GMT
by Greg Holden

ForexYard

The USD is likely to move on the U.S. Factory Orders publication today at 15:00 GMT. The reason why this release is so important is due to Monday's releases that showed the U.S. economy is on a rapid road to recovery. Therefore, a similar result today could lead to very high volatility in the forex market, and a possible mass sell-off of the Dollar. In order to make some decent profits today, you should open large positions in the EUR/USD, GBP/USD and USD/JPY pairs now.

Economic News

USD - Dollar Slides on Global Economic Recovery
The U.S. Dollar slid against the EUR and CHF on Monday, as positive manufacturing data and surprising earnings from Ford pushed confidence back into the forex market. The ISM Manufacturing PMI rose to 55.7 vs. the 53.1 forecast. Moreover, both U.S.
Pending Homes Sales and Construction Spending rose far higher than many analysts expected. On top of this, Ford announced a surprising, but optimistic $997 million 3rd quarter profit. All of these factors helped U.S. equities rise, which in turn resulted in the rise in value of the EUR/USD pair.

The EUR/USD cross rose by 40 pips to the 1.4800 level. This was despite being as high as the 1.4840 mark in Monday's trading. The USD/CHF fell to as low as the 1.0165 mark yesterday, as traders continued to ditch the USD for the Swiss currency. This is despite the USD making inroads into the CHF last week. However, with regards to the GBP/USD pair, the greenback made significant gains. This was largely owed to the stock market rally in Britain on Monday, which was initiated by both the U.S. economic news and the optimistic British manufacturing data.

Looking ahead to the day ahead is the U.S. Factory Orders at 15:00 GMT, which is set to be the most important indicator of American economic health. Therefore, it is highly advised that you follow top economic news releases from the leading industrialized nations. In addition, it is a wise choice to follow any surprise speeches from President Obama, as he is set to continue to have important speeches relating to the economy. Therefore, any such speech is likely to lead to very high volatility in the forex market. Consequently, it is recommended that you open your positions in the USD crosses as soon as possible.

EUR - Pound Plummets on Optimistic Manufacturing Data
The Pound plummeted against its major currency pairs yesterday, as the British economy published the best manufacturing data in 2 years. The British Manufacturing PMI rose to 53.7 in October from 49.9 in September. This is far better than the forecast of 53.1. This was great news compared to the 0.4% GDP decline in the
3rd quarter. Top economists say that this result of this indicates that the British economy may rise out of recession in the 4th quarter of 2009. The GBP's losses were exasperated, as British equities rallied due to both data from both Britain and the U.S.

The GBP/USD pair fell by about 60 pips to the 1.6390 level. The EUR/GBP pair rose by over 50 pips to the 0.9024 level. This came about as the Euro-Zone data wasn't as good as Britain's. Additionally, equities markets across the Euro-Zone failed to rally like their British and American counterparts. Thus the result was traders dropping both the USD and GBP, and buying up of higher-yielding assets, such as the
EUR, Crude Oil and Gold. With regards to the EUR/USD pair, it finished trading at about the 1.4800 level, the second consecutive day gain for the pair.

Today, there is some very important news that is set to come out of Britain and the Euro-Zone. From Britain, there will be the Construction PMI publication at 09:30 GMT. A better than forecast result for this release could help the British Pound in today's trading, as investors look to make some big profits. From the Euro-Zone, there will be the speech by Bundesbank President Axel Weber at 17:00 GMT. This speech is crucial, as Weber is also a member of the ECB (European Central Bank) Governing
Council. Therefore, traders will be looking for some clues about future Interest Rates. For that reason, volatility will be very high surrounding this event.

JPY - JPY Loses Ground on All Fronts
The Japanese currency lost ground on all front on Monday, as Japan's bank holiday left the JPY on the backburner. The result of this was an extremely bearish trading session. The JPY lost much strength against virtually all of its currency pairs. The USD/JPY cross rose by 25 pips to the 90.31 level. The EUR/JPY cross soared by 70 pips to the 133.65 level. The Yen also lost much ground against the NZD.

Tuesday's trading offers many important opportunities with regards to the JPY's key crosses. There is much crucial data later today form the U.S., Britain and the Euro-Zone. Therefore, the Yen will be on the backburner again for much of today. However, at 23:50 GMT the Japanese Monetary Base data will be published, which is vital as it is a key measure of Japanese economic health. As a result, positive results could help the JPY in late trading today.

Crude Oil - Oil climbs on Optimistic U.S. Data
Crude Oil made significant gains on Monday, as much positive data was released from the U.S. economy. The most important of these was both manufacturing and housing data. This resulted in a U.S. stock market rally and a selling-off of the greenback. The effect of this was a rally in Crude Oil, which lasted throughout much of yesterday's trading. Crude closed higher by around $0.80 at the $78.28 level.

Today offers much important opportunities for Crude Oil traders. There is the opportunity to make big profits, as traders seek o take advantage of the optimism on the back of a global economic recovery, led by the U.S. A fall in the USD today could further help Crude Oil prices yet again today. For now, it is advised that you open your positions in Oil, whilst volatility is still low.

Technical News

EUR/USD
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 1.4790 level. The weekly chart's Slow Stochastic is showing a bearish cross suggesting that downwards correction might take place in the nearest time frame. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

GBP/USD
The typical range trading on the hourly chart continues. The daily chart RSI is floating in neutral territory. However, the 4-hour Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops might be the right strategy today.

USD/JPY
The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the weekly Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.

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

The Wild Card

Gold
Gold prices rose significantly yesterday and peaked at $1063.45 for an ounce. However, the daily chart's RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Published on  Tue, Nov 3 2009, 09:26 GMT