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Mercaforex : Wall Street Nervousness Lingers

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Jan 13, 2010.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex

    The USD again produced another stable day of trading versus the EUR and GBP essentially keeping pace within a range that favored the greenback for most of Tuesday. Equity markets had a rough day and the major indexes from the U.S. all struggled. Trade Balance figures were released and they came in with a number of minus -36.4 billion, which was worse than the projection of minus -34.9 billion. Today the Beige Book and the Federal Budget Balance reports will be published and some investors will look over the statistics and ponder what the prognosis is regarding the government’s spending spree. Tomorrow Retail Sales data will be released and this may provel to be the critical figures for the week.

    Quarterly earnings reports will begin to be presented by corporations in greater numbers over the coming days and taking into consideration the amount of nervousness that has been exhibited via Wall Street starting off this week, traders will be on guard for the affect this can cause within the currency markets. The USD lost ground to the EUR closing out last week and though it has shown stability the past two sessions, it has not really mustered a retracement back to the stronger part of its recent range. The question thus becomes what the effect of negative sessions within international bourses will play if they continue for investor sentiment. One component of economic growth that is carefully watched is the price of Crude Oil and it has range traded the past week after gaining strongly during the holiday season. There will be a Crude Oil Inventory report today, but traders should remember that it has been the cold winter that helped gear the price of the commodity upwards and was probably not because of a sudden surge in the U.S. growth prospects. Issues continue to perplex the American economy as they do internationally for other nations, thus trading remains largely under the guise of risk sentiment and after yesterday’s rather poor day on Wall Street, traders will have to be nimble.

    The EUR lost some slight ground to the USD on Tuesday, but it did manage to stay within the stronger part of its range against the greenback. The EUR accomplished a fairly steady performance even as European bourses were tossed around and saw downward pressure. The French Budget Balance statistics were published yesterday but the real impetus for trading certainly came from the lackluster sentiment in equities. Today will be another rather light day of data from Europe with the Italian Industrial Production numbers, which are expecting a slight gain. Perhaps weighing in on investors today will be the German governments first indication regarding the fourth quarter results for GDP, this is an early report. The Flash fourth quarter results will be made official in February. Nevertheless, Germany is the main economic engine within the European Union and today’s report is expected to show a slight improvement, but investors will be asking what the prospects for 2010 are and some are skeptical. Tomorrow the ECB is on the docket and all eyes and ears will be on the press conference held after the interest rate announcement. The EUR has seen consolidation the past two trading days and has shown some signs of stress, the question is what risk sentiment will do to the EUR before tomorrow’s crucial ECB statement and how Europe’s stagnating economic conditions are presented.

    The Sterling found a consolidated range on Tuesday as it traded slightly lower against the USD. Trade Balance figures were published and they nearly met expectations head on. Today Manufacturing Production numbers are on schedule and a gain of 0.3% is the forecast. Industrial Production statistics will be brought forth too. There will be no major economic data from the U.K. on Thursday and Friday will be rather quiet. The London equity market like its counterparts stumbled yesterday. The GBP finds itself clinging to gains it made late last week and traders will be tested today in what may turn out to be an opportunistic range.

    The JPY gained strongly against the USD on Tuesday as risk appetite found itself lacking any power. As Asian bourses mirrored the other major equity indexes, the JPY began to find takers and it once again is showing signs of being a so called safe haven as questions are starting to emerge in nearby markets such as China. Gold did turn in a rather bearish outcome on Tuesday and this happened as the USD got stronger against other currencies, but interestingly as the USD gave back some of its gains in later trading – Gold continued to be weighed down. Gold is trading at 1130.00 USD and clearly remains a speculative delight.

    Technical Analysis

    The Gold 8 Hour Chart illustrates something quite remarkable! Since about 2 days ago, Gold peaked at the price level of about $1,165, slid, then rose back to near $1,159 about a day ago, and ever since this price level was hit, Gold has slid. The current market price of Gold stands at $1,127.80. Think about it, this is a slide of nearly $30 in a 2-3 day time period. This shows that to be a forex trader, there are significant risks involved, and the market can be very unpredictable. In addition, since the start of the recent global financial crisis, Gold has been very volatile. Therefore, it has attracted the attention of many big investors and day traders. This has resulted in the commodity producing more volatile and unpredictable behavior! Despite the recent tumble in the price of Gold, if we look at Gold in the past month, I feel that it isn’t so undervalued at the moment. Also, the recent price dive for the commodity may signal that a short-term price reversal occurring. However, it is also possible that Gold may slip further! The current support levels lie at $1,085.65, $1,092.80 and $1,119.35, and the latest resistance levels are $1,139.78, $1,158.68 and $1,162.25. If Gold actually hits the $1,119.35 support level, then this may prolong Gold’s current bearish run!

    On the EUR/USD 2 Hour Chart, the currency pair recorded a very significant bullish candle (looking back nearly a dozen candles ago). However, the next several candles following this were very bearish, and saw the pair slide by nearly 100 pips to about the $1.4450 level. Since then, the currency pair did record some bullish behavior, as it stands at the current market price of $1.4488. If we look at the last several candles on the chart more closely, I am of the opinion that the recent bullish behavior isn’t significant enough to lend to support to ignite a strong bullish trend in the coming hours. However, anything is possible! I think that there is a possibility that there may be a leveling off of the pair in the coming trading hours, until either the bulls or the bears win the battle, and we see a possible bullish or bearish trend developing in the next 1-2 trading days. The current support levels are $1.4262, $1.4393 and $1.4494, and the most recent resistance levels are $1.4531, $1.4547 and $1.4555.

    In the past 4 trading days, the GBP/USD currency cross has been increasingly bullish. Roughly a week ago, the pair was trading at about $1.5895, according the GBP/USD Daily Chart. As of now, the pair stands at $1.6202. This is an increase of over 300 pips. Thus an fx trader that bought the pair at the former price and sold it at the latter price is likely to have made big profits indeed. The question that a number of forex traders are now asking is will the current bullish run of the GBP/USD currency pair continue? Well the last candle’s wick on the bottom is very small compared to the candle’s body. This may indicate that the bullish power of the pair could be slowing down, and this could signal that there may be signs of bearishness on the horizon. However, despite this possibility, it can be said that this popularly traded currency pair has beaten the expectations of top economists many times over! The current support levels are $1.5832 and $1.5895, and the current resistance levels are $1.6411 and $1.6743.

    From the chart, we saw the U.S. Dollar record bearishness vs. the Pound Sterling and the Euro. When looking at the USD/JPY Daily Chart, We also see the USD declining against the Japanese Yen. The past 4 ticks on the chart show that the USD/JPY pair is currently experiencing a sustained bearish trend. The pair peaked at about 93.80 Yen 4 days ago. However, since this peak, the pair has declined by over 270 pips to the current market price of 91.00 Yen. Even by looking at the last candle on the chart, it is really hard to tell in which direction the currency cross is heading next! Moreover, I am of the view that there is always a chance that the current bearish trend of the pair could continue through end-of-week trading! At the moment, the best thing for fx traders may be to sell on highs and buy on lows, and buy on lows and sell on highs! But it should be taken into account that forex traders should be cautious with this currency pair, as it can often go against trader’s expectations. The latest support levels are 87.33 Yen, 88.89 Yen and 90.71 Yen. With regards, the current resistance levels, they are at 91.88 Yen, 93.14 Yen and 93.74 Yen.

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