The Dollar continued its upward correction as a rise in stock markets and better than anticipated economic data fueled further risk-taking in the forex market.
The EUR/USD was under pressure during trading hours in Japan and Europe, falling
throughout the day. However, the pair failed to break a key support line at 1.3200
and reversed course. Driving this appreciation of the pair were gains in equity
markets. The Dow Jones Industrial Average finished the day up 2.61%. Adding further
to risk appetite in the market was the release of better U.S. Pending Home Sales
data. The release came in surprisingly high, contributing to the sell-off of the
Dollar.

Prices could have been exaggerated earlier in the day as liquidity was light due to
Japanese markets being closed for “Golden Week”. We may expect further weakness in
the Dollar’s crosses as expectations abound to the easing of the global economic
recession. This may be seen extensively against currencies linked to commodity
prices such as the Aussie Dollar (AUD) and New Zealand Dollar (NZD).

Two major events are on tap for today’s trading. The Institute for Supply Management
(ISM) will release its Non-Manufacturing PMI report. This indicator is a key gauge
of economic activity and expansion. The reading is expected to show moderate
improvement from the previous month’s release. A second event will be testimony from
Federal Reserve Chairman Ben Bernanke on the economic outlook before the Joint
Economic Committee of Congress. His comments may hint at an improving economic
environment, which may in turn hurt the Dollar. We could see the EUR/USD test the
1.3600 resistance line today.

* EUR
EUR Continues Bullish Correction
The EUR has risen the past 3 trading sessions against the Dollar. Yesterday was no
different as European investors had reason to cheer as positive momentum was given
by the Purchasing Manager’s Index reading. This release, along with gains in stock
markets helped to boost the EUR against the major currency pairs. The EUR finished
at $1.3376 from $1.3315. The EUR/JPY was higher at 132.10 from 131.35. Also the
EUR/GBP finished stronger at 0.8945 from 0.8890.

The 16-nation currency has reason to be satisfied in recent days considering the
sudden surge in foreign investment, largely due to uncertainty across the safe-haven
spectrum. As traders look elsewhere for riskier investments, the Euro-Zone
apparently ranks high on the list, and the EUR and GBP appear to be reaping the
rewards.

We may see higher-than-average volatility for EUR pairs as traders position
themselves over the next few days for the European Central Bank’s (ECB) Interest
Rate decision. The market will be looking for not only a 25 point basis rate cut,
but also for a quantitative easing program. This would be enacted similar to the
program undertaken by the U.S. Federal Reserve to purchase long-term government
securities. A failure by the ECB to enact such a program could send the EUR sharply
lower against the Dollar.

* JPY
Yen Hits 3-Week Low vs. EUR
The Yen has reached a 3-week low against the EUR amid speculation the global
recession is easing. The upcoming release of U.S. stress tests is also a negative
for the Yen. This has traders dumping the Japanese Yen in favor of riskier, higher
yielding currencies. Against the Dollar, the Yen has reversed a bit from its bullish
run of the past week. Yesterday the USD/JPY finished the day at 98.80 from 99.45.

Trading during the Japanese session could have higher volatility due to the holiday
which concludes Thursday. This time period could have prices pushed further than
expected, and the Yen driven by events occurring outside the Japanese economy. Two
key events that traders will need to be mindful of for the Yen will be release of
U.S. bank stress test results on Thursday and U.S. Non-Payrolls on Friday.

* Crude Oil
Crude Hits Yearly High
The price of Crude Oil hit its yearly high during yesterday’s trading as gains in
equity markets and heightened optimism helped rally the commodity’s price. An
improvement in the global economy will help to boost the demand for energy
consumption, adding to the price of Crude Oil. The S&P 500 finished the day in
positive territory for the current year, and the weakness of the Dollar has helped
to support Crude prices. The price of Crude Oil closed yesterday at $54.00 from
$53.20.

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