The Dollar strengthened versus the EUR following a decline in stock markets, poor U.S economic data and an unexpectedly dour outlook from the Bank of Canada. Concerns about the strength of U.S. corporate earnings and the strength of the global economic recovery dampened demand for risky assets, halting hit the EUR's attempt to breach the $1.50 mark Tuesday.

Summary

USD - USD Gains on Poor Economic Data

EUR - EUR falls on Concerns the Currency's Strength is Hurting Recovery

JPY - Yen Mixed against Major Currencies

OIL - Crude Drops below $79 a Barrel

Forex Market Trends – 21 October 2009

Economic News

USD

The USD recovered from recent pressure that pushed it to a fresh 14-month low versus the euro, advancing on Tuesday as stocks dropped and economic data showed more weakness in the U.S. housing sector. The dollar traded at $1.4921 per euro at 9:53 a.m. in Tokyo from $1.4945 yesterday in New York, when it touched $1.4994, the weakest level since August 2008. The greenback was at 90.91 yen from 90.78 yen.

The Dollar advanced against the EUR following the release of two economic reports that showed an unexpectedly large drop in U.S wholesale prices and a continued sluggishness in the housing sector. Comments from Euro-Zone finance ministers supporting a strong Dollar further contributed to the Dollar's rise. A drop in equities also helped push the Dollar higher. The stock market continues to be an important driving force in the currency market and affect its direction.

Looking ahead to today, a relatively light news day is expected from the U.S, however the release of the Crude Oil Inventories at 14:00 GMT as well as the Beige Book at 18:00 GMT will likely provide further direction to the Dollar.

EUR

The EUR declined versus the Dollar after several Euro-Zone official expressed concerns over the volatility in the market and the growing strength of the common currency. The EUR retreated from a 14-month high against the USD on speculation European policy makers will today reiterate their concerns that the currency's gains are hurting the region's economic recovery. As the exchange rate nears $1.50, it presents problems for the European economy and manufacturing sector.

The EUR has strengthened 15% versus the Dollar in the past 6 months, making the region's exports more expensive to overseas buyers. The EUR traded as high as $1.4994 versus the Dollar in earlier trade but failed to break above the psychologically important $1.50 level. It is currently trading at $1.4931, down from $1.4941 in the previous session. The EUR traded at 135.68 Yen from 135.66 Monday.

Looking ahead for the rest of the weak, the release of the Ifo institute's business climate index Friday is expected to provide some support for the EUR as it is expected to show business confidence in Germany improved, adding to signs that the recovery is gaining momentum. Today, trader should follow closely the MPC Meeting Minutes due at 8:30 GMT as they will provide insight and direction for the GBP for the near future.

JPY

The Bank of Japan (BoJ) minutes revealed the central bank is encouraged by recent performance of the Japanese economy, and not likely to add more liquidity to the monetary system, meaning decrease the quantitative easing program. The BoJ exhibited a more hawkish stance towards the Yen, supportive of a more conservative fiscal policy and a stronger currency. The Yen is currently trading at 135.35 against the EUR, down 0.18% from yesterday. The Japanese currency is currently at 90.65 against the Dollar, after briefly breaching the 91.00 level yesterday.

OIL

Crude Oil dropped below $79 a barrel as the Dollar strengthened and an industry report showed an increase in U.S crude stockpiles. The U.S is the world's biggest energy consumer. Crude oil for December delivery dropped as much as 58 cents, or 0.7%, to $78.54 a barrel on the New York Mercantile Exchange.

Oil fell for a second day as U.S. equities declined and the Dollar rose from a 14-month low against the EUR. Furthermore, the American Petroleum Institute reported that crude supplies rose 3.85 million barrels.

An Energy Department report due today at 14:30 GMT is expected to show that U.S. inventories of Crude Oil rose 1.5 million barrels last week, likely putting further pressure on Oil Prices.

Technical News

EUR/USD

The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the hourly chart's RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

GBP/USD

The daily chart's RSI signals that this pair is still being over-bought, which may help support the pair in a downward direction in the coming days. A bearish cross that is forming on the hourly chart's Slow Stochastic also supports this notion. Going short with tight stops might be the right choice today.

USD/JPY

A bearish cross on the 4-hour chart is forming, signaling a potential price drop, while the Bollinger Bands are also tightening, pointing to an imminent volatile price movement. However, the 30min chart's Slow Stochastic indicates a recent bullish cross, signaling a possible upward movement. In the short-term traders may expect a upward correction, but longer-term traders may want to maintain their short positions today.

USD/CHF

The bearish flag formation on the 4-hour chart is still valid as no major breaches occurred. The momentum is still very bearish as pointed by the daily RSI. Forex traders should wait for an additional breach through the 1.0080 level to validate the next sharp bearish move.

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