Last week’s most notable trends were the bullish Japanese yen and crude oil. Both trends took place in response to the rising violence in Libya, which has by now cut two thirds of its oil supply. While the Libyan turmoil is likely to affect this week’s session as well, another significant news event will have a large impact on the market; the U.S. Non-Farm Payrolls.
USD – Dollar Continues To Weaken As Investors Seek Higher-Yielding Assets
The U.S. dollar slid against most of its major currency counterparts during last week’s trading session. The dollar fell about 100 pips vs. the euro, and the EUR/USD pair crossed the 1.38 level for the first time in almost three weeks. The dollar also fell about 150 pips against the Japanese yen.
The dollar weakened last week after several economic indicators from the U.S. provided better-than-expected figures and as a result supported demand for higher-yielding assets.
Sales of U.S. previously owned homes unexpectedly rose in January to the highest level in eight months. Purchases increased to a 5.36 million annual rate, beating expectations for 5.22 million. In addition, confidence among U.S. consumers rose in February to the highest level in three years. Both indicators signal that citizens in the U.S. became more optimistic about their income and the economy.
Looking ahead to this week, many interesting releases are expected from the U.S. economy, most significantly the Non-Farm Payrolls, which is scheduled for Friday. Other significant news releases that traders are advised to follow are the Pending Home Sales, the Manufacturing Purchasing Managers’ Index, the ADP forecast for the Non-Farm Payrolls and the weekly Unemployment Rate.
EUR – Positive Economic Data Strengthens the Euro
The euro strengthened against most of the majors currencies during last week’s trading session. The 17-nation currency gained about 100 pips vs. both the U.S. dollar and the British pound. As a result, the EUR/USD par climbed above the 1.3800 level, and the EUR/GBP cross was trading near the 0.8600 level.
The euro climbed against most of its rivals after reports have shown that the German economy is recovering at a faster pace than previously estimated. German business confidence unexpectedly rose to a new record high in February. The survey rose to 111.2 from 110.3 in January, beating analysts’ expectations that the end result will remain at 110.3. In addition, new industry orders in the euro-zone also unexpectedly rose in December, reaching their highest level in almost two and a half years.
Another reason for the euro’s bullishness is the ongoing speculation that the European Central Bank (ECB) will hike interest rates in March in order to fight rising inflation.
As for the week ahead, the most significant economic release from the euro-zone will surely be the Minimum Bid Rate, which is scheduled for Thursday. This is the ECB’s interest rates decision for March. If the ECB will indeed decide to hike rates, the euro may see another bullish session this week. Traders should also follow the euro-zone’s Consumer Price Index (CPI) reports which are expected today. The CPI is considered to be the most reliable inflation gauge, and the result is likely to have a significant affect on the ECB’s interest rates decision.
JPY – Yen Rises as Unrest in Libya Increases Risk-Aversion
The Japanese yen rallied against all of its major currency rivals during last week’s trading session. The yen gained about 150 pips vs. the U.S. dollar, and the USD/JPY is currently trading near the 81.70 level. The Japanese currency also climbed about 150 pips vs. the euro and about 250 pips against the British pound.
The yen strengthened last week as investors sought stability in light of the uprising in Libya. The violence in Libya has boosted the uncertainty in the market, and as a result turned investors to look for safe-haven assets, such as the yen and the Swiss franc. It currently seems that as long as the violence in the Middle East will continue to spread, demand for the yen as a safe asset will increase.
As for this week, traders are advised to follow the leading releases from the Japanese economy, as they are likely to have a large impact on yen trading. In addition, traders should follow the developments from the Middle-East, especially from Libya, as the unrest there has potential to further boost the Japanese currency.
Crude Oil – Crude Oil Hits $99.90 a Barrel as Violence in Libya Spreads
Crude oil prices are once again rising. After crude corrected some of its gains and fell from the $103.30 level to $96.35 a barrel, the commodity is opening this week with another bullish move, and is currently trading near $99.60.
Crude oil prices are rising in light of the protests in Libya. The uprising has already cut the nation’s output, and currently it seems that Libya’s leader Muammar Qaddafi has lost control over much of his country. In addition, the main concern is that the unrest in the Middle East will spread to other parts of the region and will significantly damage global oil production.
As for this week, traders should first and for most follow the developments in the Middle East, as this issue will continue to impact oil prices in the near future. Traders are also advised to follow the U.S. Crude Oil Inventories report, which is scheduled for Wednesday, as this report tends to have a direct impact on the market.
The EUR/USD pair recently peaked at the 1.3835 level. The pair has since entered a bearish correction, and is currently trading near the 1.3750 level. A bearish cross on the 4-hour chart’s MACD suggests that the downward movement will continue. Going short seems to be the right choice today.
The pair has been dropping consistently for the past few days, and the cable is now trading near the 1.6085 level. In addition, both the Slow Stochastic and the MACD are providing bearish indications, signaling that the downward move has more room to go, with the potential to reach the 1.5980 level.
A very distinct bearish channel has formed on the 4-hour chart indicating the pair could see a correction. In addition, a bullish cross on the Slow Stochastic indicates that an upward correction might take place today. Going long with tight stops might be the right strategy today.
The pair is in the middle of a very strong bearish move, in which it fell about 550 pips in the past two weeks. In addition, as both the MACD and the RSI continue to point downwards, it seems that another bearish session may take place today. Going short appears to be the preferable choice today.
The Wild Card
During the past several weeks, crude oil prices jumped from $85.00 a barrel to over $103.00. Currently, as all oscillators on the weekly chart are providing bullish signals, it seems that the commodity’s bullish momentum has more room to grow. This could be a great opportunity for forex traders to join a very popular trend.
© 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.