31/05/'07 - Will the dollar move Crude Oil back down again?
With the dollar barely moving now, this the 4th day in a row, many traders have begun asking themselves 2 questions: 1. What's holding the dollar up 2. What's the reasons which may cause the dollar to crumble under pressure again? Let's start with the basics: for starters, there are a lot of economic releases expected today and tomorrow ranging from inflation to employment data. The reason the dollar has barely moved is due to the fact that the market is awaiting these news releases. Will the dollar crumble thereafter? The real question is not this but rather will the dollar break record lows again? This question is on the minds of traders as we head to this Friday's Payrolls release, an indicator that has been known to topple the dollar in the past, especially when the American economy was seen as lackluster - as it is now.
The real worry for traders is today's GDP release. Traders should recall the previous release, on the 27th of April, which helped the dollar make its recent gains. It should also be noted that since that date, bonds, equities, and the dollar have all made significant gains. Today, however, with markets expecting a significant slide in the GDP figure, down to 0.7-0.8% (from 1.3%), this could well mark the end of the dollar's ride.
We look to this figure above all others as the sign of future bodings for the forlorn dollar. It may well be that it is overbought at this point and traders will look for bad news to dump the dollar and fast. We suggest alertness
The EUR/USD which is typically the most traded currency has become the most stagnant. The EUR/USD has been stuck within a 50 pips trading range for the past 24 hours and a quick look at the charts will reveal a tight trading range for the past week. With the European Central bank scheduled to meet on June 6, incoming economic data has done little to clarify whether the central bank will raise rates in June. Today the Euro-zone retail PMI dropped back into contracting territory. This suggests that consumer spending was very weak in April and possibly in May as well. In addition to that disappointment, M3 money supply which is an inflationary indicator also fell short of expectations, signaling that inflationary pressures may be abating. It may seem that data is beginning to weaken, but there are still a lot of data that could shift the outlook either way. In the next 24 hours, we are expecting German and French unemployment along with French PPI and Euro-zone consumer confidence. Meanwhile the Swiss franc is stronger against the Euro ahead of its first quarter GDP release tomorrow.
The Japanese Yen is stronger against all of the major currencies with the exception of the Australian and New Zealand dollars. Even though the US stock market has not responded negatively to the move in the Shanghai index, and actually made gains yesterday, carry traders need to be very careful in the weeks to come. If the Shanghai stock market rebounds and refuses to fall, the Chinese government will become even more anxious about cooling the stock market. As a result, they could take more aggressive measures which would only put further pressure on carry trades.
No economic releases are expected from Japan until next week so look for the JPY to trade based on the moves of the USD.
The pair recovered most of the losses after nailing a new low for its short-term downtrend. The pair should trade sideways to lower today. It has strong support at 1.3400. If this level breaks, look for a test of the support at 1.3375. Below this Fibonacci retracement level there is support at 1.3275. Immediate resistance is at 1.3460. Next resistance lies between 1.3520 and 1.3530. A close above 1.3545 would signal another attack on the upside to 1.3610, but this is unlikely.
We have retraced to almost 78.6% of last week's rally at 1.9720, which is the support we mentioned yesterday. The Sterling should make a good effort to base here and try to rally back to 1.9900 and eventually 2.0000. We suggest to keep long position today, and be willing to re-buy on a drop to 1.9680 (last week's low) if stopped out today.
Despite yesterday's fall to 121.16, the subsequent rebound after trading above indicated support at 120.85 has retained our consolidating view and above 121.89 resistance would confirm up move has resumed in final leg of Elliott Wave for marginal rise to 122.00 but this year's high at 122.20 should hold from here and bring a strong pullback later this week.
If resistance at 1.2265 is broken today, the Swiss Franc will target the zone around 1.2309. If successful the upward trend will continue towards 1.2342. If dropping under the support 1.2323, the currency pair looks for the next support around 1.2185. If that level is broken, the downward trend will continue towards 1.2144.
The Wild Card
With support firmly in place at 62.6 and above this at 62.8, forex traders may find themselves at a loss as whether OIL will drop again. Most indicators point to NO, and the recent buy signal based by the MACD nearly confirms this. Look for support by the EMA to place BUYS.