FOREX TRADING

China and Russia have stopped utilizing the United States of America dollar for bilateral transactions, a transfer announced Wed. The announcement came as top officials from China and Russia met in St. Petersburg to forge bilateral cooperation in Trade and energy. The China-Russia dollar decision isn’t seen as detrimental to U.S. currency exchange and could force the value of the yuan in line with other global currencies.

China and Russia opt-out of using the U.S. dollar for bilateral transactions

The connection with the U.S. dollar, China and Russia has officially ended. Russia and China have had to use a third party currency to negotiate transactions of trade due to their fragile relationship. They chose to use the American dollar as their form of trade and had their trade valued at $ 38.8 billion last year alone. These two nations will have an estimated $ 60 billion value by the end of the current year. Now the two countries will have to use either rubles or yuan when participating in trade.

Why China and Russia are making the switch

The Chinese stock exchange already recognizes the Russian ruble. Moscow will see the Chinese yuan on their stock market as early as December. The International Business Times reports that the China-Russia dollar move isn’t intended as a challenge to the U.S. Because of the global financial crisis this is just a step to protect both countries and their trade with each other. Some believe this switch is due to a Russia-China oil deal. Soon a Siberian pipeline will pump over 1 billion barrels from Russia to China every year. Russia is requesting the oil be exchanged through rubles.

International exchange always has some issues with it

Nothing is going to change with the dollar and how it impacts International trade. The whole planet has been anticipating the switch for China and Russia trade for some time now. The U.S. in particular wants the yuan to become a real trade currency, valued on the same level in relation to other currencies, instead of being manipulated by the Chinese government.

Information from

International Business Times

ibtimes.com/articles/85216/20101124/china-russia-dollar-vladimir-putin-wen-jiabao-ruble-yuan-bilateral-trade.htm

Business Insider

businessinsider.com/china-and-russia-drop-dollar-for-bilateral-trade-2010-11

NASDAQ

community.nasdaq.com/News/2010-11/china-russia-open-up-nondollar-trading.aspx?storyid=46466

USD Trying to Rally, Though Volatility Looks Rather Muted so Far

Improved Jobless Claims sees bond yields higher, USDJPY trying resistance. US 30-year auction results up later.

MAJOR HEADLINES – PREVIOUS SESSION

• New Zealand Oct. Business PMI out at 50.6 vs. 51.5 in Sep.
• New Zealand Sep. Retail Sales out at 0.2%/0.0% MoM less Autos vs. 0.4%/0.4% expected, respectively
• Japan Oct. Domestic CGPI fell -0.7% MoM and -6.7% YoY vs. -0.1%/-6.0% expected, respectively
• Australia Oct. Employment Change rose 24.5k vs. -10k expected
• Sweden Oct. CPI out at +0.3% MoM and -1.5% YoY vs. +0.2/-1.6% expected, respectively
• EuroZone Sep. Industrial Production rose 0.3% MoM vs. 0.5% expected (YoY was -12.9% vs. -14.1% exp.)
• Canada Sep. New Housing Price Index rose +0.5% MoM vs. +0.2% expected
• US Weekly Initial Jobless Claims fell to 502k vs. 510k expected and 514k last week
• US Weekly Continuing Jobless Claims fell to 5631k vs. 5700k expected and 5770k last week

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USD Edges Up Ahead of Jobs

The dollar was higher by the afternoon Thursday session as traders took to the sidelines ahead of tomorrow’s key US labor report. The greenback rebounded from a near one-week low against the euro around 1.4917 to bounce toward the 1.48-figure.

The economic reports released this morning included weekly jobless claims, Q3 productivity and Q3 labor costs. The weekly jobless claims improved to 512k versus an upwardly revised 532k in the previous week. Meanwhile, Q3 productivity blew away consensus estimates for a decline to 6.4%, instead surging to 9.5% from 6.9% in the previous quarter – its highest level in the third quarter since 2003. The preliminary reading for labor costs in Q3 declined by more than expected, falling by 5.2% compared with a 6.1% drop in the previous quarter.

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Greenback  Faces Another Plunge, How Will Fundamentals Shape Things?

Fundamental Outlook for US Dollar: Bullish

- Existing home sales see a record increase in July thanks to deflated prices through foreclosures, inventories
- Fed Chairman Bernanke offers a cautiously optimistic outlook among his peers at Jackson Hole
- Will the dollar topple or has resistance set the stage for a true reversal?

