USD to Go Volatile on U.S. Homes Sales and Bernanke Speech

The U.S. Dollar is expected to go volatile today on U.S. Homes Sales data and the speech by Federal Reserve Chairman Ben Bernanke at 14:00 GMT. Bernanke is expected to discuss the economic crisis and recovery. With regards to the home sales data, the figure is expected to rise to 5.03 million, up from the previous figure of 4.89 million. Forex traders should follow both of these events closely as they are set to determine the USD's main crosses for Friday's trading.



USD - Positive Economic Data Weighs in on Dollar

The Dollar declined versus most major counterparts throughout much of yesterday's trading on Thursday as U.S. equity markets rallied amid better-than-forecast data. Weighing further on the USD, the Philadelphia Fed reported that manufacturing in the region unexpectedly expanded this month for the first time in almost a year, a sign the U.S. economy is recovering. Furthermore, the Conference Board said the index of leading economic indicators rose 0.6% in July, its fourth consecutive monthly gain. The Dollar index traded at 78.331, down slightly from 78.485.

The Dollar may continue its decline today as the release of today's economic data may show sales of U.S. existing homes gained 2.1% last month, the highest since September 2008. An improvement in the U.S. housing market will further support risk appetite since the housing market crash was at the root of the current crisis.

Along with the Existing Home Sales report that will be released today at 14:00 GMT, traders should also follow Ben Bernanke's testimony, set to begin at 14:00 GMT as well, as it tends to cause great market volatility and may intensify the current bearish sentiment on the Dollar.

EUR - EUR Extends Gains as Equities Continue to Rebound

The EUR extended its gains against the British Pound ahead of a report today that is forecasted to show Europe's manufacturing and service industries contracted at a slower pace this month, adding to signs that the global recession is coming to an end.

The EUR traded at $1.4250 early this morning, from $1.4254 yesterday, and at 133.99 Yen from 134.26 Yen. Encouraging risk appetite further were recoveries in global equity markets, boosting demand for higher yielding currencies and commodities at the expense of the USD and JPY.

The French, German and Euro-Zone Manufacturing and Service data is expected to be released at 7:00 GMT, 7:30 GMT and 8:00 GMT respectively. With the recent recoveries in German and French GDPs, this data should provide an insight as to the sustainability of this recovery, and therefore have a major affect on the direction of the European currency.

JPY - Yen Boosted By a Drop in Asian Stocks

The JPY appreciated against the Dollar and Euro in today's early trading as Asian stocks dropped, boosting demand for Japan's currency as a refuge. The Yen typically strengthens in times of financial turmoil as Japan's trade surplus makes the currency attractive.

Japan's currency rose against all 16 major counterparts as Japan's Nikkei 225 Stock Average fell 0.7% and the MSCI Asia Pacific Index of regional shares lost 0.2%. The Yen traded to 93.59 per Dollar from 94.36 in New York yesterday. Japan's currency traded at 133.16 per EUR, up from 134.22. With no major news expected from Japan, movements in global equities will continue to dominate Yen sentiment for today.

Crude Oil - Crude Prices Fall Despite Global Optimism

Crude Oil finished trading at $72.14 a barrel yesterday, down $1.64, as investors felt that the commodity was overvalued. Therefore, they dropped the commodity, and put their money into even riskier assets. Traders dropped Crude for equities, as better than expected manufacturing data added to evidence the recession may be ending. Crude Oil prices also dropped yesterday, as investors realized it was overvalued, as prices soared over the previous 2 days.

In light of the continuous low demand, Oil prices have used equities to estimate the economy's progress and recovery. While Wednesday's equities rally was driven by the surprisingly low inventories, it does not appear to be the beginning of a trend, as only a sustained increase in demand can permanently bring down the inventory level, and there is still no sign for that. Therefore, if equities rise again today and the dollar weakens significantly, we may see Crude Oil prices rebound.

Article Source - USD to Go Volatile on U.S. Homes Sales and Bernanke Speech

US Dollar, Japanese Yen to Gain as China Tightens Bank Rules (Euro Open)

The US Dollar and the Japanese Yen stand to gain after China announced a plan to raise bank reserve requirements to 12%, trimming lending and weighing on risk appetite. The economic calendar is uneventful in European hours, with currency markets likely to look to stock and commodity markets to set the tone for directional momentum.

