Week’s Data Will Build In Momentum


Master Trader
Jun 7, 2009
by Mercaforex

On a day with little economic data to help propel the markets the USD lost ground in clear range trading against the major currencies. The U.S. equity markets turned in a flat performance and perhaps the stock market’s ability to hold onto gains made on Thursday helped risk appetite for another day. There were news reports on Friday suggesting once again that the Chinese government is calling for another international reserve currency to appear, but plenty of investors will look at this skeptically since the Chinese hold a massive amount of USD’s and the Chinese, as of yet, have failed to allow their own currency trade without government interference. Revised University of Michigan Consumer Sentiment data was presented on Friday and it came in slightly better with a result of 70.8 compared to the estimate of 69.2.
The U.S. will be quiet again today regarding economic data, tomorrow this starts to change with the S&P/CS Composite – 20 HPI and the CB Consumer Confidence reports along with the Chicago PMI reading. The USD and marketplace as a whole could prove to be in for a whirlwind this week with the Non Farm Employment Change numbers due on Thursday. Unemployment and housing continue to be a key focal point for investors who are trying to gauge the health of the U.S. economy and its ability to maneuver within this rather deep recession. With the likes of Pending Home Sales data waiting in the shadows on Wednesday, investors will get a powerful dose of information to confirm or refute their sentiment before going into the long weekend because of the Independence Day holiday. The U.S. is perched on a rather remarkable ledge having picked up enough strength against the EUR last week to get traders attention, however on Friday it wallowed within a weaker value. When all is said and done this week, the results from the USD may give a good idea to investors on where the greenback is headed this summer.

The EUR did manage to pick up ground against the USD on Friday. There was little in the way of economic data from the European Union except for German inflation numbers. The German Import Prices did not register a change which was below the estimated rise of 0.3%. The German Prelim CPI did manage to climb 0.4%, above the forecast of 0.1%. However, neither of these reports suggest that inflation is about to rear its head. Today the European Union will release its broad Consumer Confidence numbers and a reading of minus -29 is the anticipated result. News making headlines last week were the actions of the Swiss Central Bank which apparently is trying to weaken the Swiss Franc. Also France is coming under criticism for its rather large budget which the IMF says should be restrained because of the danger it poses to the long term health of the economy. Tomorrow the German Unemployment Change numbers will be published. Also this week the ECB will meet and announce their interest rate decision, which is widely expected to be unchanged. The EUR did find itself wavering last week but showed some life going into the weekend. Many traders will watch it carefully this week to see if new cracks emerge it its armor.

The GBP had a good day of trading on Friday climbing back to the higher side of its strong range against the USD. After the mid week’s testimony from Bank of England members warning about the length of the fight that the U.K. faces regarding its economic downturn, the GBP did show that it still has support. Mortgage Approval numbers will be forthcoming today from the U.K. and a result of 46K is expected. Also the GfK Consumer Confidence reading will be published and is forecasted to produce a minus -25 outcome. Tomorrow if the tentative schedule can be believed, the Nationwide HPI is on the table along with Current Account statistics. This will be a big week of data for the Sterling with the advent of housing sector, manufacturing, and Bank of England news all prevalent. The Sterling had a guardedly good performance as it closed out trading on Friday and there is little doubt that traders will look for opportunistic ranges from the GBP over the next few days.

The JPY turned in another classic day of range trading against the USD on Friday as it picked up a small amount of value. The international equity markets were flat and this resulted in cautious trading across the board. Gold is standing once again around the 936.00 USD mark and is apparently showing some support in this area. Gold has returned to its inverse trading pattern against the USD and this will bear watching this week if the equities and currencies turn in volatility with so many economic risk events on the calendar.

Technical Analysis
This pair has been floating in a wide range with no distinct direction the last few days. The Oscillators are relatively flat on the hourly level and the RSI on the 4 hour chart is floating near the 50 line. However we can see on the daily chart that the Slow Stochastic shows that the bearish momentum might come. Going short with tight stops appears to be the correct strategy.

There is a bearish channel on the 4 hour chart. However this pair is now trading near the upper barrier of this channel, so there may be a slight correction before this pair makes another bearish move. It is important to note that most of the indicators on the daily chart also give a bearish signal. Going short appears to be preferable.

A negative bearish head and shoulders structure is shown on the 4 hour chart which took this pair to 95.20 however a double top stochastic pattern with a positive slope is establishing which may indicate an upcoming bullish trend as the next target is located at 96.40. Therefore, going long seems to be preferable today.

The bullish channel on the daily chart continues and the Slow Stochastic on the 4 hour chart indicates the continuation of the bullish movement within the channel and will try to breach the very strong resistance at the 1.1000 level. Going long appears to be preferable.

The Wild Card
Crude oil
The crude oil continues floating in a wide range between the 68.20 levels to 69.50 with no distinct direction. The crude oil now seems to be consolidating around the 68.90 as the volatility is beginning to decrease. The RSI is floating around the 50 level and all oscillators on the 4 hour chart do not provide a clear direction as well. The preferred strategy today will be to wait for a clearer signal before taking any position.