Photo credit: kiptuch

Lately the US currency is on its way back up. Yes, the dollar is trending up! It has increased in value by more than 7 percent versus the euro in a few weeks. With a 20/20 hindsight, a number of forex experts believe that the support for the greenback had been on the rise for several months now.

The first break, experts say, for the Greenback came when the Fed ceased lowering interest rates in March. Then, at a meeting of the G8 nations, a number of high-ranking officials were unhappy about the US currency’s decline. They suggested that in order to avoid a further collapse of confidence, coordinated intervention should be effected. While this intervention was merely a verbal one, without any substantial backing, investors seem to have taken the hint.

The Federal Reserve’s reassurance of its commitment to a strong dollar policy also contributed significantly to the greenbacks resurgence. An easing commodity prices plus the proposed bailout of the two pillars of American’s mortgage industry, has led currency traders to think that the world’s economic policymakers now would simply let the dollar plummet further. However, the US dollar didn’t break through a resistance level at $1.60/euro (close to a record low), and has since rallied sharply.

“It seems that that the big money had committed to a long Dollar, and was waiting for the economic slowdown to spread to the Euro Zone. Once the Euro Zone began to experience a slowdown, it just became a matter of time before the short positions that had been built for several months would pay off,” according to the International Business Time.

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Since September 2007, the Federal Reserve has made seven interest-rate cuts that made worse the vicious circle of higher oil prices and a weakening dollar.

This is the opinion of Barclays Capital Inc. as they made a study that correlated oil and the US dollar, and further revealed that the relationship between the two has significantly strengthened since the introduction of the euro in 1999.

According to David Woo, head of currency strategy at Barclays in London, the Federal Reserve’s aggressive monetary policy easing this year is to blame for the recent surge in oil prices.

The Federal Reserve has cut its benchmark overnight rate by 3.25 percentage points to 2 percent. This has been most aggressive easing of monetary-policy in two decades.

The dollar dropped to within a cent of the all-time low against the euro on concern losses at Fannie Mae and Freddie Mac may deepen even after policy makers said the companies aren’t facing a government takeover.

Crude oil rose to a record above $147 a barrel.

“Risk aversion is biting the dollar given the concern surrounding Fannie and Freddie,” said Steven Englander, a currency strategist at Lehman Brothers Holdings Inc. in New York, who covers the 10 biggest industrialized nations. The dollar fell 1.5 percent this week to $1.5938 per euro, from $1.5706 on July 4. It touched $1.5947 yesterday, the weakest since April 23. The dollar reached the all-time low of $1.6019 the previous day.

The U.S. currency dropped 0.5 percent to 106.28 yen, from 106.80 on July 4. The yen fell 1 percent to 169.46 per euro, from 167.73, after touching 169.63, the highest since the European currency’s 1999 debut. The Australian dollar appreciated 0.3 percent from a week earlier after touching 97.18 U.S. cents yesterday, the strongest level since 1983.

South Korea’s won rose 4.5 percent this week to 1,002.70 per dollar, the biggest gain since March 1998, as policy makers pledged to shore up the currency and tame inflation.

Dollar Index

The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, dropped 0.9 percent to 72.096 this week. “The dollar cracked given the concern Fannie and Freddie are under heavy pressure,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. The companies defended their finances.

`Ugly Quagmire’

Crude Oil

A 10 percent increase in oil prices leads to a 1 percent appreciation of the euro against the dollar, according to a study by David Woo, London-based global head of currency strategy at Barclays Capital.

European Inflation

The ECB “is set to continue to hike interest rates on rising inflation,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon in a Bloomberg interview.

Photo credit forexfolks

In the area of technical analysis, momentum refers to the overall change rate in an asset’s price. Getting the Momentum is pretty straightforward: take the trendline’s slope, which tracks an asset’s price levels over time.

Usually traders take momentum as a measure of a market’s volume. If you see that there is a rapid price change in a market (indicative of high momentum), chances are a significant number of traders are either buying or selling to force a the price shift in either direction.

If you get either an extremely high or extremely low values for momentum then this can be indicative that the asset in question is either overbought or oversold.

When the momentum reaches extreme low and then all of a sudden surges back across the zero line, this is usually indicative of a strong signal to buy. Conversely, if momentum reaches extreme high and falls all of a sudden beneath the zero line then it is indicative of a sell signal. Traders treat this as a leading indicator of a particular asset’s price behavior as well the market’s overall character, whether either bullish or bearish.

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The Moving Average Convergence/Divergence or MACD is a technical analysis indicator that was invented in the 1960s for the purpose of determining the differences between both the fast and slow Exponential Moving Average of closing prices.

As expressed by the MACD, the moving average essentially is the average of a price over a particular set amount of time. The MACD makes it possible to demonstration with ease the relationship between two exponential examples of the moving average.

Generally, a fast EMA would be treated as a MACD within a 12-day time frame, while for that of a slow EMA it would be a 26-day period.