Key Overnight Developments

• New Zealand Credit Card Spending Contracts for Ninth Month
• Risky Assets Retreat as China Promises to Tighten Reserve Requirements

Critical Levels



The Euro kept to familiar territory in overnight trading, oscillating above the 1.42 level. The British Pound traded lower, slipping below the 1.65 level once again to test as low as 1.6436.

Asia Session Highlights



New Zealand Credit Card Spending declined for the ninth consecutive month on a year-over-year basis in July, by 2.0%. This occurred as the combined debit and credit card spending figure rose 0.8%. The combination of the two pieces of data might lead one to suggest that debit card spending dominated over purchases made with credit. Such an environment would be yield-negative. A drop in the demand for borrowed funds would create incentives for banks and other lenders to drop the interest rate they charge to their customers in an effort to attract business. As such, the New Zealand Dollar could be hurt in the medium run as foreigners find that the country continues to diminish their own yield advantage over others. On balance, the decline does not necessarily indicate that New Zealanders have forfeited their shopping habits. A deeper look into the data shows that the use of credit cards abroad, by domestic residents, rose 4.5%. Tourism spending, however, may be cyclical and might not necessarily indicate that next month's figure will rise.

Risky assets retreated, boosting the safety-linked Japanese Yen and US Dollar as China Banking Regulatory Commission said it was drafting a rule change that raise reserve requirements for Chinese banks to 12%, pushing firms to rein in lending. Policymakers rushed to boost lending access at the height of the credit crunch but are now concerned that these measures may be overshooting to create a speculative bubble. The Hong Kong Stock Index promptly retreated on the announcement and other exchanges may be soon to follow considering the market’s recent focus on China as the poster-child of recovery from the global downturn, promising further gains for the Japanese unit and the greenback.

Euro Session: What to Expect



The economic calendar is decidedly bare in European hours, with Augusts’ Euro Zone Purchasing Manager Index the only notable item on the docket. Expectations call for a rise to 48.0 from 47.0 in the previous month, showing that the service and manufacturing sectors will shrink again this month, albeit at a slower pace. Indeed, the pace of contraction has steadily moderated since the index hit a record low at 36.2 in February as ample global stimulus measures as well as a widespread move to restock depleted inventories helped slow the bleeding. Both of these catalysts are inherently temporary, however, and PMI readings are likely to reverse course lower in the months ahead as the weight of rising unemployment holds back a sustainable rebound rooted in private demand.

On balance, scheduled event risk does not present meaningful market-moving potential, with currency markets likely to look to stock and commodity markets to set the tone for risk sentiment and shape directional momentum.

Written by Ilya Spivak, Currency Analyst and Luis Gil, DailyFX Research
Article Source - US Dollar, Japanese Yen to Gain as China Tightens Bank Rules (Euro Open)

BOE Reveals Doubt over Short-Term Recovery

Yesterday's bearish behavior by the GBP was felt by many traders as the Bank of England's (BOE) Monetary Policy Committee (MPC) released the minutes from a recent meeting regarding interest rates and quantitative easing. There was a hint of dissension among the policymakers with some calling for a greater extension of the quantitative easing program which ended up pumping an additional 50 billion Pounds into the UK market recently. Fears over weak inflationary growth and market downturns have some MPC members lobbying for more aggressive measures, which puts pressure on the Pound.



USD - The Dollar Turns Down as US Stocks Rebound

The greenback fell against 11 of its 16 major currency counterparts Wednesday before a report, expected to show an index of U.S. economic indicators, rose for a 4th consecutive month. The U.S Dollar traded near a 1-week low against the EUR on speculation economic data will add to signs the global recession is easing, prompting investors to seek higher-yielding assets. The Dollar changed hands at $1.4230 vs. the EUR down from $1.4127 yesterday.

The U.S. Dollar was supported in earlier trading by declining U.S. stocks, following Chinese markets, prompting investors to move toward assets perceived as less risky.
However, the Dollar weakened against the Japanese yen, although it came off the day's worst levels, as a sharp slide by China's stock market overnight raised concerns about the global economic outlook and boosted the Japanese currency's allure.

