Forex Trading

With the recent volatility in the forex market, one currency pair seems to stand out: the EUR/USD. This pair has been range-trading for the previous week as the two currencies struggle for dominance of the currency market. With this weekend's G8 summit on the global financial system, traders will no doubt anticipate a higher level of volatility among this primary currency pair after the world's economic leaders meet.



USD - USD Advances after Treasury Auction

The Dollar advanced Wednesday against the EUR and JPY after an auction of 10-year U.S. Treasury notes achieved higher than expected yields. Selling off of stocks after the auction intensified the losses among risk-sensitive currencies. The USD fell earlier after Russia's central bank said it will diversify its currency reserves by cutting U.S. Treasury purchases and buying IMF-backed bonds.

The Dollar also fell 6.6% versus the EUR in May on speculation the ever expanding U.S. budget deficit and the Federal Reserve's increase of the money supply will undermine the greenback. The U.S. budget deficit climbed to $189.7 billion in May, a record for the month which prompted some concerns of the Dollar's collapse. In light of this, it appears that U.S. fiscal and monetary policy will provide indications on the outlook for the Dollar as markets currently associate an improving economic outlook with a possible tightening of monetary policy.

A Federal Reserve survey know as the "Beige Book" which was released Wednesday showed that economic conditions remain weak and even deteriorated in several regions of the country, with commercial real estate and labor markets continuing to struggle. Traders should pay close attention to Core Retail Sales and Unemployment Claims to be released today at 12:30 GMT for further insight in to the state of the U.S economy. The likelihood that the greenback will continue to rise against some of its main currency rivals appears stronger than usual today.

EUR - EUR Trims Losses against USD

After a downward turn against the USD, the EUR rebounded from its session low of $1.3914 and trimmed its losses following a rise in the equity markets. Wednesday the EUR ended at $1.3987, down from $1.4075 late Tuesday and at 137.47 Yen, up from 137.10. The Pound Sterling was at $1.6355, up from $1.6333. The Pound advanced against the EUR to the highest level since December after a government report showed manufacturing in the U.K. expanded for a second consecutive month and stocks gained.

The EUR/USD pair seems to have settled into a trading range with the EUR fluctuating between $1.38 and $1.42. This trend is likely to continue until the end of the week. However, with high oil prices and diminishing risk aversion it is likely that the EUR will resume its bullish trend as the underlying sentiment is still negative for the Dollar.

With a slow news days for the Euro-Zone today and Friday, investors are waiting for the weekend G8 meeting to start this Friday for a better assessment of the direction the participating economies will take. The EUR's recent strength makes it a excellent forerunner in today's market, but regional uncertainties have captivated traders lately and made the forex market less predictable.

JPY - JPY Trading Down against Currency Rivals

The JPY declined yesterday against most major currencies as speculation regarding a global recovery encouraged investors to buy higher yielding assets outside of Japan, selling the Japanese currency. The Yen was at 137.21 per EUR Wednesday and at 98.21 per USD, following a 0.8% drop. As the anxiety about financial turmoil retreats, people are willing to buy riskier currencies which offer higher yields while funding that with safer currencies such as the Yen and the Dollar.

The Japanese Yen is likely to continue to weaken as improving risk appetite brought on by advances in the Asian stock market is likely to encourage investors to turn to overseas assets offering higher returns, promoting Japanese capital outflows. As a result, the JPY's target rates today should be lower against its currency counterparts.

Crude Oil - Oil Soars above $72 a Barrel

Crude Oil rose to a 7-month high after a government report showed that U.S. crude supplies unexpectedly fell. Stockpiles of oil dropped 4.38 million barrels to 361.6 million in the week ended June 5, the Energy Department said Wednesday. Crude Oil for July delivery rose to another record price this morning by reaching $72.04 a barrel.

Oil demand is still pretty weak across the globe despite a slight increase in demand in the U.S. Commodity futures which have increased this year as the Dollar weakened and equity markets rebounded. Still, the fundamentals don't support prices at these levels and Oil's current strength might be a result of momentum-trading as investors turn to higher yielding assets amid rising confidence of global recovery. Fears over rising inflation may also assist in Crude Oil's rise as investors look for assets that can offer protection against rising inflation.

Article Source - EUR and USD in Struggle for Dominance