The US dollar ended this past week in a precarious position. After four consecutive days of selling pressure (the currency’s worst trend since the end of May), the greenback once again finds itself within arm’s reach of its yearly lows. The market has flirted with renewing the dollar’s bear trend for nearly two months now. It is only a matter of time and speculation before the world’s reserve currency finds direction once again – especially as the global recovery gathers traction and the scales between risk and reward tilt towards higher returns. In determining what may be the ultimate catalyst for a renewed trend, we have to determine what traders are more concerned about: risk appetite or growth potential. Investor sentiment is notoriously difficult to gauge as it is notoriously fickle and often sparked by innocuous factors that quickly snowball through speculation. However, there is a good chance that, in the end, both paths may lead back to growth. (more…)

The movements we saw during Friday’s trading session may have been exaggerated and may be reversed. Today is a quiet news day for the U.S. as there are no major economic data releases on the calendar today. However, Britain and Euro-zone appear to be releasing the bulk of today’s news, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.

USD – USD’s Bullish Spike at an End?

Last Friday’s release of the US Non-Farm Payroll figures drastically altered the forex market with a sharp uptrend for the US Dollar. Ending the week at 1.4181 against the EUR, down from the weekly high of 1.4447, and dropping the GBP/USD rate back towards the 1.6600 level, the greenback is beginning to benefit from positive economic news. Should forex traders go long on the USD? Not necessarily. (more…)

Going forward my thoughts from yesterday, on Wednesday the US reported a third consecutive month of Factory Order increase, a sign that things are picking up in the manufacturing sector.

The report was met with mixed results as the US Dollar fell and stocks finished slightly off, an unusual occurrence as commonly when stocks are down the US Dollar is up as Forex Traders commonly seek a safe haven respite. (more…)

The rally in stocks has been “excessive” and the financial system is still “very damaged” according to comments from Nouriel Roubini, the infamous New York University professor that has earned the nickname “Dr. Doom” for predicting the 2008 credit crisis and recession.

Key Overnight Developments

• Australian Manufacturing Sector Shrinks at Slowest Pace in 10 Months
• Japanese Workers’ Earnings Fell The Most in Over 18 Years
• New Zealand Economy Will Shrink in Third Quarter, Says Treasury
• Roubini Says Financial System “Very Damaged”, Stocks Rally “Excessive” (more…)

The US Dollar is set to go highly volatile today on the release of Advance GDP figures for the second quarter from the U.S. economy at 12:30 GMT. The forecasted results are -1.4%, significantly better than the first quarter results of -5.5%. The other matters that are expected to move the market today are the issue of the CPI Flash Estimate and the Unemployment Rate from the Euro-Zone. In order to earn some big profits today, open you positions in the USD, EUR, GBP, and JPY now, as Friday’s trading gets under way.

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The price of Crude Oil experienced a sharp decline in prices yesterday after a U.S. inventories report highlighted a sudden surge in energy supplies. While these reports may carry mixed messages about demand, supply, and growth expectations, the message yesterday was quite clear: demand is plummeting. Many analysts were expecting a draw-back in prices after last week’s surge, but the inventory report only demonstrated how unwanted this commodity has become, which only put additional weight on the downward pressure this commodity was already expecting.

USD – Dollar Extends Profits against the Majors

The Dollar continues to strengthen against all the major currencies. During yesterday’s session the greenback was traded near a two-week high versus the EUR. The Dollar also marked a significant uptrend against the Pound and Yen.

It seems that the main reason for the USD’s appreciation yesterday came as a result of the positive Core Durable Goods Orders monthly report, as well as a statement by China that it will maintain a more loose monetary policy. Whilst the Durable Goods figures reported a drop of 2.5% in June, mainly as a result of the weak demand for new civilian aircraft and defense equipment, it seems that investors were more impressed by the 1.1% rise in the Core Orders during June.

The difference between the two reports is that the Core report measures the change in the total value of new purchases orders placed with manufacturers for durable goods, excluding transportation items. Orders for aircraft are known to be very volatile, and thus have the potential to distort the underlying trend. This is why investors tend to attribute more importance to the Core report. The positive figure marked the third consecutive month in which this report delivered signs of positive growth, driving investors to believe that the global recession is reaching its end.

As for today, the main publication from the U.S economy looks to be the weekly Unemployment Claims report at 12:30 GMT. Currently, while all the major indicators of the U.S economy are showing signs of improvement, it is only the job sector which continues to deliver negative figures. Analysts forecast that 578K individuals have filed for unemployment insurance for the first time during the past week. If the actual result will be similar, this could be the harshest unemployment figures in the last month. Such a result may help drive the demand for the safety of the USD and drive its recent bullishness even higher.

EUR – German CPI Marks First Annual Decline in 22 Years

The EUR dropped yesterday against most of the major currencies. The EUR is currently traded near a two weeks low against the Dollar, as the pair fell to the 1.40 level. The EUR also saw a sharp drop against the Pound during yesterday’s session.

The EUR’s slide came as a result of the unexpected negative German Preliminary Consumer Price Index (CPI) report. This indicator measures the change in the price of goods and services purchased by consumers in Germany. Considering the fact the Germany currently holds the strongest and relatively healthiest economy in the Euro-Zone, the inflation indicators from this nation have a large impact on the EUR. The indicator showed a drop of 0.1% in July.

