Equities Slump & The USD Climbs

As U.S. stock markets got hammered yesterday, the USD got stronger against the EUR and GBP. The USD continued to show that when international bourses roil, that it and the JPY become bastions for those seeking safe havens. There was little economic data from the U.S. yesterday and traders took their cue from events unfolding on Wall Street via shares and the bond markets in Chicago. Crude Oil Inventories is on schedule today. Crude Oil may prove interesting because of its recent decline in the commodity markets. Crude was trading near 72.00 USD a barrel a couple of weeks ago and as of yesterday was being pressured around 62.00 USD. The price of oil highlights that speculation may have played a role in its recent upward move and now that concerns about a �real� recovery have grown - commodities and equity market have both suffered.
The USD has shown strength the past two weeks and has made a slow and steady move against the EUR and GBP while gaining value, as questions have arisen again about the housing sector, corporate growth (or stagnation as may be the case), and the outlook for employment. Investors will find themselves looking at the results from the stock markets today amidst nervous sentiment. Alcoa is due to issue their quarterly report today and this may be a crucial test, the large aluminum company is expected to issue a loss but the question is if the number will meet expectations. Tomorrow the weekly Unemployment Claims figures will be released along with Wholesale Inventories. The week has been quiet with economic data and this will continue into Friday when only the University of Michigan Prelim Consumer Sentiment and Trade Balance numbers will be reported. The USD has had a good showing the past few trading sessions and it will be of interest to see if the greenback continues this trend, equities will likely be a key component for trading decisions.

The EUR continued to slip against the USD and now finds itself lurching towards important support levels. Germany Factory Orders were reported yesterday and actually turned in better results than expected with a number of 4.4% compared to the forecast of 0.6%. Today the European Union will publish its Final GDP and the estimate is looking for a number of minus -2.5%. The German Industrial Production data is also on cue and the anticipated statistics are calling for an increase of 0.6%. The EUR has been slowly giving back some of the strong gains it made against the USD the past few months, this as international equities have fallen back and questions have grown about the health of financial institutions in Europe. With the advent of the G8 meetings in Italy today, politicians will certainly get a chance to make speeches about the economic crisis and what is being done to confront it. Tomorrow Germany will issue their Trade Balance figures. The EUR has been put under pressure the past week and traders will have to watch it with a steady gaze.

Sterling traded lower against the greenback on Tuesday as Manufacturing Production numbers showed a negative result of minus -0.5% compared to the estimated gain of 0.1%. Also the Industrial Production data turned in worse results. Today the Halifax HPI is on schedule and appears that it will actually be released after a week of delays. The estimate is calling for an unchanged result, but like the U.S. many questions remain about the health of the housing sector in the U.K. Tomorrow the Bank of England�s MPC meeting results will be brought forth. The key interest rate in the U.K. will not be tampered with, but investors will await any word on new amendments to fiscal policy. Traders should also be aware that the U.K. government is hinting strongly that the entire banking system will be put under much greater scrutiny and tougher regulations. The GBP has enjoyed good results against the USD the past few months, but as of late its strong trend appears to be showing signs of cracking.

After turning in a day of nearly no movement on Monday, the JPY moved quickly against the USD on Tuesday and gained strength. The steep fall on the Nikkei spurred on risk adverse Asian investors, thus taking the JPY to the stronger side of its range against the USD. The question now becomes what will become of the strong range the JPY and USD pair have shown. The Japanese economy is suffering badly from the global recession and its giant export companies will be none too happy about the JPY getting stronger and the fact that international equity markets are nervous may do the JPY no favors.

Technical Analysis

The hourlies show that the pair is in a bearish configuration as volatility is increasing, and showing only bearish signals, the RSI and the slow stochastic supporting the continues of the bearish trend. Going short appears to be the correct strategy.

The sharp bearish channel on the daily chart continues with no signs of a stop. The Slow Stochastic on the daily chart is showing continued bearish movement and is supported by the RSI. Going short with appears to be the preferable strategy.

After a long substantial bearish movement it seems that the correction is imminent, on the daily chart the Stochastic Slow is crossing at the 13 level and the RSI is at the 17 level which indicates that we are in oversold territory and support the correction. Going long appears to be the right strategy.

The bullish channel on the daily chart continues and the Slow Stochastic on the 4 hour chart indicates the continuation of the bullish movement within the channel and will try to breach the very strong resistance at the 1.0990 level. Going long appears to be preferable.

The Wild Card
According to the hourlies, the downtrend the commodity is going through seems to be strong. The daily chart is confirming that the downward momentum is still quite strong and that 901.00 is the next valid target. The preferred strategy will be a short position.