The U.S dollar drifted sideways against a basket of currencies on Wednesday, hovering not far from the lowest level of the year, as investors continue to assess the real economy by looking at economic data in the U.S. Nonetheless, the U.S. dollar had found modest support against the EUR and trimmed a loss against the Japanese yen after some positive news about the U.S. economy. With signs that the U.S. housing market may be stabilizing, traders will also be examining U.S. consumption and employment conditions in coming data.
USD – Weak Consumer Confidence Boosts the U.S Dollar
The Dollar rose from the lowest level this year against most of its major currency counterparts on revived demand for the safety of the world’s main reserve currency.
The resurgence in risk aversion came after the Conference Board’s U.S. Consumer Confidence Index dropped to 46.6 from 49.3 in June; a worse result than the expected 49, reinforcing concerns that higher unemployment will hurt consumer sentiment. Contributing further to the demand for the safety of the American currency were the declines in stock markets.
The market also awaits more U.S. Treasury auctions this week and the effect on yield moves. A record $42 billion two-year Treasury auction on Tuesday had little impact on the currency market, although details of the outcome were not encouraging for the dollar.
Looking ahead to today, traders should follow the release of the Core Durable Goods Orders due at 12:30 GMT. After the disappointing results of the Consumer Confidence Index and the recent weak second quarter earning results, any worse than expected result will further dampen risk appetite and likely push the Dollar further up.
EUR – EUR fails to Breach the $1.43 Level
The EUR rose above $1.43 Tuesday morning, its highest level in about 8 weeks. However, by early afternoon Tuesday it was at $1.4155, down from $1.424 late Monday. The EUR also fell 1.1% against the Yen to 134.04 from 135.48 Monday. The decline came as equities dropped and investors turned to the safety of the Japanese and American currencies.
While mostly appreciating, the EUR is having difficulties pushing past important resistance levels, failing to stay above the significant $1.43 level. This is do to milder gains on the European Stock markets combined with investor’s caution ahead of the release of the U.S second quarter GDP this coming Friday and the Non Farm Employment report due next Friday.
Along with movements in equities, the release of the German Prelim CPI throughout the day is also expected to cause market volatility, possibly pushing the EUR back to the $1.43 level.
JPY – Yen Gains on Return of Risk Aversion
The Yen rose yesterday against most of its 16 major counterparts advancing versus the EUR for the first time in 4 days as a bigger than forecasted drop in U.S. Consumer Confidence this month discouraged investors from buying higher-yielding assets.
Furthermore, as the Yen is highly correlated with movements in equities, yesterday’s disappointing second quarter earnings and the consequent drop in global stock markets further assisted the Yen’s rise. With no major news releases from Japan, risk sentiment will likely continue being the driving force behind the JPY’s movements.
Crude Oil – Crude Prices Tumble after an 11 Day Rally
Crude oil for September delivery fell $1.15, or 1.7%, to $67.23 a barrel Tuesday; hitting an intraday low of $66.60. Crude Oil tumbled as U.S Consumer Confidence fell, boosting concerns over recovery in demand. Lower than estimated second quarter earning also put pressure on Oil Prices. With a negative Oil forecast from British Petroleum (BP) and a continuing climb in U.S Oil inventories, the sentiment turned bearish on Oil prices.
Movements in equities as well as Dollar sentiment will likely be the driving force behind Oil trading today, as a strong Dollar tends to put downward pressure on Oil prices. Furthermore, traders should follow the release of the U.S Crude Oil Inventories at 14:30 GMT today as this release tends to create great volatility in Oil Prices.
It appears that the bullish trend may have run out of strength as the current price level pushed the pair into the overbought territory on the daily chart’s RSI, indicating that a downward reversal may occur later today. The 4 hour chart’s Slow Stochastic also appears to be showing an imminent bearish cross, which supports this notion. Going short with tight stops might be the right choice today.
The sharp bearish move that took place during the past couple of days seems to have more steam in it. The RSI on the daily chart is crossed above the 50 line, suggesting that the pair may fall further. The bearish move on the daily’s Slow Stochastic also supports this notion. Next target could be 1.6380.
A bullish cross on the daily chart’s Slow Stochastic implies that an upwards correction might take place in the nearest time frame. The 4 hour chart’s RSI is floating in the oversold zone suggesting that the downward trend might be out of steam. Going long with tight stops appears to be the right strategy today.
The typical range trading on the daily chart continues. Both the RSI and Slow Stochastic are floating in neutral territory. The hourlies are also providing mixed signals with no specific direction. Good strategy might be to wait for a clearer signal before entering the market n this pair.
The Wild Card – USD/SEK
After the recent drop in value, the price of this pair appears to now be floating in the over-sold territory on the RSI of both the hourly and daily charts, signaling a bullish correction may occur in the nearest future. As the Bollinger Bands on the hourly chart begin to tighten, a volatile upward correction may be occurring in today’s early trading hours. Forex traders can take advantage of this imminent volatile movement by setting an early long position with tight stops.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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