In recent months, the USD has tended to fall as stock prices and risk appetite rises, giving investors less impetus to buy dollars as a safe haven. In the absence of fresh economic data, currencies were mostly following stock prices for direction. Traders may see more volatility and choppy trades given that not much is happening in terms of events. So any correction to stock markets could be a key driver for the USD currency.

EUR - The EUR Hits Session High above $1.42

Europe's single currency gained versus 11 of its 16 major rivals on Wednesday as economists said the Markit Economics' composite index of both industries may be the highest in a year. The index is based on a survey of purchasing managers and due for release on Aug. 21st. The EUR added to gains against the U.S. Dollar, rising 0.6%, as stocks pared losses and oil prices rose sharply. The EUR also pared losses against the Yen and was last down 0.1% at 133.60 yen, off a one-month low of 132.16.

The European currency rose from near a 1-week low against the GBP on speculation a European report this week will show manufacturing and service industries contracted at a slower pace, adding to signs the recession in the 16-nation region is abating. The British Pound weakened 0.9% to 86.07 pence per EUR and dropped 0.2% vs. the Dollar to $1.6534.

The GBP extended losses after Bank of England (BOE) meeting minutes showed that some policymakers had wanted to extend quantitative easing by more than the amount decided. The central bank is spending 175 billion pounds to buy assets in a move aimed at pushing down borrowing costs to revive the U.K.'s shrinking economy. Asset purchases require the BOE to print money, which some investors fear may lead to an oversupply of the Sterling and eventual inflation.

JPY - JPY Rises as Chinese shares fall more than 2%

The Japanese yen rose versus other major currencies on Wednesday as a fall in Chinese shares made investors cautious about returning to risky investments. The Yen climbed to its strongest level in 3 weeks against the U.S. Dollar after China's benchmark stock index fell into a so-called bear market, reigniting concern that the global economic recovery is stalling.

China's main stock index, which tracks the bigger of China's stock exchanges, slumped 4.3%, leading other Asian bourses lower and boosting demand for the Yen as a refuge. The Yen typically rises during times of financial turmoil because Japan's trade surplus reduces the nation reliance on foreign capital. The JPY also gained against all 16 major counterparts after the Daily Telegraph cited Hartmut Schauerte, the economic state secretary, saying Germany is preparing measures with the Bundesbank in anticipation of a new credit crunch wave early next year.

Crude Oil - Oil Rallies on Sharp U.S. Inventory Data

Crude prices soared above $73 a barrel on Wednesday, as rising U.S. equities and an unexpected drop in inventories propelled oil prices to finish at their highest level since early June. Oil surged as much as 5.2% yesterday after crude stockpiles dropped 8.4 million barrels last week, the most since the week ended May 23, 2008, an Energy Department report showed. Crude Oil also gained as the U.S Dollar declined against other currencies, increasing the appeal of commodities to investors looking for an inflation hedge.

Oil prices fell earlier on Wednesday, hitting a low of $68.05 after a near 5% slump in Chinese shares sent doubts rippling through global markets about the strength of the world economic recovery. Traders also watched for storms in the Atlantic Basin but no immediate threat was seen to U.S. oil installations in the Gulf of Mexico. Expectations for a potential rebound in the economy could increase fuel consumption and have already helped lift prices.

Article Source - BOE Reveals Doubt over Short-Term Recovery

British Pound Holds 1.65 Level Against US Dollar Ahead of Retail Sales Report (Euro Open)

The British Pound held on to the 1.65 level against the US Dollar after coming off the late NY-session high in overnight trading ahead of a report that is set to show Retail Sales grew for the second straight month in July. Switzerland’s Trade Balance and ZEW survey of investor confidence are also on tap.

Key Overnight Developments

• Australia Recalls Ambassador to China for ‘Urgent Meeting’
• RBA Sold A$705 Million into Currency Markets in July
• Euro, British Pound Yield Flat Result After Choppy Session

Critical Levels



The Euro stands effectively flat having spent much of the overnight session in choppy consolidation above the 1.42 level. The British Pound followed suit, oscillating above the 1.65 mark.

