With a rally in stocks and other equity markets last week, traders witnessed a significant downtrend in USD pairs and crosses. Losing strength to almost all currency rivals, save the JPY, the greenback indeed suffered from this increase in risk appetite.

Trading down against the EUR at 1.2926 last Friday, and also
returning to the 1.4000 level against the GBP, the short-covering action on the USD
inflicted some deep wounds to the American currency.

With few data releases helping or harming the EUR, the USD was likely losing
strength from the unwinding of long positions on the Dollar in exchange for
higher-yielding assets. In today’s early trading sessions, the USD regained some of
its lost momentum and is currently trading at 1.2886 against the EUR.

As European markets come online later on, the increased liquidity may in fact push
the USD lower against the EUR as European indicators are forecasting a lack of any
significant change, whereas the U.S. government will be releasing figures which are
predicted to present relatively bullish results. Under normal circumstances the USD
would receive a positive boost, but during these times of recession and financial
crisis, positive figures may result in an increase to risk appetite; causing a turn
of events similar to those of last week. The USD could turn around from this
morning’s gains and test the 1.3100 level by day’s end.

Traders should be watching for today’s release of Treasury International Capital’s
(TIC’s) Long Term Purchases report, which is expected to indicate that demand for
U.S. long-term securities has increased, most likely leading to a concurrent
increase in demand for the USD. As interest in American securities increases, the
value of the Dollar rises with it since investors must purchase these securities in
USD. Whatever the outcome, today will likely see a sharp volatile movement in the
value of the USD’s pairs and crosses.

* EUR
EUR Lacks Clear Direction; Will Euro-Zone Confidence Continue Weakening?
After a week of solid gains against many of its currency rivals, the EUR now appears
to be leveling off, and in some instances weakening against other currencies. Last
week’s strength may actually have been attributed to an increase in risk appetite
and therefore an unwinding of safe-haven USD positions, of which the EUR was the
beneficiary. With neutral economic data emanating from Europe last week, this may
indeed be the case. Ending the week up against the USD at 1.2926, and at 0.9228
against the GBP, the EUR made gains in its tug of war against its primary currency
counterparts.

As economic suffering begins to build across Europe, the European Central Bank (ECB)
is finding itself under greater pressure to reduce interest rates in an effort to
stem the economic slide, as well as prevent a deflationary cycle from forming. With
a multitude of countries comprising the European Monetary Union (EMU), it is less
likely that further monetary easing can or will take place in the Euro-Zone, but a
further reduction of interest rates is possible in the near future. With such a turn
of events, the EUR is not likely to regain any mantle of strength in the coming
days. As the USD leads the other currencies in making the market, EUR strength will
most likely be attributed to an unwinding of Dollar positions, not from any inherent
strength in the EUR itself.

Looking ahead this week, traders will see a series of data releases which would be
foolish to ignore. Today’s consumer pricing and inflationary information for the
region may set the tone for the EUR this week, but the market-maker for this
regional currency is likely going to be tomorrow’s release of the ZEW economic
sentiment reports from Germany and the broader Euro-Zone regional economy. If
consumer confidence continues to decline, traders will likely see a reduction in
interest rates happening much quicker, and potentially deeper than expected, and the
EUR will continue to be sold off to fund safer investments. Without a strong vote of
confidence this week, the EUR may be on the receiving end of a downward slump
lasting through Friday.

* JPY
Bank of Japan Desires Weaker Yen; Expect Monetary Easing?
After seeing a short rally from sudden USD-weakness, the JPY has now resumed its
previous downtrend against many currency rivals. Ending last Friday at 98.01 against
the USD and 126.43 against the EUR, the JPY has continued to weaken from the
unpleasant economic situation which has been brewing in Japan these last few months.
The Bank of Japan (BoJ) is scheduled to discuss another potential interest rate cut
later this week, but with the lowest rate worldwide, a further reduction seems
counter-productive.

The BoJ has made it clear that a weakened Yen is what they desire as it will help
stimulate exports for this heavily trade-dependent nation. With further negative
economic data set to be released this week, traders will likely see a continuation
in the downtrend of the JPY through Friday.

* Crude Oil
Output Cuts Claimed to Produce Results
The Organization of Petroleum Exporting Countries (OPEC) has recently claimed that
their previous production cuts have begun to take effect and the price of Crude Oil
has continued to hold strength. Finding support in the $40-50 price range, the price
for a barrel of Crude Oil has finally stabilized, according to the cartel, and
further production cuts will not be necessary since expectations are for demand to
begin increasing by 2010.

Various accounts have been given for what a reasonable price for Crude Oil might be,
and a few oil ministers from within the cartel are aiming for a price range near $70
a barrel. The expectation is for the price for Crude to hold within the current
range until the recession begins to ease and demand picks back up. Once achieved,
the price of Oil should climb back towards the $60-70 price range by early 2010.
However, without accomplishing an economic turn-around, prices may drop once more
and OPEC could consider a further production cut towards the end of this year.

Technical News
* EUR/USD
On the 4 hour chart the moderate bullish price movement continues within the upwards
channel which still has yet to be breached. The hourly chart is also joining that
notion with the Slow Stochastic pointing to the continuation of upwards momentum.
Next testing point should be around 1.2960. Going long appears to be preferable
today.

* GBP/USD
Since Friday’s trading session the Cable recouped losses, appreciating from 1.3730,
up to 1.4063. The Slow Stochastic of the 4 hour chart is showing no crosses in the
horizon, and the bullish momentum there appears to be intact as well. Daily chart’s
oscillators also support this notion. Placing long positions might be a right choice
for today.

* USD/JPY
The pair is showing local bullish momentum on the 4 hour chart after a very violent
drop to the 95.77 level. On the hourly chart however, the pair continues to trade
within quite a wide range, while the Bollinger Bands are getting tighter indicating
that possible breach out of range might be imminent. By now, it would probably be
recommended to stay out of this pair until a strong and distinctive signal will
appear

* USD/CHF
The 4 hour and the daily charts indicating that the bullish trend has not yet said
its last word as this currency pair is in the midst of a strong upward trend.
However the hourly chart’s RSI and Slow Stochastic indicators are pointing down. A
preferable strategy might be waiting for a clearer signal on the hourlies.

The Wild Card
* NZD/USD
It seems that the bullish momentum is back again as the carry trade pair is heading
up with plenty of room to run. All of the technical oscillators on the hourly and
the daily charts are giving a bullish signals and this pair’s target today might be
the 0.5300 level. This gives
forex traders a great opportunity to rejoin the market at an excellent entry price.

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