More severely, this report has marked the first annual decline in consumer prices in Germany in more than 22 years! It appears to be the drop in energy and food costs, which took place as a result of the global recession, which created the poor annual decline in German CPI. It now seems quite certain that for any negative indicators from the German economy such as this one have the potential to weaken the EUR in the near future.

Looking ahead to today, another significant report is scheduled from the German economy. The German Unemployment Change, which measures the change in the number of unemployed people during the previous month, is expected at 07:55 GMT. Analysts have forecasted that unemployment in Germany increased by 44K in June. If the results are indeed close to this figure, the EUR might continue to depreciate against the major currencies.

JPY – Yen Slides on Poor Retail Sales Release

The Yen underwent a bearish session against most of the major currencies yesterday. The JPY dropped over 100 pips versus the Dollar, and over 200 pips against the Pound.

The Yen dropped yesterday on poor Retails Sales data. The report showed that the total value of sales at the retail level dropped by 3.0% in June, failing to reach expectations for a 2.5% drop. Furthermore, Japan’s retails sales fell for a 10th month in June, making the longest losing streak since 2003. It seems that even though the Japanese economy is showing signs of recovering, mainly due to the positive export figures, the Japanese citizens are reluctant to resume last year’s consumption levels, an indication that optimism may be lacking in Japan.

As for today, a batch of data is expected from the Japanese economy. Traders are advised to follow the Tokyo Core Consumer Price Index report. This report is a leading inflationary indicator for Japan, and thus tends to have a large impact on the JPY’s value. If current expectations for a 1.7% drop will be similar to the real result, the Yen might continue to weaken against the major currencies in late-trading today.

Crude Oil – Will Crude Oil Drop Below $60 a Barrel?

Crude Oil prices continued to slide yesterday. Yesterday morning, a barrel of oil was valued near $66, but the current price is trading for less than $63. The main reason for the sharp cut in crude oil prices yesterday was the Crude Oil Inventories report. The report shows an unexpected surge in U.S. energy stockpiles. While analysts expected a drop of 1.1M barrels, the actual result showed that stockpiles surged by 5.1M barrels!

Most analysts had anticipated a pull-back in prices since Oil was seemingly over-bought technically and fundamentally, but the high inventories report simply put added weight to this expected downward pressure. In addition, the USD continued to strengthen yesterday. Crude Oil is valued in Dollars, and as such, tends to fall under the weight of a strong Dollar.

Looking ahead to today, traders are advised to follow the Natural Gas Storage report, scheduled at 14:30 GMT. This is more energy data that has the potential to influence oil prices by showing a continued trend of high stockpiles, indicating low demand. Traders should also consider the Dollar’s movements in today’s trading, as it has a large effect on commodity values.

Article Source – Crude Oil Price Crashes after Unusually High Inventory Data

The U.S dollar drifted sideways against a basket of currencies on Wednesday, hovering not far from the lowest level of the year, as investors continue to assess the real economy by looking at economic data in the U.S. Nonetheless, the U.S. dollar had found modest support against the EUR and trimmed a loss against the Japanese yen after some positive news about the U.S. economy. With signs that the U.S. housing market may be stabilizing, traders will also be examining U.S. consumption and employment conditions in coming data.

USD – Weak Consumer Confidence Boosts the U.S Dollar

The Dollar rose from the lowest level this year against most of its major currency counterparts on revived demand for the safety of the world’s main reserve currency.

The resurgence in risk aversion came after the Conference Board’s U.S. Consumer Confidence Index dropped to 46.6 from 49.3 in June; a worse result than the expected 49, reinforcing concerns that higher unemployment will hurt consumer sentiment. Contributing further to the demand for the safety of the American currency were the declines in stock markets.

The market also awaits more U.S. Treasury auctions this week and the effect on yield moves. A record $42 billion two-year Treasury auction on Tuesday had little impact on the currency market, although details of the outcome were not encouraging for the dollar.

Looking ahead to today, traders should follow the release of the Core Durable Goods Orders due at 12:30 GMT. After the disappointing results of the Consumer Confidence Index and the recent weak second quarter earning results, any worse than expected result will further dampen risk appetite and likely push the Dollar further up.

EUR – EUR fails to Breach the $1.43 Level

The EUR rose above $1.43 Tuesday morning, its highest level in about 8 weeks. However, by early afternoon Tuesday it was at $1.4155, down from $1.424 late Monday. The EUR also fell 1.1% against the Yen to 134.04 from 135.48 Monday. The decline came as equities dropped and investors turned to the safety of the Japanese and American currencies.

