Winds Of Caution Prevail


Master Trader
Jun 7, 2009
by mercaforex

The USD traded within well practiced ranges against the major currencies on Thursday. Weekly Unemployment Claims data was released and met the expectation of 608K head on. This result was slightly above the previous week. The Philly Fed Manufacturing Index put in a better number of minus -2.2, the estimate had been minus -17.6. The marketplace was very quiet most of the day and much of this had to do with investors standing on the sidelines waiting for the testimony of Treasury Secretary Timothy Geithner in Washington. In hearings that took place in two venues over several hours, Geithner answered questioned about the regulatory changes that the Obama administration is proposing. Equity markets turned in a flat day also in what appeared to be a game of wait and see.

There will be no major economic data from the U.S. today and traders will be left to deal with the remains of this week’s sentiment that has been generated from lackluster economic data, uncertainty in the stock markets, and the continuing parade of public officials who have made their way to various microphones. It stands to reason that it will be the residual affect from the equity markets that could jolt the USD the most today if volatility were to develop. Plenty of doubts and questions remain regarding the regulatory changes the Obama administration wants to implement. Having said this, it also seems likely that much of this debate is known and the true ramifications from any rule changes will take months to enact. Next week may produce more fireworks because the Existing Home Sales data and the FOMC meeting are on the calendar. Trading ranges and the broad marketplace have shown a high degree of caution and this should produce range trading for the USD today.

The EUR moved in a rather timid range on Thursday against the USD. Economic data from the European Union was light with only the Italian Trade Balance figures being published and its result was slightly worse than anticipated. The main impetus from the day for the EUR was dollar centric action and the European Summit that is now underway in Brussels. European leaders are expected to continue issuing pronouncements today regarding the economic health of the continent. Banking and budget issues continue to hover over the European Union, particularly from countries that are members of its political theater but have not been fully integrated into its monetary component yet. There will be very little data from Europe today. Traders will keep their eyes on the EU summit, corporate news, and any dollar centric action that could swell up. The EUR has shown a lack of ability to climb back to the strongest part of its range against the USD the past two days and this characteristic should be watched closely.

The Sterling like most of the other currencies on Thursday found itself in familiar ground as the day came to an end. However the GBP did see its range propelled early by a rather poor Retail Sales report, which came in worse than forecasted with a drop of -0.6 compared to the anticipated positive number of 0.4%. This news may have spooked some traders because the previous Retail Sales numbers from the U.K. had produced better than expected results. The sudden emergence of dwindling consumer spending sent a swift reminder that the U.K. is still within the grasp of a recession. There will be no major economic data and investors will be casting their eyes on the continuing EU summit. Politicians from the U.K. taking part in the European meetings have publically stated that they want to be rather careful on how any new financial regulatory changes are implemented. The Sterling has been able to maintain its stability against the USD this week, but it has shown signs of occasional weakness, traders may be keen to test the GBP and see how it continues to react to pressure.

The JPY lost value to the USD on Thursday as it backed away from the stronger side of it range. International equity markets continued to produce mixed results yesterday and did not show the ability to produce good results going into the weekend. Gold has languished within a stubborn range all week long and finds itself seeming stuck near 935.00 USD. Unless something shocking happens to the equity markets, it stands to reason that the JPY will find itself moving within a rather well worn range today.

This pair has been floating in a wide tight around 1.3850 to 1.3950 with no distinct direction. The Oscillators are relatively flat on the hourly level and the RSI on the daily and 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. The preferred strategy today will be a short position with tight stops.

The Bollinger Bands are tightening up on the daily chart, indicating decreased volatility. RSI and Momentum are still negatively sloped indicating further bearish movement today. Both daily and 4 hour chart support a bearish notion and a breach through 1.6250 will validate a larger bearish move.

There is a bullish trend developing on the 4 hour chart. This pair has now breached the very strong resistance level of 96.50 and we expect further bullish movement. Therefore buying on dips seems to be preferred today.

This pair has been caught in a tight range of around 1.0760 to1.0890 over the last few days. The Oscillators are relatively flat on the hourly level. However we can see on the daily chart that the RSI and Momentum are positively sloped supporting a bullish move. The preferred strategy today will be a long position

The Wild Card

Gold has been dropping over the last trading day and all the indicators support further bearish movement. Forex traders will be able to maximize gains today by entering a short position before we see a correction.