Forex Trading Center

There is likely to be less volatility in the market today with almost no market moving data on tap from Japan Europe and Unites States. Yet, few fundamental events that are due out later today may indeed create a remarkable wave in the market, especially towards the late afternoon hours.

USD – USD Ups and Downs Result of Market Uncertainty

The US Dollar experienced an exciting trading day on Monday as a rise in risk averse trading helped add an early morning boost, followed by a retracing of Friday’s levels. Against the EUR, the greenback climbed to as high as 1.4610 before coming back down and closing the day at 1.4717. Versus the British Pound, the USD gained as much as 90 pips, with a high mark of 1.6134, before coming back up and closing out the trading day at the 1.6250 level.

With a decision regarding the Federal Funds Rate looming, traders are becoming more aware of the potential delay in any increase to short-term interest rates due to the instability of global economies recently. Britain has made similar overtures, as did the Euro-Zone in its recent discussions. However, the question still remains over whether the global economy is indeed recovering as many were expecting. This uncertainty drives many investors back into safe-havens for the short-run until things become clearer.

As far as the North-Western Hemisphere is concerned today, the United States is not due to release much data of concern. Canada, on the other hand, is going to release vital data regarding its retail sales levels, which last week caused a stir among the USD and EUR. Growth in Canadian sales may help return the Loonie back to a bullish posture, but forecasts appear modest at best. This Wednesday’s US interest rate decision appears to be this week’s primary event for Dollar traders.

EUR – EUR Benefits from USD and GBP Aversion

The EUR continued its rally against most currencies, save the USD, in yesterday’s trading; making considerable inroads against the GBP especially. Climbing as high as 0.9076 versus the Pound and upwards of 135.48 against the Japanese Yen, the EUR may indeed be one of the primary beneficiaries of market growth, and the continuing uncertainty.

Investors appear ready to make the shift into riskier assets to return to the heady days of pre-2008 growth, but market concerns make their transition move somewhat sheepishly. Regional retail sales in Europe and the US helped give a boost to consumer optimism, but only offset losses in other sectors such as housing and consumer sentiment. With the Pound under heavy selling pressure following statements from Bank of England governor Mervyn King, the EUR, as stated above, has become one of the primary beneficiaries of recent returns to strength and risk appetite.

Going into today’s trading, with little on the economic agenda, the EUR may be poised to benefit from the uncertainty surrounding the US interest rate decisions due on Wednesday. With an announcement similar to those of Britain and Europe recently regarding a delay of an interest rate hike, the EUR could be on the receiving end of further risk appetite and USD-aversion.

JPY – Japanese Bank Holiday Puts Additional Sell Pressure on Yen

The Japanese Yen appears to be returning to a bearish posture against its major currency rivals considering it ended yesterday’s trading down somewhat versus all of its major rivals. Hitting the 149.60 level against the GBP, and even dropping to the 135.50 level against the EUR, the island currency is a little worse for wear considering its latest movements.

Many economists point out, however, that the banks in Japan being closed in celebration of the autumnal equinox carries a significant role in this latest downtrend. The thinly traded JPY only appears weak momentarily until the Japanese markets come back online early Wednesday. In other Asian news, the currencies of the south Pacific (Australia and New Zealand) appear to be gaining heavily against all of their currency rivals. Their avoidance of the harshest aspects of the global downturn has made them juicy targets for risk-hungry investors. Traders would be wise to note the upward movement of these pairs and trade accordingly.

Crude Oil – Crude Falls to $70; Prices Rose too Quickly According to Investors

Investors hoping for a growth in oil prices were dismayed by news yesterday that the price for a barrel of Crude Oil may have risen too quickly from last week’s market optimism. As yesterday helped traders realize, Crude Oil may indeed be over-valued and its recent strength has come to a temporary halt. After last week’s steady yet volatile gains, the beginning of this week has started with a drop of almost $3 a barrel, closing out yesterday’s trading just above $70.