While mostly appreciating, the EUR is having difficulties pushing past important resistance levels, failing to stay above the significant $1.43 level. This is do to milder gains on the European Stock markets combined with investor’s caution ahead of the release of the U.S second quarter GDP this coming Friday and the Non Farm Employment report due next Friday.

Along with movements in equities, the release of the German Prelim CPI throughout the day is also expected to cause market volatility, possibly pushing the EUR back to the $1.43 level.

JPY – Yen Gains on Return of Risk Aversion

The Yen rose yesterday against most of its 16 major counterparts advancing versus the EUR for the first time in 4 days as a bigger than forecasted drop in U.S. Consumer Confidence this month discouraged investors from buying higher-yielding assets.

Furthermore, as the Yen is highly correlated with movements in equities, yesterday’s disappointing second quarter earnings and the consequent drop in global stock markets further assisted the Yen’s rise. With no major news releases from Japan, risk sentiment will likely continue being the driving force behind the JPY’s movements.

Crude Oil – Crude Prices Tumble after an 11 Day Rally

Crude oil for September delivery fell $1.15, or 1.7%, to $67.23 a barrel Tuesday; hitting an intraday low of $66.60. Crude Oil tumbled as U.S Consumer Confidence fell, boosting concerns over recovery in demand. Lower than estimated second quarter earning also put pressure on Oil Prices. With a negative Oil forecast from British Petroleum (BP) and a continuing climb in U.S Oil inventories, the sentiment turned bearish on Oil prices.

Movements in equities as well as Dollar sentiment will likely be the driving force behind Oil trading today, as a strong Dollar tends to put downward pressure on Oil prices. Furthermore, traders should follow the release of the U.S Crude Oil Inventories at 14:30 GMT today as this release tends to create great volatility in Oil Prices.

Article Source – Greenback Rebounds from Earlier Lows

The U.S dollar remained weak against its major currencies in range-bound trade on Monday as U.S. equity markets remained in negative territory, indicating waning desire among investors for riskier assets. Also Monday, U.S. and Chinese officials began meeting for two days of economic talks, though many analysts questioned whether anything substantial would emerge. Nevertheless, traders will be on alert for any commentary regarding the U.S. dollar’s status as a reserve currency. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.

USD – Dollar Goes Volatile on Optimistic Homes Sales Data

The U.S. Dollar experienced an extremely volatile trading day on Monday, as the New Home Sales data was released from the U.S. economy. The result was a better-than-forecast 384,000 homes versus the previous release of 346,000 homes. This is a whopping 11% increase, the biggest monthly increase since December 2000. This led to many analysts stating that this is the end of the U.S. housing slump. The result led to volatile USD trading. Moreover, the Dollar closed lower against some of its main currency pairs, due to optimistic data from regions such as the Euro-Zone.

At one point in trading the USD actually reached a 7-week low vs. the EUR at 1.4299. This was following the extremely optimistic German consumer confidence figures. However, the pair finally closed 33 pips higher at the 1.4246 level. The USD recorded its second daily loss in a row of 30 pips against the British Pound, as the GBP/USD finished trading at the 1.6484 level. This comes about as optimistic data from Britain continues to drive up the British currency. The USD/JPY pair finished higher, to close at the 95.17 rate. This comes about as the Yen falls from higher risk appetite.

Looking ahead to today, forex traders can expect plenty of news coming out of the U.S. The most important of this being the CB Consumer Confidence figures at 14:00 GMT, the speech by Federal Reserve Chairman Ben Bernanke at 22:00 GMT, and the speech by Treasury Secretary Timothy Geithner from 23:00 GMT. These 3 events are set to determine the level of the Dollar as Tuesday’s trading takes off. The big 3 pairs to watch today are the EUR/USD, GBP/USD, and USD/JPY, as traders anticipate a weaker U.S. currency as the U.S. economy continues to recover.

EUR – EUR Boosted by German Consumer Confidence Figures

The EUR hit a 7-week high versus the USD in Monday’s trading, following the Gfk German Consumer Climate figures. The result showed a 14 month high 3.5, significantly higher than the forecasted 2.9. This helped the EUR strengthen throughout Monday’s trading. The reason why this data is so significant is due to Germany being the largest economy in the Euro-Zone. The EUR also was helped as U.S. New Home Sales jumped 11%. The EUR is likely to continue benefiting from the optimistic economic news.

The EUR/USD cross hit 1.4299, before closing 33 pips higher at the 1.4246 level. However, the European currency fell by 15 pips vs. the British Pound to 0.8635. This may be due to investors buying-up Pounds as risk appetite increases with more and more signs of global economic recovery. The EUR/JPY pair climbed by over 35 pips to the 1.3532 level, as traders continued to ditch the JPY due to preferring riskier assets, such as the EUR and GBP. Therefore, overall, the EUR did make some reasonable gains in Monday’s trading.

