This week is an interesting time for currency and commodity traders with volatility expected in the markets due to several influential economic news announcements. The primary focus is on the US economy and whether it is truly strengthening. Employment data announcements this week are expected to have a critical impact on Federal Reserve President Ben Bernanke’s decision to continue or interrupt the economic stimulus or to begin to pare back the support.
This is a critical time for the US as Bernanke is not expected to withdraw support for the US economy unless he sees significant improvement. However, persisting with the stimulus for too long would not be a good sign either. Short term traders will be focusing on these announcements and looking to take advantage of likely volatility in the major currencies, particularly EUR/USD, USD/JPY and NZD/USD.
USD/JPY continues to be the focus for many traders with substantial see-sawing of the two currencies. The pair fell below 100 for the first time in almost a month on Monday, June 3rd, before the yen weakened again the next day. It then rebounded on Wednesday, June 5th, to 99.471 on the back of a 3% fall in Japanese stocks. The stimulus that was applied to the Japanese economy doesn’t seem to have had an impact yet and on-going volatility is expected in this pair.
The euro has been trading in a fairly stable range in the past week and Eurozone manufacturing data released this week showed a slower contraction in May than expected, giving some rise to optimism. Despite this improved data, this is not a strong sign that the region’s financial crisis is weakening as other data from the region is mixed. ECB President Mario Draghi said a few weeks ago that he wants to avoid providing additional stimulus or cutting interest rates further, given the fact that Eurozone rates are already at a record low rate. While this manufacturing data is heading in the right direction, we will need to see further evidential data before drawing any strong conclusions that the Eurozone economy is recovering.
The British pound has rebounded and has clawed back some of the losses in recent weeks after positive manufacturing data was revealed. On Wednesday, June 5th, it was trading around 1.5340 but these gains may be trimmed again if the US data released later on in the week is positive.
Although the gold price has dropped 16% this year, it enjoyed a brief rebound on Monday, June 3rd, when it traded as high as 1,415 USD an ounce. It briefly dropped again to 1,388 on Tuesday before returning to trade around 1,402 on Wednesday. Gold traders should watch the market closely for further gold weakness should the US employment data release this week be positive.
Oil has also been experiencing significant volatility in the last week due to oil inventories being lower than expected. The price jumped from Monday’s low of 91.35 USD a barrel to 93.43 on Wednesday, June 5th.Oil prices may also be subject to influence by the US data releases scheduled for this week.
What to watch this week:
USD/JPY continues to offer opportunities to short-term traders due to on-going volatility. The technical indicators suggest the pair is oversold at the moment and traders should look to buy USD if the data from the US is positive.
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