Asia Session Highlights



Australia's ambassador to China, Geoff Raby, was told to return to Canberra on such a short notice to participate in urgent talks considering the waning relationship between the two countries, reports have said. Moments ago, Prime Minister Kevin Rudd stated that Australia-China relations are full of challenges. Much of the diplomatic tensions came after China detained Rio Tinto executive Stern Hu in an espionage dispute. It is of some worry that trade between the two nations will suffer as a result. Grief between the two comes during a period in which the 1.3-billion person nation found itself to be the largest single country destination for Australian exports. Since the start of the year, Australian shipments to the Asian country have surged 54%. But with Australia failing to even show up in the official export statistics figure for China, it appears as though the latter has less to worry over its ties with the former.

The Reserve Bank of Australia reduced the level sold of its domestic currency in July to A$705 million after a month in which they sold a record amount, A$1.943 billion. Since the start of the year, the bank has sold a net total of nearly A$6.0 billion in the foreign exchange market. Selling has come during a period in which the Australian Dollar gained 16.3% on a trade-weighted basis and 19% against the greenback. Price action of this nature probably hurt the country's export sector in an already weak global trading environment. June, however, saw these efforts pay off after the trade balance unexpectedly shrunk for the first time since March on export strength.

Euro Session: What to Expect



UK Retail Sales are set to add 0.4% in July, the second consecutive month in positive territory. The annual pace of growth is expected to register at 2.7%, a bit lower than the previous month’s 2.9% result but certainly better than the -2.0% drop registered in May, the largest in 17 years. The metric has seen atypical volatility over recent months as rising unemployment levels grappled with rebounding asset values and government stimulus for dominance over consumer sentiment. On balance, we see the downside scenario as more plausible: fiscal support is inherently limited with the UK budget deficit already set to average over 12% of GDP though 2010, threatening the country’s sovereign credit rating; meanwhile, global equity valuations are looking increasingly overdone having finished last month at the highest level relative to earnings since 2003. Unemployment growth, meanwhile, looks far more permanent, with a survey of economists conducted by Bloomberg expecting a steady rise to put the jobless rate just shy of 9% by the end of next year. Clearly, this points to the likelihood of a down trend in retail activity for the time being.

Turning to Switzerland, the Trade Balance surplus may narrow again in July as exports extend a multi-month downtrend after dropping by a whopping 23.5% in the previous month, driven lower by lackluster demand in the mountain nation’s main overseas markets. On the opposite side of the equation, the import price index fell at the fastest pace on record in July, suggesting a healthier domestic appetite for overseas goods than the other way around. Separately, the August edition of the ZEW Survey of investor confidence is also on tap.

Written by Ilya Spivak, Currency Analyst and Luis Gil, DailyFX Research
Article Source - British Pound Holds 1.65 Level Against US Dollar Ahead of Retail Sales Report (Euro Open)

European Currencies on the Rise along with Risk Appetite

Yesterday's sudden boost in equity markets world-wide has helped drive many of the riskier currencies, such as the EUR and GBP, higher versus their primary currency rivals. Safe-havens such as the Dollar and Yen took a small beating yesterday as well from this news. With investor confidence on the rise in Europe, a rally for the European currencies may be overdue. This in turn could also push commodity prices higher in the short-term.



USD - Dollar Plummets on U.S. Equity Market Rally

The Dollar fell during much of Tuesday's trading against a number of its major currency pairs, as U.S., European and Japanese equities rallied. This was partially sparked by a sharp increase in German investor confidence, and better than forecast earnings from top U.S. companies such as Target and Home Depot. Demand for the greenback slumped versus a number of major currencies in early trading, as the rally in equities led to a fall in demand for safe-haven assets.

The USD declined against the British Pound by a massive 200 pips to 1.6550. This performance was owed to mounting British inflation. Against the EUR, the USD also saw much bearishness, as the EUR/USD pair slided significantly in early trading. However, this was in some senses short-lived, as U.S. Building Permits and other
weak housing data poured some demand back into the USD. Thus the
USD did make a short recovery, as the EUR/USD cross finished trading at the 1.4128 level. The USD/JPY pair finished even for the day at 94.75, as demand for these low-yielding currencies was lower yesterday.

Looking ahead to today, there is much data that is likely to determine the volatility of the forex market, and the strength of the U.S. Dollar; the most important of these being the publication of U.S. Crude Oil Inventories at 14:30 GMT. A lower figure could help push-up Oil prices, whilst putting downward pressure on the USD. The opposite result could in-turn strengthen the USD. Data from across the Atlantic, such as British CBI Industrial Orders Expectations and the Current Account publication from the Euro-Zone is also likely to have important implications for the USD in Wednesday's trading.

