Daily Forex Market Analysis | 27 April 2009

The U.S. dollar fell on Monday to its lowest in a month against the Yen as worries about the spread of the swine flu from Mexico prompted investors into perceived safe-haven currencies such as the Yen and the CHF. Crude oil was also pushed down toward $50 a barrel on fears that the global flu pandemic that could give the world economy another knock.

Summary

USD -Swine Flu puts Downward Pressure on the USD and Tourism

EUR - EUR Positive After PMI and Ifo Provide Surprising Results

JPY - JPY's Recent Gains Set to Reverse

Economic News

USD

The U.S. Dollar appeared to be losing ground against all of its major currency counterparts towards the end of last week's trading. It dropped to one-week lows against its rivals, falling to 1.3300 against the EUR, 1.4750 against the Pound, and 96.65 against the JPY last Friday. Apparently a number of news events, not wholly related to economic fundamentals, made an impact on the value of the USD last week.

With Ecuador claiming that they will continue to use the USD as their currency, the greenback received a modest level of support from the southern Hemisphere, not necessarily unrelated to President Barack Obama's recent meeting with South American leaders.

In other news, fears of the recent outbreak of swine flu put a major dent in the Dollar as traders began speculating that U.S. tourism would drop in the coming months as a result, and therefore pulled out from the greenback in exchange for an alternative safe-haven. Also, the run-up to the latest round of G7 and IMF meetings put a slightly positive spin on world stocks and the idea of a balanced investment portfolio. This lent weight to the notion of pulling money away from the USD.

The good news for the USD is that it has begun an across-the-board correction during today's early trading hours due to a number of Dollar-positive news events. Recent announcements that Chrysler, an American auto giant, may not need to declare bankruptcy has returned some confidence to the U.S. currency. The impending light news week also has the Dollar prepared to take a seat on the bench for the days ahead. Without driving its own market, the USD is more susceptible to world trends and may therefore be at the mercy of the EUR and JPY this week. With a few potentially damaging reports due, the USD may climb back towards 1.3000 against the EUR and 97.50 against the Yen over the next few days.

EUR

The EUR gained steady momentum against most of its currency rivals last week. Hitting a one-week high against most of its currency counterparts, the EUR climbed above 1.3300 against the Dollar and near 0.9100 against the Pound Sterling. The question remains as to whether the 16-nation currency can hold onto these advances throughout the coming week.

Startling news emerged from the Euro-Zone as the European Union (EU) made overtures towards the idea of Iceland joining the union. After its national bankruptcy last year, the small island country has been struggling to catch up.

In economic news, the staggeringly high PMI numbers from the Euro-Zone regional economy generated a strong movement towards the EUR at the end of last week's trading; no doubt adding to the EUR's bullish run. Supporting this bullish momentum was the additional news from the German Ifo Business Climate report which signaled that the Euro-Zone may actually have bottomed and is beginning its steady road to recovery.

With the moderate news week ahead for the EUR, we may see the recent strength continue so long as economic fundamentals produce better than expected results like they did last week. However, the optimism which was soaring high at the end of last week, may have corrected itself downward as the realization of an economy hitting rock bottom sank in. While a good signal that the Euro-Zone is starting its recovery. The long road ahead may indeed stymie this bullish movement. Traders may want to look for a downward-correcting EUR this week.

JPY

The Japanese Yen was set to advance itself throughout this week, after gaining steadily against most of its rivals, especially the USD. However, as the Nikkei index opened lower at the start of this week, the Yen's safe-haven move may have ended abruptly this morning. Growing as high as 96.65 against the USD and 127.50 against the EUR, the Yen may now see a correction throughout the impending hours due to poor stock performance and a USD-positive trading session.

With the recent scare over the swine flu outbreak in the United States, the JPY was bought up as an alternative safe-haven against the USD as tourism in the U.S. was expected to drop. Nevertheless, the JPY now appears to be paring off its recent gains as stock markets indicate a lack of confidence in the Japanese currency. Traders may look to the Yen depreciating against most of its currency rivals throughout the next few days, especially with a heavy news week for the JPY which may illuminate the inherent weakness of the island economy.

Technical News

EUR/USD

The Slow Stochastic and the RSI on the daily chart are showing a continuation of the current bearish correction. There is a very accurate bearish channel forming on the hourly chart. In addition all indicators on the 4 hour chart are pointing down. Going short might be the right choice today.

GBP/USD

After experiencing a mild bullish correction on Thursday, the cable has fully resumed its general bearish trend. The RSI on the 4 hour chart is now floating around the 50 line, indicating that the bearish momentum still has more steam in it. Going short seems to be preferable.

USD/JPY

The sharp bearish move that took place during the past couple of days seems to have more steam in it. The RSI on the hourly charts is crossed above the 40 line, suggesting that the pair may fall further. The bearish move on the daily's Slow Stochastic also supports this notion. Next target could be 96.20.

USD/CHF                

Our preference: Long @ 1.139 with targets @ 1.1475 & 1.15 in extension. Alternative scenario: Below 1.1385 look for further downside with 1.135 & 1.1305 as targets. The RSI is bullish, the pair is on the upside and is challenging its intermediary resistance. Pivot: 1.1385.

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