Will The EURUSD Trend Favour The Dollar?
The Federal Reserve may lower interest-rates after a government report showed US consumer prices grew less than forecast for April.
Dustin Reid of ABN Amro Chicago said “The Fed may have more room to cut rates if deemed necessary. Inflation was a key driver behind the recent dollar rally.” - Bloomberg
The dollar reached $1.5462 today, after a similar price of $1.5474 was reached yesterday.
A survey of Bloomberg users suggests that the USD will strengthen against the euro and yen over the coming months as the Federal Reserve hold off cutting interest-rates any further.
Technical Chart: EURUSD 1-hour
The 1-hour technical chart for the EURUSD shows the dollars growth against the euro has declined slightly after the release of lower than expected US consumer price data.
We can see a downward channel of support and resistance that favours the dollar, however, price action appears to have stalled at the 61.8 percent Fibonacci line.
At present price action is moving above the 20-day sma, and below the 55-day sma. The 30-min, 1-hour and daily chart all show the stochastic to be heading downwards. However, the 4-hour chart doesn’t agree, with the stochastic well below the oversold line.
With this kind of uncertainty made apparent with the technicals across a range of time-frames it would be good to wait for conformation as to the direction before entering any trades. Although if sticking with the ‘trend is your friend’ methodology, looking for sell signals will continue to be favoured with the strong downward channel. This is particularly the case if the price fails to break through the top green resistance line.
[top]Retail Sales Boost Greenback
US government retail sales figures came out better than expected excluding autos. The figures showed an increase in April ahead of forecasts.
After positive data speculation has risen that the Federal Reserve will halt cutting the benchmark interest rate. The USD gained against the euro as well as the yen after the figures were released.
The dollar rose to $1.5461 against the euro, compared to $1.5553 yesterday. The greenback also climbed against the yen from 103.75 to 104.51.
The government data showed that excluding autos, US retail sales rose 0.5 percent during April. The average forecast of 74 economists surveyed by Bloomberg News was for a 0.2 percent increase. On April 30 we Finance Exhcange reported on speculation that the Federal Reserve had finished it’s period of interest-rate cuts.
The risk of inflation continues with Pianalto of the Cleveland Federal Reserve saying interest-rate cuts since September are “compatible with a low and stable inflation rate,” prices are rising “somewhat faster than I would prefer.” - Bloomberg
The Federal Reserve will have its next meeting on June 25. Futures traders on the Chicago Board of Trade show a 90 percent chance of the Fed holding the interest rate at 2 percent.
Technical Chart: EURUSD 1-hour
The 1-hour EURUSD chart shows a double top formation spanning the 12th and 13th May. Since which we have seen the USD gain against the euro by sending the chart into a down-trend.
Notice the downwards sloping resistance line, as well as the rising support line indicating a narrowing in the price action. If the price fails to break the support line, we should see a dollar sell-off with some strengthening for the euro.
[top]Is The Euro Ready To Retrace?
The US dollar has increased against the euro with speculation of a euro-zone slowdown. US productivity in March was better than expected, which led to a USD rally against the euro.
The pound also fell against the USD as UK consumer confidence fell to a four year low in March.
“Market sentiment is shifting to a more positive outlook for the dollar. In the near term, there’s a real reason the dollar should strengthen on the back of weaker European data.” Camilla Sutton, Scotia Capital Inc., Toronto. - Bloomberg
The dollar increased to $1.5378, from $1.5532 yesterday against the euro, a rise of one percent. So what can we expect for the euro in coming days?
Technical Chart: EURUSD 1-hour
According to the 30-min, 1-hour, 4-hour and daily charts the EURUSD appear to be oversold or in the region of the 20 line on the slow stochastic which would indicate the Euro is reaching the bottom of the sell-off. Therefore, we should expect to see some growth in the Euro.
