Dollar Gains amid Signs of Slowdown in Global Economy
The safe-haven US dollar saw gains virtually all of its main currency rivals on Friday, as signs of a slowdown in economic growth in China, combined with disappointing British and American economic indicators encouraged risk aversion among investors. This week, traders will want to pay attention to a variety of potentially significant international economic news. Specifically, tomorrow's Japanese Monetary Policy Statement and a German economic sentiment figure, unemployment data out of the UK on Wednesday, French and German manufacturing data on Thursday, and the US New Home Sales figure on Friday, all have the potential to create market volatility.
USD – Dollar Hits 31-Month High vs. Yen
The US dollar hit a 31-month high against the Japanese yen on Friday, amid speculations that the Bank of Japan will take steps this week to increase inflation. The USD/JPY gained more than 30 pips during Asian trading to eventually peak at 90.18. The pair saw a slight downward correction later in the day to reach as low as 89.68, before finishing out the week at 90.05. A slowdown in economic growth in China led to dollar gains against the AUD. The AUD/USD fell close to 70 pips during the first half of the day, eventually reaching as low as 1.0484, before closing out the week at 1.0507.
Today, dollar traders will want to note that a bank holiday in the US means that no American economic indicators will be released. Later in the week, the main pieces of US news are likely to be the Existing Home Sales and New Home Sales figures, scheduled to be respectively released tomorrow and Friday. Analysts expect both indicators to come in slightly higher than last month, which if true, may help the dollar extend its recent bullish trend in the coming days.
EUR – Euro Reverses Bullish Trend
The euro reversed its recent bullish trend on Friday, as fears of a slowdown in the global economy led to risk aversion in the marketplace. The EUR/CHF, which hit a 20-month high at 1.2567 during early morning trading, fell some 180 pips to trade as low as 1.2389 before bouncing back to 1.2440 when markets closed for the week. Against the US dollar, the common currency fell some 115 pips during the European session, eventually reaching as low as 1.3278, before staging a reversal to finish out the week at 1.3313.
This week, a number of potentially significant euro-zone economic indicators are scheduled to be released. Eurogroup meetings today, the German ZEW Economic Sentiment figure tomorrow, German and French manufacturing and services data on Thursday, and finally the German Ifo Business Climate figure on Friday all have the potential to impact euro pairs. If any of the news indicates a further economic slowdown in the EU, the euro may take losses against its safe-haven currency rivals.
Gold – Bullish Dollar Leads to Losses for Gold
The price of gold took moderate losses during afternoon trading on Friday, as a strengthened US dollar resulted in the precious metal becoming more expensive for international buyers. Prices fell from a high of $1694.93 an ounce during the mid-day session, to $1683.80 by the time markets closed for the weekend.
This week, gold traders will want to pay attention to several potentially significant euro-zone economic indicators and their impact on risk taking among investors. If the euro extends its downward trend in the coming days against the US dollar, gold prices may take additional losses.
Crude Oil – Crude Oil Remains Within Reach of 4-Month High
Crude oil prices saw relatively little significant movement throughout the day on Friday, despite signs of a possible slowdown in the global economy, including disappointing British and US economic indicators. The commodity fluctuated between $94.90 and $95.64 a barrel, not far from a recent four-month high of $96.01. Crude finished last week at $95.30.
This week, both euro-zone and US economic indicators have the potential to impact crude oil prices. If any of the European news comes in above expectations, risk taking could boost the price of oil. Furthermore, better than forecasted US housing data may be seen as a sign that American demand for oil is increasing, which could keep oil bullish.
A bearish cross has formed on the daily chart's MACD/OsMA, indicating that a downward correction could occur in the near future. This theory is supported by the Williams Percent Range on the weekly chart, which is currently in overbought territory. Opening short positions may be the smart choice for this pair.
The Williams Percent Range on the weekly chart has crossed into oversold territory, indicating that an upward correction could occur in the near future. Furthermore, the Slow Stochastic on the daily chart has formed a bullish cross. Traders may want to open long positions for this pair.
The Relative Strength Index on the weekly chart has crossed into overbought territory, indicating that a downward correction could occur in the near future. This theory is supported by the Williams Percent Range on the same chart, which has formed a bearish cross. Opening short positions may be the wise choice for this pair.
While the MACD/OsMA on the weekly chart has formed a bullish cross, most other long-term technical indicators show this pair trading in neutral territory. Traders may want to take a wait and see approach for this pair, as a clearer trend may present itself in the coming days.
The Wild Card
The Slow Stochastic on the daily chart has formed a bullish cross, indicating that an upward correction could occur in the near future. Additionally, the Williams Percent Range on the same chart has crossed into oversold territory. This may be a good time for forex traders to open long positions, ahead of possible upward movement.
Article Source: Dollar Gains amid Signs of Slowdown in Global Economy