After the U.S. dollar corrected some of its gains yesterday, a new trading day, packed with significant economic publications is ahead. Most attention should be given to the U.S. ADP Non-Farm Employment Change, which attempts to estimate Friday’s release of Non-Farm Payrolls. Current expectations are for a positive result, will the dollar erase yesterday’s losses?
USD – Dollar Weakens Despite Positive Consumer Confidence Report
The U.S. dollar fell against most of the major currencies during yesterday’s trading session. The dollar began yesterday’s trading with a sharp 100 pips loss vs. the euro, which was slightly corrected later on. The dollar saw a mild drop against the Japanese yen as well.
The dollar fell yesterday after the Institute for Supply Management Chicago said that U.S. business activity grown at a slower pace than expected. The business activity in the U.S. expanded this month at the lowest rate this year as the business barometer dropped to 56.7 on August, the lowest since November, failing to reach expectations to 57.3. The dollar’s fell came despite a surprising positive release of the Consumer Confidence report. The Consumer Confidence is a survey of about 5,000 households which are asked to rate their current and future economic conditions. The survey showed that the consumer confidence improved unexpectedly in August to 53.5, from 51.0 in July, well above expectations for 50.7. It currently seems that investors still have concerns regarding the growth of the U.S. economy, and as a result the dollar is continues to weaken against the yen.
Looking ahead to today, a batch of data is expected from the U.S. economy. The most significant news releases looks to be the ADP’s prediction of this month Non-Farm Payrolls figures. The estimate is that the employment condition has improved during the recent month. Such a result might correct some to the dollar’s losses against the euro and the yen.
EUR – Euro Strengthens On Positive Global Data
The euro soared today against most of its major counterparts. The EUR/USD pair climbed over 100 pips towards the 1.2740 level during early trading, yet eventually closed the trading day around the 1.2685 level. The euro gained about 100 against the British pound and about 50 pips versus the Japanese yen.
The European currency strengthened yesterday as economic publications from the U.S. and the Euro-Zone have eased concerns regarding a global economic slowdown. Report showed today that home prices in 20 U.S. cities rose more than expected in June from a year earlier. In addition, the U.S Consumer Confidence survey unexpectedly rose for the first time in three months. Positive data was published from the Euro-Zone as well today. The European Consumer Price Index Flash Estimate showed that inflation in the Euro-Zone grew by 1.6%, according to expectations. The inflation in the Euro-Zone grows in a stabile pace for several months now, indicating that the European economies are stabilizing.
The positive global data has increased risk-aversion in the market, and turned investors to look for risker assets, such as the euro. It seems that further positive signals of global economic recovery might boost the euro further.
As for today, the most significant economic release from the Euro-Zone looks to be the German Retail Sales, which is scheduled for 06:00 GMT. Analysts have forecasted that retails sales in Germany slightly rose in July. If the end result will be similar, the euro might extend its bullish trend today.
JPY – Yen Continues To Strengthen Vs. The Majors
The Japanese yen rose today against most of the major currencies during yesterday’s trading. The yen gained about 140 pips against the British pound. The yen also saw a 90 pips rise vs. the U.S. dollar on early trading.
Positive data from the Japanese economy has supported the yen yesterday. The Average Cash Earnings report, which measures that change in the total value of employment income collected by workers, rose by 1.3% on July, beating expectations for a 0.9% rise. In addition, the Housing Starts report showed that the number of new residential buildings that began construction grew by 4.3% on July, reaching well above expectations for a 2.5% rise. The positive figures have supported estimations that the Japanese economic recovery is advancing, and as a result boosted the yen.
Looking ahead to today, no significant publications are expected from the Japanese economy. Traders are advised to follow the major publications from the U.S. economy, and to follow U.S. and Japanese equity markets. Traders should take under consideration that positive signals might increase risk-aversion, and as a result weaken the yen.
OIL – Crude Oil Drops To $71.52 a Barrel
Crude oil dropped for the second consecutive day today. Crude oil fell about 250 pips during yesterday’s trading session. A barrel of oil was traded for around $74.15 during yesterday morning, and dropped to a daily low of $71.52 a barrel.
Crude oil prices fell yesterday as investors are concerned that oil demand in the U.S. will recover during the second quarter of the year, following a lower than expected consumption in the first quarter. The U.S. economy is the biggest oil consumer in the world, and recent reports have suggested that the U.S. economic recovery is slowing down. It seems that for as long that until the U.S. economy will provide clear signals of improvement, crude oil prices might continue to decline.
As for today, the U.S. Crude Oil Inventories is scheduled for 14:30 GMT. Traders are advised to follow this report, as its publication tends to have an instant impact on crude oil prices. Traders are also advised to follow the major publications from the U.S. economy, especially the ADP Non-Farm Employment Change release.
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 bullish cross suggesting that an upward correction might take place in the nearest time frame. When the upward breach occurs, going long with tight stops appears to be the preferable strategy.
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.
The price of this pair appears to be floating in the over-bought territory on the hourly and daily RSI, suggesting downward pressure. There also appears to be a fresh bearish cross on the 4-hour and daily Slow Stochastic, indicating that the next movement will likely be down. Going short might be a wise choice today.
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
The recent upward mobility of this pair has pushed most of its indicators into a downward corrective position. With the RSI on the hourly and 4-hour charts showing over-bought, mixed with fresh bearish crosses on these charts’ Slow Stochastic, an imminent downward correction may not be far off the mark. Forex traders can take advantage of this impending move by entering their short positions now and riding out the wave as it descends to a more stable price level.
Forex Market Analysis provided by ForexYard.
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