As the saying goes “The trend is your friend”, therefore, we can look for sell signals until the euro starts to see growth against the dollar for a longer time frame. Although the euro is oversold, any retracement may be small, whilst the overall trend continues to fall. This of course, wont be the case if we have reached the bottom for the euro.
Looking at potential sell signals around the 23.6% or 38.2% Fibonacci lines will give a stronger indication of further euro declines. However, notice the rising support line - if we see the euro break through the 38.2% line towards the 50% Fibonacci line, we may see the euro break the down trend and start to move up again.
But in the meantime, the safe trade would be looking for sell signals until a strong break of trend is seen.
[top]No More Rate Cuts After Today
It is expected that the Federal Reserve will make a quarter percent rate cut today, however, comments suggest that it’s unlikely that there will be further interest rate cuts after this spate of emergency cutting measures.
The US dollar is set to make its highest monthly gain against the euro since April 2004 by trading as low as $1.5550 per euro.
“There’s a general sense developing in the market that the Fed might have done enough. People are starting to look for a better time ahead. I’m increasingly optimistic we’ve seen the lows for the year and the dollar is bottoming out.” said Peter Lucas, a global-investment strategist at Ashburton Ltd. - Bloomberg
The US dollar has risen 6.5 percent against the euro this month, but is still down against the euro by 6.5 percent so far in 2008. A survey of analysts carried out by Bloomberg shows that experts believe the us dollar will trade at $1.58 by the end of June, and make gains against the euro by the end of the year, reaching $1.49.
Technical Chart: EURUSD 1-hour
From the 1-hour chart for the EURUSD we can see the recent dollar gains, marked by the strong down-trend. The price action is presently moving within a downwards channel.
Notice the divergence on the stochastic. We have a line showing the stochastic reached higher highs, however, this is not seen on the chart - instead we have seen lower highs as the trend runs out of momentum. This signals a bullish divergence, indicating that we may see the euro strengthen against the dollar in the near future. This would give us a long position signal.
The $1.5640 region is at the 23.6% Fibonacci line, this could well give an indication for profit taking if the euro does recover against the dollar. Presently, with the down-trend, we would need a good level of confirmation to go long. Notice the price action is moving below the 20-day moving average and the 55-day moving average.
A break-through of the 23.6% Fibonacci line may signal an end of trend situation and we may see at least a partial recovery for the euro.
[top]Oil Rise Leads to Gold Hedging Gains
The rising price of oil sent gold prices up in London. The demand for gold as an inflationary hedge led to rising prices on the commodities market.
Gold is joined by other precious metals seeing a rise in demand with prices rising for platinum, palladium and silver. With oil trading within one percent of $120/bbl, precious metals have seen increasing demand as a hedge against inflation.
“Fresh highs in oil have prompted some anti-inflationary hedging,” said James Moore of TheBullionDesk.com - Bloomberg
Gold reached $890.93, a rise of 0.5 percent today. Gold has moved inversely to the USD, with gold gaining 7 percent, whilst the US dollar has lost 7 percent in value so far this year. Oil has risen by 24 percent in this same period.
Technical Chart: GDX Daily
After a fall in the stock value of Market Vectors Gold Miners (GDX) equity value, we have seen a sharp rise in value in recent days marked by large rises in the price of crude oil.
The 200-day moving average remains in a positive trend, whilst the price action sits well below the 55-day moving average, which is flat/slightly downwards.
A look at the 14-day RSI shows the price hasn’t reached the 30 (oversold line), however, there is a sharp bounce upwards which is in-line with the price action for GDX.
With oil prices rising, precious metals including gold look likely to continue rising in value as they offer hedging potential for traders.
[top]Euro Breaks $1.60 After Hawkish ECB Comments
The euro broke through the $1.60 mark against the dollar after European Central Bank governing council member, Yves Mersch gave hawkish comments suggesting the bank may revise its inflation target upwards.
The euro rose to an all-time high of $1.6018 against the dollar, before retracing to $1.5976.
