Caution Prevails On Light Volume

The USD traded in a fairly solid range on Monday while holding onto its gains made last week. It was a quiet day of economic news and volume remained relatively light yesterday in the markets as traders seem to be still finding their way back to their offices after the long holiday weekend. The U.S. did release its ISM Non Manufacturing PMI survey and it had a result of 47.0, above the forecast of 45.9. The data showed that U.S. firms are still contracting albeit at a slower pace which highlights the sentiment that stability does not necessarily mean growth. U.S. equity markets produced a rather flat day of trading and investors will keep their eyes not only on the value of shares but the volume.
It will be another quite day of data from the States and investors will keep their focus on Wall Street looking for what has become a �golden� barometer for the USD. Tomorrow the Crude Oil Inventories report is due along with the Fed Credit and Liquidity Report but neither piece of data should be earth shattering. Until Thursday when the weekly Unemployment Claims figures are published traders essentially will be left on their own to consider the direction of the market. Equities have shown signs of weakness the past couple of weeks and the volume in options have increased significantly as investors have taken positions below the current market levels. Besides stocks, traders will have to keep their ears posted on the comments from politicians who have the capability of causing a scare in the market. Vice President Joe Biden made a remark over the weekend that was considered rather �odd�, this when he said the Obama administration had misread the economy early on. The comment in fact may be true, but coming from someone inside the present U.S. administration was considered as a surprise and we shall see if President Obama tries to muzzle his subordinate. Look for the USD to continue moving in an inverse pattern compared to the results on Wall Street as the words �safe haven� remains on the tips of many investors tongues.

The EUR remained on the weaker part of its range against the USD Monday. The Sentix Investor Confidence readings were published for the European Union yesterday and its outcome was a negative -31.3 compared to the estimate of minus -23.7. Today the German Factory Orders statistics will be presented and an increase of 0.6% is the forecast, the previous result was unchanged. Also the French Trade Balance numbers are on schedule. Tomorrow could prove an interesting day with the Final GDP figures for Europe and the German Industrial Production data. The core issues that remain for EUR investors are the health of the banks and their transparency and the questions surrounding risks to a possible recovery that appears still tentative. The EUR has shown cracks in its armor the past couple of weeks and investors will watch it carefully to see if its range erodes further against the greenback.

The Sterling was pushed back against the USD again on Monday. Today the U.K. will release its Manufacturing Production data and an increase of 0.1% is expected, this result would be worse than the numbers produced last month. Also on schedule are the Industrial Production statistics. The Halifax HPI has been delayed for at least another day and is now on the calendar for Wednesday. Recession continues to have a firm grip in the U.K. and there is a debate on the exact strategies that should be enacted to combat it. The British Chamber of Commerce said yesterday that the Bank of England should seek government approval if they intend on �printing money� and added that a recovery from the recession is not guaranteed. The GBP which has performed well the past few months appears to have now met some downward pressure and the question is if the Sterling will continue to get knocked around.

The JPY turned in a performance that was flat against the USD. In what has been a noted range for the past few months against the greenback, yesterday�s action was notable because of the severe consolidation the currency pair maintained. Gold traded down to the 924.00 USD mark on Monday showing that the commodities are coming under pressure as the USD has picked up a bit of momentum. The JPY continues to be the domain of risk adverse investors who are looking for capital preservation.

Technical Analysis

The 4 hour chart shows that the bearish channel continues as the pair now floats around 1.3950. Oscillators show that the momentum is still bearish and a breach through 1.3890 will validate a bigger bearish move. The RSI is also forming back into bearish formation and supports the general notion.

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 1.6090 will validate a larger bearish move.

This pair has been floating in a tight range around 94.95 to 95.45 with no distinct direction. 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 bullish momentum might come. The preferred strategy today will be trading in a range.

There is a bullish trend developing on the 4 hour chart. This pair has now breached the resistance level of 1.0850 and we expect further bullish movement. Therefore a longt position seems to be preferred today.

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.