Today, we won’t be expecting much economic news coming out of the Euro-Zone. However, Britain and Switzerland are likely to be the key drivers of the European currencies later today. Britain is set to release the CBI Realized Sales figures at 10:00 GMT. Switzerland is scheduled to publish the UBS Consumption Indicator at 06:00 GMT. The results of both of these are set to drive both the GBP and CHF in today’s trading. Additionally, the EUR will go volatile on both of these publications, and on key data coming out of the U.S. throughout today’s trading.

JPY – Yen Falls to 3-Week Low vs. Dollar

The Yen fell to a 3-week low against the Dollar yesterday, in response to the rise in new U.S. home sales. The Yen also weakened on speculation that declines in currency volatility will spur carry trades. In carry trades, investors borrow at a low rate in one country and invest in another country with higher returns. This behavior is likely to continue as the main economies improve, and traders sell-off the safe-haven JPY. Thus the Japanese currency fell over 30 pips against the USD, EUR and GBP.

It is likely that the Yen will continue to decline today, as forex traders continue to take into account the optimistic economic data that was published from the U.S. and the Euro-Zone. The JPY will go very volatile in late trading, as Japanese Retail Sales are published at 23:50 GMT. It would be a wise choice for forex traders to open their JPY positions now in order to have the opportunity to profit from volatile market behavior as Tuesday’s trading commences.

Crude Oil – Crude Oil Hits 3-Week High

Crude Oil hit a 3-week high of $68.94 a barrel on Monday, as the USD declined in response to positive housing data from the U.S. However, weaker earnings figures in some instances pushed Oil down from its peak, as the commodity finished trading at about $68.06 a barrel. Crude was also helped by a weaker Dollar in earlier trading due to positive economic news from Germany. However, it seems that in this instance, risk appetite wasn’t strong enough to hold-up the value of Crude Oil on Monday.

As for today, Crude prices may rise if the USD weakens considerably, and there is increasingly optimistic economic news led by the U.S. Additionally, traders need to feel that there is enough demand to support Crude Oil at its current price level. In order to take advantage of the current trends, it is advisable for forex traders to begin opening their positions in Crude Oil and other commodities prior to volatile market conditions.

Article Source – The Currency Market Keeps on Eye on U.S.-China Dialogue

The US Dollar avoided a breakdown in overnight trading despite sharp gains across Asian stock exchanges as the market continued to look ahead to this week’s record-setting $115 billion US Treasury bond auction that promises to boost long-term interest rates and spur demand for the greenback. Germany’s GfK Consumer Confidence report is on tap in European hours.

Key Overnight Developments

• Bernanke Defends Fed’s Independence, Supports “Strong Dollar Policy”
• Buyers Returning to UK Housing Market, Reveals Hometrack Survey
• US Dollar Avoids Breakdown Despite Stock Rally, Bond Auction Looms Ahead

Critical Levels

The Euro and the British Pound traded near familiar levels against the US Dollar despite a sharp rally across Asian stock exchanges that would have been expected to weigh on the safety-linked greenback. The MSCI Asia Pacific added over 1% overnight, putting in 10 consecutive days of gains for the first time since 2004. We noted last week that the majors were showing signs of diverging from risk trends following the US Treasury’s announcement of a record-setting $115 billion bond auction that stands to boost long-term interest rates and spur US Dollar demand.

Asia Session Highlights

US Federal Reserve Chairman Ben Bernanke defended the central bank’s independence at the taping of a “town hall”-style meeting for PBS, saying the Fed is already “very accountable” to Congress and stressing that citizens don’t want Congress running monetary policy. On the economy, Bernanke said that credit markets are still “very constrained” and warned that employment won’t recover for “a while”, forecasting that the jobless rate will likely exceed 10%. Regardless, the Fed chief said he has “tremendous confidence” in the US economy, saying output will be “growing strong” within a few years. Answering critics that have argued policymakers’ actions would stoke future inflation, Bernanke said the Fed does not want to “over-stimulate” the economy and is “very confident” it has the tools to unwind the emergency liquidity-boosting measures put in place amid the financial crisis. Bernanke added that it was too early to judge the impact of the government’s stimulus plan, but stressed that Congress needs to come up with a plan to restore fiscal balance by trimming the burgeoning budget deficit. Commenting on currencies, Bernanke echoed the Treasury’s mantra of support for a “strong Dollar policy” and said a stronger US economy will bolster the greenback.