EUR - Pound Climbs on Higher Inflation Figures

The Pound climbed yesterday on higher inflationary figures, as the Office for National Statistics reported that the Consumer Price Index was at 1.8% in July, significantly higher than the forecasted 1.5%. This proves that the Pound has been far more resilient in this economic crisis than many analysts had forecast. This led currency analysts to the conclusion that the Bank of England (BoE) may come up with a much more disciplined monetary policy in the near future.

The British currency jumped against the Dollar by 200 pips to the 1.6550 level, and the GBP/JPY pair rose by 200 pips to the 157.00 level, as demand for the lower-yielding/safe-haven JPY fell in Tuesday's trading. The GBP gained about 90 pips vs. the EUR, as the pair reached the 0.8535 level. Much of this was owed to data from Britain. Also, it proves that even the strong European economic data on Tuesday was unable to help the EUR make inroads into the GBP. The EUR/USD finished trading slightly higher near the 1.4130 level, despite making inroads into the Dollar in earlier trading.

Today, there are several economic publications that are expected to drive-up the GBP and EUR crosses. From Britain, there is the MPC Meeting Minutes and CBI Industrial Order Expectations at 08:30 GMT and 10:00 GMT respectively. From the Euro-Zone, there is the release of the German PPI figures at 06:00 GMT, and the publication of the Current Account at 08:00 GMT. These key releases are expected to set the trend for both the British and Euro-Zone currencies in today's trading. In order to make big profits today, it's advised that you open your EUR and GBP positions now.

JPY - Yen Collapses against the Pound

The Yen collapsed against the Pound on Tuesday, as the pair finished 200 pips higher at the 157.00 level. This rise in the GBP and fall in the JPY was largely due to higher than expected GDP figures from Britain. However, the JPY bearishness yesterday was also owed to global stock market rallies owed to higher than forecast earnings for a number of top U.S. companies. This reduced the demand for lower-yielding assets, such as the JPY.

The JPY actually finished trading almost unchanged against the USD, but lower vs. the EUR. There have been fears recently that the Yen may be in for a steep decline if Japan doesn't continue increasing its exports. These fears have been exasperated despite the Japanese economy officially rising out of recession in the previous quarter. The JPY is set to move today on important economic releases from Britain, the U.S. and the Euro-Zone.

Crude Oil - Crude Oil Soars to Over $72 a Barrel

The price of Crude Oil soared by about $3.25, or over 4%, to just over $72 a barrel, reversing 3 consecutive days of losses. Crude was boosted as the Dollar was bearish in much of Tuesday's trading, which increased demand for commodities. The weakened USD was caused by global stock market rallies led by the U.S. This was also caused by optimistic economic data from Germany, the largest economy of the Euro-Zone. Furthermore, the weak USD led to higher demand for riskier assets.

Oil prices may continue rising for a number of reason's in today's trading. We have seen the commodity over-sold in recent trading days. Additionally, many optimistic signs from leading and fast-growing global economies have led many investors to realize that there may be a big jump in Crude Oil demand in the near future. Additionally, as long as market optimism stays high, so will the demand for Crude Oil.

Article Source - European Currencies on the Rise along with Risk Appetite

British Pound at Center Stage as Bank of England Publishes Meeting Minutes (Euro Open)

The British Pound is in focus in the European trading session as the Bank of England releases minutes from its August policy meeting when it unexpectedly boosted its quantitative easing program by 50 billion pounds. German Producer Prices are also set for release.

Key Overnight Developments

• New Zealand Wholesale Inflation Slips Again in Second Quarter
• Australian Leading Index Grew in June, Says Westpac
• N.Z. PM Key Seeks Single Market with Australia, FinMin Decries Spending

Critical Levels



The Euro yielded an effectively flat result in overnight trading having tried but failed to build upward momentum. The British Pound did inch lower however, losing its grip on the 1.6550 level to test as low as 1.6511.

