The U.S dollar posted gains against most major currencies on Tuesday, boosted by a report showing a rise in U.S. consumer confidence this month. According to analysts, the ongoing gains in the Dollar are based on U.S. economic fundamentals and the Fed’s outlook. The Federal Reserve is preparing tools to reduce an oversupply of dollars towards the tightening of monetary policy. The U.S dollar could be bought as long as this view remains intact, they said.
USD – The Dollar at 2 Month High vs. Yen
The U.S currency gained against the EUR for a 3rd day before a report economists said will show U.S. manufacturing expanded in December for a 5th month, adding to signs the economy is gaining momentum. The greenback also rose to a 2 month high against the Japanese yen on speculation the Federal Reserve will withdraw stimulus measures as the economy recovers.
Some traders also attributed the Dollar’s gains to year-end buying by asset managers as they square off their positions, with flows going mostly into U.S. Treasuries. The Dollar bought 92.14 yen from 92.00 yesterday, the highest level since Oct. 27. Against the EUR the U.S dollar gained 0.3% at 1.4310.
However, market players said the U.S. currency may struggle to rise much further vs. the Yen after speculators have finished covering short dollar positions. Data on Monday showed speculators were long in the U.S. currency for the first time since May, ending 32 straight weeks of short dollar positions. Investors would likely use the U.S. dollar once again as a funding currency and carry trades into higher-yielding assets as risk appetite still remains strong.
EUR – The Sterling Falls Further vs. EUR
The EUR traded lower against the Dollar and the Japanese yen on Tuesday, retreating from early gains against the U.S currency, as holiday-thin trade made moves more volatile. The European currency slipped 0.2% to $1.4327 after rising as far as $1.4459 the previous day, its highest in 2 weeks. The single currency was at 131.90 yen from 132.05 yen. Against the Pound the EUR gained 0.5% after hitting a high of 0.9033, its strongest since Dec. 14.
The British pound weakened against the 16 nation currency; 0.6% to 0.9008 pence per EUR and dropped the same percentage against the U.S dollar at $1.5890. The GBP gave back initial gains against the Dollar and extended losses versus the EUR on Wednesday, however analysts said that market’s liquidity was low on account of holiday-thinned volumes.
The Sterling was weighed down last week since a disappointing revision to3rd quarter UK growth figures, and as minutes from the latest Bank of England policy meeting were perceived as leaving the door open to further monetary easing. Economic reports are giving conflicting indications of Britain’s ability to exit its longest recession on record, and that is weighting on the Pound.
JPY – Yen Lower in Holiday trading
The Japanese yen was poised to gain versus the EUR on concerns that the credit ratings of Dubai banks face downgrades, spurring demand for Japan’s currency as a refuge. Against the Dollar, the japans currency declined 0.4% to 92.00 yen with a session low of 92.07 yen, a 2-month record.
Traders said upward pressure on long-term Treasury yields has provided support to the USD against the yen after U.S. government bonds traded lower on Monday and pushed the benchmark 10-year note yield to its highest level in nearly five months. The dollar/yen relationship has recently become more sensitive to Treasury yields and Interest Rate expectations because the currency pair has lagged major crosses during this month’s rally in the greenback when investors started to price in a stronger U.S. recovery.
OIL – Crude Oil Trades Near $79 a Barrel
Crude Oil prices climbed 10 cents to $78.87 a barrel after rising for a 5th day on forecasts for cold weather in the U.S. and signs the economy in the world’s largest energy consuming nation may be recovering.
Also helping Oil, data showed U.S. consumers became more confident, and home prices are stabilizing. Limiting crude’s gains, the U.S. dollar strengthened, adding downward pressures on dollar-denominated commodities prices. Traders will be looking for the weekly data from the U.S. Energy Information Administration due at Wednesday at 15:30 GMT. And with greenback strengthening against the EUR and holiday illiquidity, Crude may be looking to test a lower support level today at $76.
As the pair approaches the 1.4325 support level, a bullish cross has formed on the 4-hour chart, indicating the potential for an upward price movement. Traders may look for a target to take profit just below the upper border of the chart’s Bollinger Band as the pair has reached the bottom band and bounced off, indicating the potential to rise back up to its upper border.
The pair has been trading in a tight range since yesterday’s break out but may be showing signs for a potential upturn. A bullish cross has formed on the hourly chart, indicating the possibility for an upwards movement. The chart has the price floating in the oversold zone, also supporting this view. Traders may want to be long on this pair.
From the 4-hour chart, we can see some bearish signals. The chart displays a bearish cross has formed, indicating the potential for some downward movement in the pair’s price. Supporting this potential for a move lower is the Relative Strength Index which displays the price floating in the overbought zone. Traders may want to be short as we could see the pair falling today.
After failing to break the 1.0400 resistance level, the pair is showing a sign of moving lower. A bearish cross has formed on the 4-hour chart, indicating the potential for a price move lower. Traders who go short may want to note a key support line at the 1.0349 price level.
The Wild Card – Oil
The daily chart is showing significant signals of a commodity that is overbought on a technical basis. A bearish cross has formed on the daily chart’s Slow Stochastic Oscillator, indicating the potential for a downward price move. The chart also shows the price trading in the overbought zone on the Relative Strength Index. Forex and commodity traders may like to be short on spot crude oil today.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.