Hans Redeker of BNP Paribas said, “we see the euro/dollar ending this quarter at $1.62, backed by a widening interest rate differential.” - FT.com
The ECB continues to make the euro attractive to traders by keeping interest rate differentials wide, that continues to bolster the currency, particularly against the USD.
Technical Chart: EURUSD 1-hour
The 1-hour chart for the EURUSD shows the spike above $1.60 on the 22 April. Traders saw the price bouncing around the $1.60 mark for some time until it finally broke through.
The 55-day moving average has moved upwards sharply into an up-trend favouring the euro. The 55-day moving average is sitting just above a rising support line.
The price action on 23 April has retraced from its all-time high to the 23.6% Fibonacci line, at the same time we see a tightening of the Bollinger band indicating a slow down in the volume of trading. By looking a the stochastic we can see lower lows, even though we saw an up-trend in price action. This divergence would indicate a slow-down in the up-trend, or possibly a reversal.
Although a reversal is unlikely based on the moving average indications and Bollinger bands, we have seen a slow-down in the rising trend. Therefore we can look for long entry signals if the price moves back down toward either the 23.6% Fibonacci line or in the region of the rising support line, before the price action continues in an up-trend. If the price breaks the rising support line, this may indicate a time to hold off and wait for further confirmation of the trend.
[top]Euro Approaches Record High $1.5983
The Euro climbed to within a cent of the record high of $1.5983 set on the 17 April after speculation that the European Central Bank will raise interest rates.
The currency rose before the release of a US housing sales report which has previously shown a fall.
Jeremy Stretch, a senior market strategist at Rabobank said, “In this environment the rhetoric from the ECB, especially the hardliners, remains strong and the market’s taking that on board. With fears about more negativity in the U.S. housing market, it looks like the euro-dollar’s going to be biased on the upside.” - Bloomberg
Meanwhile in Canada the Canadian Central Bank increased speculation of an interest rate cut which sent the Canadian dollar 0.8% lower against the US dollar.
Technical Chart: EURUSD
A look at the 1-hour technical chart for the EURUSD shows the spike earlier today sending the euro very close to an all-time high.
We can also see a previous support line offered resistance to euro gains yesterday. The price action is moving above a strong support line, with further euro gains looking likely.
If the price action can break through the near horizontal resistanc line, expect the euro to approach its all-time high again, if not breaking through it.
The 20-day moving average remains in an uptrend, and the 55-day moving average remains temporarily flat. The stochastic shows the euro is over-bought, therefore expect a retracement.
This shouldn’t fall below the 55-day moving average, as this is bolstered by the 38.2% Fibonacci line. If price action sits at this point, it gives a good entry point for the long position. However, if the price breaks below this region, it’s a no-trade.
[top]Pound Declines Despite BoE Announcement
The Bank of England announced plans to improve the slowing economy by loaning banks £50bn to enable banks to lend to one-another.
The UK housing market has slowed as banks maintain higher interest rates and cease lending to new buyers. Despite the interest rate cuts that the BoE have instigated, the rate cuts have not been passed down to UK customers, sparking fears of further housing market problems in coming months.
Rather than rising, the GBP fell against the USD on the announcement by the BoE today. The pound dropped 0.5 percent to $1.9883 against the USD, as well as falling 0.5 percent against the Yen to Y205.95. The pound also fell against the Euro by 0.8 percent, to £0.7976.
Traders feel that the fall this week comes of some sharp rises last week, as currency traders priced in rumours of the BoE’s announcement.
Paul Mackel said, “The market was now likely to focus on the UK economy, which has been showing signs of a marked deterioration in recent months. This has boosted expectations that the Bank of England would cut interest rates further to shore up growth.” - FT.com
Technical Chart: GBPUSD
We can see the steady rise of the GBPUSD last week on the hour chart, marked by a sharp fall today after the BoE announced it would assist UK banks with a cash injection.
The price action fell away from the rising resistance level, falling well below the 55-day and the 20-day moving averages.
