The U.S. dollar fell slightly against most of its major currency counterparts on Monday as the euro recovered from its losing streak, signaling a rise in risk appetite. The euro rallied to above 1.2950 against the dollar in Monday’s late trading session, from below 1.2900 in earlier trading.
USD
U.S. Dollar Weakens as Risk Appetite Rises
The U.S. dollar fell slightly against most of its major currencies yesterday, as gains in stocks and commodities prompted investors to wade into riskier currency trades. By yesterday’s close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.2950. The dollar experienced similar behavior against the GBP and closed at 1.5577. Against the yen, the dollar slipped 0.5% to 82.70 on Monday, the second straight day of declines.
Traders have started recently to focus more on fundamentals, such as economic growth and short-term interest rates. That shift, just getting underway, could take the shine off the soaring USD in the coming months. A stronger currency is important to the U.S. because it entices foreign investors to Treasury debt that finances the nation’s record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.
As for today, the calendar is lacking any major economic data releases for today’s trading from the U.S. and Europe. As such, traders will want to follow the movements of the major equity indices as the dollar has recently been trading in an inverse relationship to equities. Strength in stocks could propel the EUR/USD to its next short-term resistance line, which rests at 1.3000.
EUR
EUR Manages Gains despite Debt Concerns
The euro recovered from a four-month low against the U.S. dollar on Monday, though gains are not expected to hold given resurgent concerns about indebted euro zone countries and talk that Portugal will need a bailout. By yesterday’s close, the EUR traded up 0.4%; it remained down about 3.2% for the first six trading sessions this year.
Against the soaring Swiss franc (CHF), the euro rose 0.3% to 1.2525 francs. The Swiss currency weakened after a report said the Swiss government will meet business leaders and trade unions next week to discuss the implications of the record-strong Swiss franc.
The recovery in the euro, which fell below $1.2900 during early trading sessions yesterday for the first time since September, was partly helped by gains against the Swiss franc on speculation the Swiss government may take new measures to rein in currency strength. However, there was pressure growing on Portugal from Germany and France to seek financial help from the European Union (EU) and the International Monetary Fund (IMF) to prevent the debt crisis from spreading.
Portugal, Italy and Spain are all due to tap the bond market for funds this week. Investors were nervous about whether these highly indebted countries will be able to raise funds to sustainable levels in 2011.
JPY
Yen Higher vs. Major Currency Pairs
The Japanese yen experienced a bullish trading session yesterday, as it appreciated against most of its major currency pairs. The Japanese currency extended gains versus the U.S. dollar during yesterday’s trading session, to trade around 82.70 amid a broad sell-off in the USD. The JPY finished around 80 pips higher against the CHF to close out yesterday’s trading session at the 85.50 level.
Investors show concern over a recent rise in the JPY as it makes Japanese products less competitive abroad and hurts the value of overseas sales when translated back into the Japanese currency.
With steady gains primarily against the dollar, much of the Yen’s bullish movement could be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. This has had a positive effect on major JPY currency pairings, as the rising turmoil in the market is leading to more investment in the Japanese yen.
Crude Oil
Spot Crude Oil Gains Close to 1% in Trading
Crude Oil prices rose more than 1% on Monday to around $89.35 a barrel, after a weekend leak shut the Trans-Alaska Pipeline and forced producers to cut output to about 5% of their daily average of 630,000 barrels.
The discovery of a leak at a pump station booster in Prudhoe Bay on Saturday shut the Alaska pipeline, which carries nearly 12% of domestic crude output. Alaskan regulators said on Monday they had no restart timetable yet, but the plan was to build a bypass line and use it to restart the system. Speculators are assessing what impact this will have on oil prices, but for the moment the price appears to be continuing its previous bullishness.
Technical News
EUR/USD
There is a fresh bullish cross forming on the daily chart’s Slow Stochastic, indicating a bullish correction might take place in the nearest future. The upward direction on the 4-hour chart’s RSI also supports this notion. Going long with tight stops might be the right strategy today.
GBP/USD
The pair has been range-trading for a while now, with no specific direction. The daily chart’s Slow Stochastic is providing us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction either. Waiting for a clearer sign on the hourlies might be a good strategy today.
USD/JPY
The pair has recorded much bullish behavior over the past several days. However, technical data indicates that this trend may reverse sometime soon. For example, the daily chart’s Slow Stochastic signals that a bearish reversal is imminent. Going short with tight stops might be a wise choice.
USD/CHF
The 4-hour chart is showing mixed signals with its RSI fluctuating in neutral territory. However, there is a bearish cross on the daily chart’s Slow Stochastic suggesting that a bearish correction might take place in the nearest future.
The Wild Card
Nasdaq 100
The Nasdaq 100 rose significantly in the last week and peaked at 2284.25. However, there is a bearish cross on the daily chart’s Slow Stochastic suggesting that the recent bullish trend is losing steam and a bearish correction may be impending. This might be a good opportunity for forex traders to enter this new trend at a very early stage.