The formula: MACD=EMA[12] of price - EMA[26] of price with a signal line of EMA[9] then plotted over the top of this MACD result, allowing as a trigger point for interpretation of buy and sell signals.

It is generally considered that the moment the MACD plummets below the signal line, it can be treated as bearish and may indicate a time to sell. The contrary would be true if the MACD climbs above the signal line as this indicates a bullish trend - an upward trend in price.

Support and resistance is a pretty popular trading concept among traders; however, it does seem rather strange that every trader has his or her idea or opinion as regards the manner in which one should measure support and resistance.

Before we can truly appreciate how these processes occur, we will first examine the basics of support and resistance.

Photo credit InformedTrades

In the image above, you will notice that there is an ascending zigzag or crisscross formation: This is a bull market. As the market surges and then falls back, the highest point attained by the market just before it pulled back is called resistance.

When the market experiences another surge, the lowest point touched by it before it climbed back up is called support. This is the manner in which resistance and support are created as the market changes over time. Of course, in the case of the downtrend, the reverse would be true.

It is important to note that the levels of support and resistance are not exact values. In a lot of occasions, you will see the support or resistance level is broken; however, in most instances it only meant that the market was testing it. In the case of the candlestick chart, such tests of support and resistance are often represented by the candlestick shadows.

Other important things to remember regarding support and resistance:

• When the market passes through resistance, that resistance now becomes support.
• The more often prices test a level of resistance or support without breaking it the stronger the area of resistance or support becomes.

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South Africa’s rand posted a weekly gain as prices of commodities such as gold and platinum, the nation’s biggest exports, advanced.

South Africa produces 80 percent of world’s platinum and 10 percent of its gold, meaning the rand often moves in tandem with the metals.

“Commodities have risen and that’s helped the rand,” said Ion de Vleeschauwer, head of foreign-exchange trading at Johannesburg at Bidvest Bank Ltd, which runs the country’s biggest chain of moneychangers during a Bloomberg interview. “The weakness in the dollar has also supported the currency.”

The rand rose as much as 0.5 percent yesterday to 7.9107 per dollar, its strongest level since June 11, and was at 7.9725 in Johannesburg. Platinum has advanced 1.6 percent since May 13, to $2,068 an ounce, extending its rally this year to 35 percent, on concern miners will go on strike in July in protest at power rationing, further cutting production that has already been hampered by the nation’s electricity shortage.

Gold posted its biggest weekly gain in four months, adding 3.7 percent to $901.03 an ounce, as investors bought the metal as a hedge against inflation.

Current Account Woes

The South African currency climbed even as the country’s current account deficit widened to a 26-year high in the first quarter. The current account gap, the broadest measure of trade in goods and services, increased to 9 percent of gross domestic product, from 7.5 percent in the final quarter of 2007, the Pretoria-based South African Reserve Bank said yesterday.

On June 13, the rand fell as low as 8.1783 per dollar, its worst since March 31, and a day after Reserve Bank Governor Tito Mboweni signalled the current account deficit had widened.

South African government bonds gained for the first week in five, with the yield on the benchmark 13.5 percent security due September 2015 falling 3 basis points to 10.47 percent. Yields move inversely to bond prices.

Photo Credit: paperfairys

The pound escalated for a second day versus the US dollar and euro on bets that UK inflation is greater than the Bank of England’s May target.

The British pound also increased on forecast 3.2 percent consumer-price growth the previous month.

The British pound is on the rise as can be seen in CPI values. The currency surged up to 1.1 percent to $1.9688. During the previous month however, Inflation advanced to 3.2 percent, the fastest pace ever since 1997.

Interest-rate futures reveal that traders are increasing their bets that the Bank of England will be lifting borrowing costs as inflation worsens. There was a 6.41 percent implied yield on the short-sterling futures contract due December. However, the value was 5.84 percent a couple of weeks ago.

The pressure coming from the global credit crunch and escalating food and energy prices have proven to be the biggest challenge faced by the central bank.

There is a technical indication that the UK pound will reach $1.98 this week, according to analysts.

Photo Credit: MarkWallace

The Mexican peso increased for a third day as a declining US currency and increasing prices of crude oil spurred investors to look into higher-yielding currencies.

The US currency tumbled versus the majority of its counterparts, while at $139.89 per barrel, Crude oil in New York touched a record.

The Mexican peso surged to its highest level in a week, as it advanced 0.4 percent or 10.3190 to the US dollar on June 13.

Experts believe that as the US dollar softens against the Mexican currency, and the peso-dollar pair may even go as low as 10.25.

Meanwhile, bonds plunged on bets that the central bank on June 20, at its monthly monetary policy meeting would, be increasing the benchmark 7.5 percent lending rate.

“The specter of imported inflation is likely to prompt Banco de Mexico to abandon its stance over the past eight months of holding policy rates steady. The central bank will have little choice but to hike,” according to chief Latin America economist Gray Newman, Morgan Stanley.