In the UK, the Hometrack Housing Survey revealed that real estate prices fell -7.7% in the year to July, the slowest pace of decline since October 2008. Details of the report revealed that property sellers were able to secure 91.5% of their initial asking price in the final transaction, marking the eighth consecutive month that their bargaining power has improved; meanwhile, the average time a property spent on the market before being sold fell to 9 weeks, the lowest in over a year. On balance, the survey reinforces reports of a rebound in buying interest that has been noted in other recent data. That said, rising unemployment may prove to be a barrier to a near-term rebound in real estate prices: the jobless rate is expected to top approach a whopping 9% by the end of this year, trimming incomes and hindering Britons’ ability to pay their mortgages. This is likely to boost repossessions, flooding the market with fresh supply and sending property values downward.

Euro Session: What to Expect

Germany’s GfK Consumer Confidence gauge is expected to stall at 2.9 in August after rising for two consecutive months in June and July. Last month, the market research firm commented that, “Reports that the inflation rate stood at zero percent in May are having a positive effect on income expectations and the propensity to buy.” Although falling prices stand to boost spending in the short term, entrenching expectations of deflation will work against consumption, encouraging people to wait for the best possible bargain and perpetually put off purchases. Clearly, this threatens firms’ revenues and darkens the outlook for employment, which in turn can reasonably be expected to put the brakes on any rebound in consumer sentiment. Most worryingly, the onset of deflation may already be at hand, with Germany’s Consumer Price Index set to show later this week that the annual pace of inflation turned negative for the first time in 23 years.

Written by Ilya Spivak, Currency Analyst
Article Source – US Dollar Avoids Breakdown Despite Stock Rally, Bond Auction Looms Ahead (Euro Open)

The US Dollar remained supported despite a sharp rally across Asian stock exchanges, diverging from risk trends on news the Treasury will sell a record $115 billion in bonds next week, boosting interest rate expectations and driving yield-seeking interest in the greenback. Germany’s IFO Survey and UK Gross Domestic Product data headline the calendar in European hours.

Key Overnight Developments

• US Dollar Supported as Stocks Surge with Treasury Sales to Boost Yields
• Euro, British Pound Consolidate at Familiar Levels in Overnight Trading

Critical Levels

The Euro traded sideways in Asian hours, oscillating in a narrow 30-pip range below 1.4170. The British Pound tried higher to test above 1.65 but prices retreated late into the session, yielding an effectively flat result ahead of the opening bell in Europe.

Asia Session Highlights

With no major market-moving data on the economic calendar, forex market consolidated near familiar levels in overnight trading hours. Interestingly, prices seemed to look past a sharp rally on Asian stock exchanges, a dynamic that over recent months has meant losses for the safety-linked US Dollar. A similar divergence was on display in New York hours, with the currencies shying away from breaking key levels even as risk appetite continued swell. The greenback may be seeing support as traders react to the US Treasury’s announcement that they will sell a record $115 billion in bonds next week. Treasuries declined as the news crossed the wires, with 10-year notes posting the largest daily loss in nearly seven weeks, sending yields to the highest level in a month. We have argued for some time that the US Dollar will benefit as the government issues debt to finance the rapidly growing public deficit: Treasury prices will head sharply lower as the market is flooded with new supply, putting tremendous upward pressure on the long-term interest rates. This will make USD-denominated assets attractive to yield-seeking investors, driving demand for the greenback.

Euro Session: What to Expect

Germany’s IFO Survey of business sentiment is expected to rise for the seventh consecutive month in July, pointing to continued improvement in firms’ 6-month economic outlook. Still, the reading is expected at 90.1, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating but at a slower pace. The Euro Zone Purchasing Manager Index is set follow a similar a similar trajectory, printing at 43.5 in July to show that the manufacturing sector shrank for the 14th consecutive month, albeit at the slowest rate since the metric hit a record low in February. Some recovery is to be expected as an array of fiscal packages from governments across the currency bloc filter into the broad economy, but the big question in the Euro area as well as most anywhere at this stage is whether growth is sustainable after stimulus cash dries up. As it stands, the latest economic forecast from the International Monetary Fund (IMF) reveals that the Euro Zone will stand apart from other industrialized economies in seeing economic growth continue to contract in 2010, pointing to a comparatively slower return to higher interest rates that will keep the Euro on the defensive against most major currencies.

In the UK, Gross Domestic Product is set to shrink -0.3% in the second quarter, a far smaller decline than the -2.4% lost in the three months through March and the smallest drop in a year. London-based think tank NIESR has forecast the moderation, saying “the U.K. economy is now stagnating rather than continuing to contract at a sharp pace.” Minutes from the last meeting of the Bank of England echoed the optimistic outlook, with policymakers saying risks to GDP have probably diminished and speculating that the economy may shrink less than was previously expected. Not everyone is as sanguine, however: the British Chamber of Commerce urged the BOE to add 25 billion pounds to their asset-buying scheme, saying a recovery is “not guaranteed”, a sentiment that has been echoed by the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). This makes today’s report critical to shaping the market’s expectations of future of monetary policy: traders will likely be less sensitive to a print in line with or better than what is expected, as this would only reinforce themes that have already been priced into the exchange rage; conversely, a disappointing outcome could weigh heavily on sterling as traders readjust their exposure to reflect a likely expansion of quantitative easing.