Asia Session Highlights



New Zealand's Producer Prices remained flat in the three months ending June after two quarters of deflation, following a quarter which saw the largest magnitude in wholesale cost declines since the data began being recorded in 1976. On a yearly basis, input costs fell 1.2%, the first of such cost declines in more than five years. The quarterly data comes during a period in which commodities, as indicated by the S&P Goldman Sachs Commodity Index (SPGSCI) surged 25.6% following a quarter which saw the index remain flat. The interesting fact is that the SPGSCI plummeted 44% in the final three months of 2008. Thus it seems that there is a lag of about three months in the effect that commodity prices have on the cost that producers pay for raw materials. Looking further down the supply chain, output prices fell -0.7%, pointing to downward pressure on consumer prices as wholesale discounting is passed on into the final price tag and allowing the central bank some room to cut interest rates, a strategy that we have advocated previously.

On the other side of the Tasman Sea, Australia's Westpac Leading Index, which gauges the probable rate of economic activity about six months into the future, rose 0.7% in June after the previous month saw the outcome negatively revised to -0.4%. A rise of such proportions would be somewhat expected, given that the Reserve Bank of Australia revised it's growth forecast for the year up to 0.5% from a contraction -1.0% at it's August 6 meeting. Adding to these comments today, RBA Assistant Governor Malcolm Edey said that consumer confidence has returned to high levels, at a speech given at the 7th Annual Retail Financial Services Forum. Despite the optimism Edey was “wary of making any predictions,” he said. Nonetheless “in the past few months there have been encouraging signs of improvement.” The signs here referred to by the Assistant Governor must be primarily linked to the performance of equities, which have surged 27% between the start of March and the end of July. Broader economic conditions have not warranted the optimism, especially since retail sales plummeted when they were expected to actually grow, and especially after full-time jobs continued to be shed in favor of part-time ones.

Euro Session: What to Expect



German Producer Prices are expected to fall at an annual pace of -6.5% in June, the largest drop since records began in 1977. The result will foreshadow continued downward pressure on consumer prices, the headline inflation gauge, as lower wholesale costs filter down into the final price tag. The reading adds to building evidence that Germany and the Euro Zone as a whole may slip into deflation, threatening to leave the economy mired in a long-term period of stagnation as expectations of lower future prices discourage spending and investment.

The European Central Bank has thus far focused primarily on offering banks unlimited borrowing ability, including an unprecedented 442 billion euro in 12-month bank loans, in the hopes that this would be passed on to the overall economy to both stimulate growth and put a floor on prices by making money cheaper. So far, this has not worked: although interbank borrowing costs have stayed well below 0.5% for over two months, this has not filtered through into the economy at large. Indeed, loans to Euro Zone businesses and households grew just 1.5% in June, the lowest since records began in 1991. European banks have yet to come to terms with an estimated $1.1 trillion in unrealized sub-prime related losses (per the IMF), a hit that could be compounded by losses from default or devaluation in some of the newly-minted EU member states, and so may be perfectly content to sit on the money they have borrowed for the time being. The ECB has also flirted with the direct approach, putting in place a 60 billion euro bond-buying scheme. Although it is too early to tell for certain, this seems too small of a program to have any meaningful impact. The bottom line is that greater monetary easing is clearly needed if deflation is to be averted, but the central bank’s neutral posture points to either unwillingness or an inability to meaningfully anchor price expectations. While the Euro has enjoyed robust gains in the four months from the beginning of March on the back of a broad rebound in risk appetite, any return to focus on economic fundamentals could prompt a sharp a sell-off in the single currency.

In the UK, minutes from the most recent policy meeting of the Bank of England are due for release. Mervyn King and company had unexpectedly expanded their quantitative easing scheme by 50 billion pounds and left the door open to further expansion, saying its scope will remain “under review”. Up to that point, the program had largely failed to boost lending to the real economy. Indeed, loans to non-financial firms fell by a record 14.7 billion pounds while the pace of money supply growth fell for the first time in close to a decade in the second quarter. To that effect, traders will be combing through the meeting’s minutes for the rationale behind the BOE’s apparent belief that another 50 billion pounds in asset purchases will make a meaningful difference after the 125 billion pounds that have already been put to work.

Article Source - British Pound at Center Stage as Bank of England Publishes Meeting Minutes (Euro Open)

Greenback Trades Lower Ahead of the U.S Housing Starts Report

The U.S dollar came slightly off highs against major counterparts on Monday, after a report that showed improved manufacturing conditions in the New York region in August. The Dollar earlier received a boost as commodities sold off following a sharp drop in Chinese equities overnight. Today the greenback declined before the Commerce Department reports housing data at 12:30 GMT on speculation the U.S recession probably eased further. The impact of a stronger- then-expected number will be positive from a risk point of view, analysts said, hence reducing demand for the dollar as a refuge.