The stochastic shows us that the GBP is now well into oversold territory, so we can expect to see a pull back. Looking at the Fibonacci retracement lines we can see the price is approaching the 50% line.
If this offers support, we could expect a temporary rally towards the region of the 20-day moving average.
[top]Euro Reaches New All-Time High
The Euro advanced against the Dollar to a new record high of $1.5983, marking the worst decline in Dollar value against the Euro since its inception in 1999.
Forecasts expect a weak manufacturing report in the Philadelphia region to cause the Federal Reserve to cut the benchmark interest-rate.
Michael Klawitter, a currency strategist at Dresdner Klienwort in Frankfurt said, “the bearish dollar sentiment is deeply entrenched. The market wants to see $1.60 printed, there’s not much doubt about that. It’s just a matter of time.” - Bloomberg
The Federal Reserve Bank of Philadelphia is expected to release general economic index data at 17:00 GMT. Following on from the past five months, the report has come out negative, signalling contraction in this area of the economy.
Write-downs
The worlds largest broker Merrill Lynch is releasing earnings figures today, with expected write-downs in the region of $6bn to $8bn on debt securities.
Citigroup are releasing earnings figures tomorrow. We reported earlier in the year on a Citigroup dividend cut, and huge write-downs of $20bn. We also reported on $39bn worth of bonuses on Wall Street despite huge losses.
The negative earnings figures are likely to hit the USD further in coming days, pushing the Euro closer to the $1.60 mark.
EURUSD Technical Chart
From the EURUSD 1-hour chart we can see a strong up-trend sitting within a channel of support and resistance.
Although the stochastic is breaking through the 80 (overbought) line, we would look for BUY signals, as the US data report later is predicted to continue on from five months of negative results.
The chart shows that the price approached an all-time high yesterday, then retraced through the 23.6% Fibonnaci line, before today rising to an all-time high of $1.5983.
Both the 20-day and 55-day moving averages remain in a strong up-trend lending agreement to further Euro gains in coming days. An entry point would be a drop of the stochastic to below the 20 (oversold) line, then hooking up above the 20 line giving us an entry. Also look for retracement to either the 23.6% or the 38.2% Fibonnaci line to give a stronger indication for entry.
[top]General Electric Earnings Lower Than Expected
General Electric [GE] released it’s first quarter earnings data today. The earnings figures came out worse than expected which had a knock-on effect on the US dollar.
General Electrics share price fell over 11 percent today after the data was released.
GE blamed falling profits at its financial services businesses for the poor earning report.
The EURUSD pairing saw an upside in favour of the Euro as the GE announcement looks to pick up on a slowing US economy. On Wednesday, the ECB kept the Eurozone benchmark rate at four percent, whilst it looks ever-likely that the Federal Reserve will cut the US benchmark rate further.
The Euro reached $1.5826, a short distance from its all-time high of $1.5912 against the dollar set on the 10th April.
Antje Praefcke at Commerzbank said: ”In principle the hawkish ECB attitude should support the Euro so that we continue to foresee upward pressure in Euro-dollar and consider a test of the $1.60 mark to be likely over the coming days.” - FT.com
What The EURUSD Technical Chart Shows
Yesterday, the price didn’t move as expected, the price didn’t hold at the 38.2% Fibonacci retracement line, and instead went right through breaking the bottom Bollinger band to $1.5730. We can see an all-time peak for the Euro, which then pulled right back to the 61.8% Fibonacci retracement line. However, today we have seen the Euro gaining against the dollar yet again.
The price action has remained choppy from about 14:00 GMT, with spiking and small candlestick bodies. In such conditions no clear trading opportunity can be seen with EURUSD.
The 1-hour chart isn’t giving us a clear prediction with the stochastic heading downwards, but price moving upward in-line with the 55-day moving average.
Some economists are predicting the Euro will break through the $1.6000 in coming days, so upside (BUY) is still the favoured position to take on this pair.
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