Written by Ilya Spivak, Currency Analyst
Article Source – US Dollar Supported as Stocks Surge with Treasury Sales to Boost Yields (Euro Open)

The USD is set for another volatile action-packed trading day as this weeks’ trading comes to a close. The Dollar saw sharp moves against the EUR, GBP and JPY yesterday. This type of behavior is set to continue today as vital economic news is set to come out of the U.S. The economic events that are set to lead the forex market are the publication of U.S. Revised UoM Consumer Sentiment at 13:55 GMT, Federal Reserve Chairman Ben Bernanke’s Testimony and Treasury Secretary Timothy Geithner’s speech on U.S. economic recovery both at 14:30 GMT.

USD – Dollar Rallies vs. Yen on Economic Recovery Hopes

The U.S. Existing Home sales notched a 3rd monthly rise in June, and prices hit their highest since October. This fueled hopes the housing sector is finally on the mend, and many analysts hope this will help propel a broader economic recovery. According to analysts, the data suggests that the U.S housing sector is beginning to stabilize. This is a necessary component for a more meaningful U.S. recovery, and hence a stronger USD in the long term.

The U.S. Dollar soared against the Japanese Yen yesterday, due to the U.S. housing data. The USD rose 1.2% to as high as 95.30 vs. the JPY on Thursday. However, the pair finished trading at the 94.63 level. Against the EUR, the Dollar traded near a 7 week low at $1.4292, the weakest level since June 3. The pair finished trading much lower at the 1.4162 level. This was despite the greenback falling in early trading as the U.S. stock-index futures advanced on speculation that the worst of the recession may be over, prompting investors to purchase higher-yielding assets.

A number of analysts cautioned that the rally in risk sentiment on Thursday could be short-lived, as sentiment remains fragile and markets are probably quite near to seeing risk aversion returning to the forefront. This will be clearer to forex traders today, as 3 vital economic events are set to take pace in the U.S. These include the Revised UoM Consumer Sentiment at 13:55 GMT, Federal Reserve Chairman Ben Bernanke’s testimony at 14:30 GMT and Treasury Secretary Timothy Geithner’s speech on the economy also at 14:30 GMT.

EUR – EUR Hits 7 Week High Against the U.S Dollar

The European currency made gains against the U.S Dollar in early trading after data on U.S. jobless claims in the latest week came broadly in line with expectations. However, this was short lived, as the U.S. housing data was very optimistic, resulting in the pair closing far lower at the 1.4162 level. The EUR also fell against the GBP to the 0.8589 level as confidence returned to the British currency. However, the EUR/JPY pair was unchanged as demand for the safe-haven JPY fell yesterday.

The British Pound traded near the highest level this month against the USD, as advances in retail sales and mortgage approvals prompted speculation the recession in Britain is abating. In turn, this leads economists to the conclusion leading to speculation that the Bank of England (BOE) will increase its Interest Rate. The Bank of England reduced the main Interest Rate to a record low 0.5% in March. The Sterling also gained for a 2nd day against the EUR and the Yen as a government report showed Retail Sales increased last month at 4 times the pace forecast by economists.

There is much data coming out of Britain and the Euro-Zone today that is expected to determine the GBP and EUR crosses, as this week’s trading comes to a close. From Britain, the Prelim GDP and Index of services figures are set to be published at 08:30 GMT. From the Euro-Zone, the German Ifo Business Climate and Flash Manufacturing PMI are set to be released at 08:00 GMT. Forex traders are also advised to follow U.S. economic news too, as the market is set to be very volatile throughout the day.

JPY – Yen Loses Ground Amid Economic Recovery Hopes

The Japanese currency fell against the U.S Dollar and the GBP on Thursday, paring losses made the previous day. The JPY hit its lowest level in more than 2 weeks against the Dollar on Thursday, and a 3 week low against the EUR as traders in Asia sold Yen in anticipation of outflows from Japanese investors. The Yen also dropped versus the Swedish Krona and Norwegian Krone yesterday as Japanese financial companies prepared to raise at least 700 billion Yen ($7.42 billion) for funds that will be invested globally.

Much of The Japanese currency’s decline came about after the Finance Ministry said the contraction in the nation’s exports slowed to 35.7% in June from a year earlier. Japan’s trade data however provided hard evidence that the global economy is now on the mend, analysts stated. As the risk sentiment improves on the back of receding wariness about the prospects of the global economy, the Yen may weaken further against higher-yielding currencies.