USD - Dollar Gained from Drop in Equities However the Correction Is Imminent

Yesterday's trading experienced a moderate level of bullishness for the USD with the sudden weakness in equity markets bringing back a level of risk aversion. Expectations for a bearish Dollar in the optimistic environment that emerged at the start of this month have now begun to dwindle as stock markets continue to get squeezed. The safety of currencies such as the USD and JPY has grown throughout the beginning of this trading week.

Climbing as high as 1.4048 against the EUR, and as high as the 1.6275 price level against the Pound, the greenback is finally starting to show signs of bearishness after a long day of upward trading. Market fundamentals may have less to do with today's early morning movement, however, as economic data shows a continuation of yesterday's trends. A technical correction is underway, but data releases expected at the opening of European and American markets should drive some volatility in today's trading.

The opening of the European markets will reveal consumer sentiment in Germany and the Euro-Zone in the form of the ZEW sentiment reports at 9:00 GMT today, while the US markets will release data concerning inflation and the number of building permits issued last month for the construction of new homes. These will mark the important calendar events for today and traders should be on guard for further USD depreciation if a market correction is indeed underway.

EUR - EUR Dampened from Risk Aversion; ZEW Report on Tap

After the recent drop in equities, the EUR has fallen off its latest gains against its primary currency counterparts. While still holding above the 1.40 level against the USD, the EUR was nevertheless trading at a two-week low versus the greenback yesterday. On the other hand, the EUR continued to out-perform the British Pound, climbing as high as 0.8645 before the opening of European markets yesterday. Versus the Yen, the EUR also suffered a set-back from equity losses, trading as low as 132.50.

On the positive side, Euro-Zone exports have risen, signaling growth in the troubled region and pointing to future appreciation for the EUR against most of its rivals. However, the demand for riskier assets took a beating yesterday after the sharp fall in global stock markets. Most information regarding the 16-nation currency this week point to sharp movements in both directions following individual data releases. EUR traders should anticipate the heavy news week ahead and prepare for volatility.

Being released today at 9:00 GMT are the ever-important ZEW economic sentiment reports from Germany and the Euro-Zone. Both reports are expected to show an increase from the previous reading, while remaining below the significant 50.0 mark. This sends the mixed signal of demonstrating growth in optimism, but a modicum of hesitation about market strength as well. British inflationary data may also generate volatility for the GBP, but traders should focus more closely on the ZEW reports as these will drive today's market.

JPY - JPY Correction Due, European Confidence Deciding Factor

As one of yesterday's leading currencies following the sharp drop in equity markets worldwide, the JPY is now experiencing a distinct technical correction. Whether this recent downward move will sustain itself may depend largely on the data releases at the opening of the European and US markets for each of the Yen's currency rivals individually.

Climbing as high as 94.20 against the USD, 132.50 against the EUR, and 153.50 versus the Pound, things now appeared to have reversed ever since this morning's trading witnessed a sharply declining JPY opposite these leading currency rivals. If market optimism is shown to have increased in Europe following the ZEW sentiment reports at 9:00 GMT, the JPY could continue to see sharp losses versus its rivals as risk aversion begins to abate.

Crude Oil - Oil Slumps below $68 a Barrel, but Returning to Bullishness

After last Friday's surge above $73 a barrel, Crude Oil now trades near the $69 price level with a few bullish signals being provided by the market. Yesterday's drop in equities, and subsequent boost in the value of the USD, helped drive oil prices below $70 a barrel, but this morning's rally in risk appetite is proving positive for commodity prices. Since the start of today's trading, Crude Oil has climbed over $1.00 and continues to experience bullishness.

With European consumer sentiment reports expected, there is the possibility that a growth in optimism will help rally investors to riskier assets, thus lowering the Dollar in today's trading. With the greenback losing value, Crude Oil could gain strength on the USD's behalf. Traders should be on the lookout for any signs of positive growth in the Euro-Zone as this may trigger a return to risk appetite, and a potential sell-off of USD, helping to push oil prices higher.

Article Source - Greenback Trades Lower Ahead of the U.S Housing Starts Report