Adding to the sell pressure on Crude Oil is the surprising surge in the value of the USD in yesterday’s early trading hours, albeit offset somewhat by its retraction later in the day. But market optimism seems to have returned, but energy demand concerns persist. Crude Oil has been on the verge of reemerging as a lead investment and inflationary hedge, yet it has failed to receive the same level of support as Gold and Silver, which suggests that demand for oil is low, and precious metals are being used in its stead as a safety valve. Chances are, so long as market uncertainty remains, Crude Oil will continue to float near its current mark.

Article Source – Market Expects Low Volatility Today

Currency markets are likely to continue looking to risk sentiment to drive price action with another thin economic calendar on tap in European trading hours. Switzerland’s Trade Balance report and the SECO economic forecast update are set for release.

Key Overnight Developments

• NZ Current Account Surprises With Surplus in Q2 as Imports Fall
• US Dollar Sold in Overnight Trading as Stocks Gain on Asian Exchanges

Critical Levels

The Euro added 0.3% against the US Dollar to retake the 1.47 level in overnight trading. The British Pound followed suit, testing as high as 1.6258. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

New Zealand’s Current Account Balance unexpectedly showed a surplus of NZ$124 million in the second quarter, marking the first quarterly surplus since the first three months of 2003. Economists were forecasting a –NZ$1.98 billion result ahead of the release. In annual terms, the deficit narrowed to –NZ$10.6 billion or 5.9% of GDP, the smallest share of total output in nearly 5 years. Details behind the headline figure look far from encouraging however: imports fell -19.6% from a year earlier, outpacing a -3.5% decline in exports and painting a picture of stagnant consumer demand in the island nation. The deficit is likely to continue to narrow in the months ahead as rising unemployment weighs on spending. Indeed, the central bank expects the external gap will narrow to 5.5% of GDP while a survey of economists polled by Bloomberg predicts the jobless rate will rise to a decade high of 6.8% by the end of this year. Traders welcomed the announcement, sending the New Zealand Dollar 90 pips higher against its US counterpart in the hour following the data release as traders expressed relief that the central bank may not be pushed to lower interest rates to cheapen the currency and thereby offer exporters a boost to help narrow the current account shortfall, which has been on the forefront of policymakers’ concerns since it led to a downgrade of the New Zealand’s credit outlook by the Fitch ratings agency. An index of traders’ one-year RBNZ rate hike expectations compiled by Credit Suisse jumped 8 basis points to a record high after the figures crossed the wires.

Euro Session: What to Expect

Swiss economic data dominates a thin economic calendar in European hours. While Augusts’ Trade Balance report is likely to show that exports fell considering last week’s dismal industrial production data, the appetite for imported goods is proving difficult to gauge from leading indicators. Domestic demand may have recovered a bit considering the recent upward correction in retail sales figures, but the trend in receipts is undeniably pointing lower while unemployment rises and consumer confidence continues to set record lows. Separately, the release of updated economic forecasts from the government’s State Secretariat for Economic Affairs (SECO) will be notable in terms of how it compares to last week’s upward revisions to the growth and inflation outlook from the SNB.

On balance, risk sentiment is likely to remain the key driver for currency markets going into the US session. Stocks rose for the first in three days across Asian exchanges after Citigroup raised its price estimate for Samsung Electronics (the world’s largest computer memory chip manufacturer), Morgan Stanley upgraded their outlook for Samsung SDI Co. and LG Chem Ltd on expectations of higher car battery demand, and China Mobile Ltd (the largest global cellular provider) said it’s customer base grew 15.6% from the previous month in August. Risky assets look set to retain momentum with US equity index futures trading higher and hinting that Wall St will open 0.2% higher on Tuesday, adding to selling pressure on the safety-linked US Dollar.

Written by Ilya Spivak, Currency Analyst
Article Source – Currency Markets to Trade with Risk Sentiment on Thin Economic Calendar (Euro Open)