Crude Oil – Crude Oil Eyes $67 a Barrel

The Crude Oil prices rose above $66 a barrel Thursday, ending at the highest level in 3 weeks at the $66.88 level. This came about as U.S. home sales data lifted stock markets and raised hopes for an economic recovery. Oil advanced 2.7% after the National Association of Realtors said home resales increased in June for a 3rd consecutive month.

Crude has risen in 6 of the recent 7 trading sessions. The rally came even after U.S petroleum data continued to show weak demand and rising inventories. Crude Oil and other commodities have tracked equity markets in recent months as analysts seek signs of a better economic outlook after the downturn cut world energy demand for the first time in a quarter of a century.

Article Source – Dollar Trading To Be Dominated By Bernanke and Geithner Testimony

The U.S Dollar rose against most other major currencies Tuesday, as comments by Ben Bernanke eased concerns that policy-makers won’t act decisively to head off inflation spawned by efforts to counter the credit crisis. The Federal Reserve Board chairman’s testimony was favorable for the USD, as his assessment on the U.S. economy revived the greenback’s safe-haven appeal.

USD – Dollar Rises on Increased Risk Aversion

The U.S. Dollar rebounded while U.S. stocks retreated yesterday after initial gains were overshadowed by cautious outlooks on the economy from corporate executives and Federal Reserve Board Chairman Ben Bernanke. As a result, the USD finished yesterday trading session 100 pips higher against the GBP at the1.6410 level. The greenback also saw bullishness against the EUR and closed at 1.4175.

U.S. government debt prices rose sharply on Bernanke’s comments that an easy money policy would likely be needed for an extended period. Moreover, risk appetite had increased in the past few days after stronger-than-expected U.S. corporate earnings. The latest to report higher-than-expected quarterly results was manufacturer and Dow component Caterpillar Inc. yesterday.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Crude Oil Inventories report at 14:30 GMT. Traders will be paying close attention to today’s announcement as it has the potential to boost the USD in the short-term. Traders are also advised to follow Federal Reserve Board Chairman Ben Bernanke’s testimony at around 14:00 GMT. This testimony is very important as it is very likely to impact the Dollar’s volatility. Traders are advised to watch closely, as this is likely to set the pace of the USD going into the rest of the week’s trading.

EUR – EUR and GBP Erase Gaines on all Fronts

The EUR weakened against most of its major currency rivals yesterday on concerns CIT Group Inc. may file for bankruptcy, renewing demand for a refuge. By yesterday’s close, the EUR fell against the JPY, pushing the oft-traded currency pair to 133.17. The EUR experienced similar behavior against the CHF and closed at 1.5160.

The British Pound also fell against the U.S Dollar as a report showed the U.K budget deficit climbed in June to the highest per month since records began in 1993, fueling concern the government will struggle to find buyers for its assets. The drop pushed the GBP down from near the highest level this month against the Dollar. The budget shortfall rose to 13 billion Pounds from 7.5 billion a year earlier. Gilts reversed earlier declines after Federal Reserve Board Chairman Ben S. Bernanke told Congress that policy makers will keep Interest Rates “exceptionally low.”

Today, there is plenty of economic news coming from the Euro-Zone that will determine the GBP and EUR levels by the end of today’s trading. From the Euro-Zone, there are the European Industrial New Orders, and French Consumer Spending figures. From Britain, the most important news will be the MPC Meeting Minutes and CBI Industrial Order Expectations figures. All these news events will be important in helping set the strength of the GBP and EUR in this week’s trading.

JPY – Yen Strengthens on Bernanke Testimony

Japan’s currency rose against most of its major counterparts after Bernanke mentioned that at some point the Fed “will need to tighten monetary policy” to counter the emergence of an inflationary problem. The Yen also advanced from near a 2 week low against the U.S dollar on speculation Japanese exporters bought the currency after its 1.8% decline last week.

Traders today have very little fundamental news emanating from Japan as the only indicator being released is the trade balance report. Analysts forecast the figure to increase from its previous reading. This indicator typically generates small amounts of volatility. However, the USD and the GBP appear to be clutching the reins of today’s market. Traders would be wise to note its future direction as it usually carries a heavy impact on the other currencies.

Crude Oil – Oil Stabilizes after Steady Appreciation

Crude Oil slid down slightly, to just above $65 a barrel, on Wednesday, after data showing an unexpected rise in U.S. crude stocks underscored worries about persistently weak demand from the world’s top oil user. The U.S. crude oil stockpiles rose unexpectedly last week as domestic refining activity slumped, the American Petroleum Institute (API) said on Tuesday. However, firm equity markets and a weak Dollar could lend some support to Oil, analysts say.

Crude prices climbed 8.7% for the past week as investors bought futures on expectations of higher fuel demand. Optimism that the worst of the global recession is over followed gains in U.S. leading economic indicators and as financial service companies said earnings climbed.

Article Source – Greenback Rebounds from 6-Week Low