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Forex Daily Analysis

Forex Trading − Rally in Equities Pushes Investors to Riskier Assets

Thu, Nov 26 2009, 09:24 GMT
by Greg Holden

ForexYard

The Dollar slid against its major currency counterparts following a rally in global equity markets. The rally prompted investors to turn to higher yielding riskier assets and away from the USD. With recent market optimism, traders may continue to see a small downward trend in the U.S. Dollar as its positions are unwound in exchange for higher yielding assets.

Economic News

USD - Dollar Falls to a 15 Month Low
The dollar dropped to a 15-month low against most of its major currency pairs yesterday, as generally upbeat U.S. economic data and gains in world stocks eroded the greenback's safe-haven appeal. By yesterday's close, the dollar fell 1.4% against the JPY to 87.35, it's lowest since January. The dollar experienced similar behavior against the EUR and closed at around1.5130.
U.S. data pointed to stabilization in the labor, consumer and housing sectors of the economy, boosting risk appetite and driving higher-yielding currencies such as the Australian dollar higher. Also weighing on the dollar were minutes from the Federal Reserve's last policy meeting released on Tuesday, which described the greenback's recent decline as "orderly" and affirmed expectations U.S. interest rates will remain low well into 2010.
Today is the Thanksgiving holiday in U.S. and there are no major economic data releases on the calendar today. However, Europe and Japan appear to be releasing the bulk of today's news, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.

EUR - EUR Gains as Stock Market Rallies
The EUR experienced a bullish trading session yesterday, as it appreciated against most of its major currency pairs. The 16-nation currency extended gains versus the dollar during yesterday trading session, to trade above 1.5130 amid a broad sell-off in the USD. The European currency finished around 60 pips higher against the GBP to finish yesterday's trading session at the 0.9060 level.
The EUR was affected by the global stock market rally and the bearish Dollar. The U.S. stock market rally led investors to buy-back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in Wednesday's trading.
Sentiment in the Euro-Zone economy has brightened in the past week following better-than-expected news. The EUR is showing signs of resilience even though there was volatility throughout non-Euro crosses. It will be crucial for traders to identify how the preceding economic indicators from the U.S., Japanese, and other key economies will affect their positions.
Looking ahead to today, the most important economic indicator scheduled to be released from Euro-Zone is German Prelim CPI. Analysts are forecasting this figure to slightly decrease from its previous reading. Traders will be paying close attention to today's announcement as a better than expected result may continue to boost the EUR in today's trading.

JPY - Yen Rises against the Majors
The Japanese Yen strengthened against most of its major counterparts yesterday, continuing to prove that for the time being that this is the solid currency that traders can rely on to provide them with steady profits. The Yen extended gains versus the Dollar on Wednesday, to trade at about 87.25. The JPY also saw bullishness against the GBP and closed at 145.80.
Further strengthening could be seen in the Yen if other nations begin to raise interest rates in order to ward off inflation. This could potentially wreak havoc on the Japanese economy by making Japanese exports relatively more expensive when compared to their foreign counterparts. The yen has gained around 14% against the dollar in the past year, hurting earnings for export-dependent Japanese companies.

Crude Oil - Crude Oil Rises on Weak Dollar
Crude oil rose today as the dollar dropped to a 15-month low against the EUR and a government report showed that U.S. fuel demand gained for a second week. Oil increased about 2.6% after the greenback retreated on the Federal Reserve's signal that it will tolerate a weaker currency.
Expectations that consumers may once again want more oil when the recession bottoms have partly fueled the rally, with traders watching the stock market for economic telltales. There is a reasonable chance that oil prices will continue to be bullish going into next week, providing that the economic situation of the leading economies continues to rapidly improve.

Technical News

EUR/USD
The pair has shown much bullish behavior in the last few days, however the technical data shows that this may soon be corrected. The Relative Strength Index on the 4-hour chart indicates that the pair is veering into overbought territory, meaning a bearish reversal could happen. Going short in trading today may be the best bet.

GBP/USD
The RSI on the daily chart indicates that the pair is fluctuating in neutral territory. If the pair should break the 1.6700 mark, traders can expect a bearish correction in the near future. Going short may be a safe move for today.

USD/JPY
The pair has recorded much bearish behavior in the past two days. However, the technical data indicates that this trend may reverse soon. For example, the 4-hour chart's Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the daily chart's RSI. Going long with tight stops may turn out to pay off today.

USD/CHF
The daily chart is showing mixed signals with its RSI fluctuating at the 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 near future. Going long with tight stops might be the right strategy today.

The Wild Card

Gold
With gold recording strong bullish movements in recent days, the technical analysis indicates that this may soon be corrected. The RSI on the daily chart indicates that the commodity has been overbought for some time, indicating that a bearish reversal may be imminent. Forex traders may want to go short today.

Published on  Thu, Nov 26 2009, 09:27 GMT