ForexYard's Commentaries - page 13
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23/01/'08 - US Fed Cut Rates By 0.75%.
Economic News
USD
The greenback fell sharply against most of the majors yesterday after the Fed surprised the world by deciding to cut both the Federal Fund Rate and the Discount Rate by 0.75% ahead of its next meeting on Jan 30. The Fed Fund Rate, which is the U.S inter-bank lending rate, was slashed from 4.25% to a surprising figure of 3.50%. This aggressive cut is just another in a series of last ditch attempts to help the struggling U.S economy avoid a recession by alleviating the underlying weakness that exists in the housing sector and the broader economy. Therefore the greenback depreciated sharply on the back of this rate cut because investing in the U.S economy is now less attractive to investors, so there should be a fall in the inflow of foreign funds especially now that the interest rate in the U.S has fallen below that of Eurozone, which is still at 4.00%. However carry trades and equity markets were boosted on the back of this news as investors viewed the Fed's robust attempt to stimulate the U.S economy as a positive indication that there could be a future rebound in the U.S economic outlook. Therefore the greenback and most of the other high yielders appreciated against the JPY yesterday. Now although this monetary expansion by the Fed will boost consumer spending significantly and therefore try to solve the problem of the housing sector and the credit crisis, the key question on traders' minds is whether the greenback will recover on the back of a more positive U.S economic outlook. In our opinion, the U.S Trade Balance remains the missing piece in this complex puzzle as although the greenback has been weakening against the EUR for the latter part of 2007, U.S exports only gained fractionally on the EU and therefore the Fed can now only hope that this will change dramatically as the U.S trade deficit continues to widen. So a strong greenback is not at the top of the Fed priority list at the moment as they are using all means available to minimize the risk of an economic slowdown.
Nevertheless, many analysts believe that towards the second half of 2008 the U.S economy will climb out of this deep pit and it will be accompanied by a sustained USD rally. The Fed will also be keeping a close eye on inflation as although it is expected to remain moderate over the next few months, this aggressive rate cut could cause inflation to spike especially if we see an overreaction in consumer spending. Also the Fed's objective to rebound the U.S economy will face a serious setback if commodities continue to rise any further.
Looking ahead, today there is no significant U.S data expected and the greenback should consolidate against most of the majors especially after yesterday's sharp depreciation, as traders will begin to look ahead to Thursday's key U.S Unemployment and Housing figures. However the greenback may still face some volatility today as a result of some key data releases from the Eurozone and UK. The short term outlook for the greenback remains very dark indeed, as the market prepares itself for another possible 50bps rate cut when the Fed meets next on Jan 30.
EUR
Earlier in the week the EUR was struggling against the greenback after the release of the weak Eurozone and German ZEW Economic Sentiment coupled with Monday's soft German PPI figures. However the resilient EUR rallied back yesterday on the back of the U.S Fed rate cut and it managed to pull back most of the previously lost ground . The current EUR rally can be completely attributed to the disastrous state of the U.S economy because the ECB is growing more dovish with regards to its future interest rate policy, which is diminishing the previous underlying strength of the EUR. Now although the strong EUR is causing cracks to appear in the Eurozone economy it is still in a far better state than in the U.S. So with the Fed expected to make further rate cuts at the end of the month we could see the EUR once again targeting all time highs against the greenback.
Looking ahead, today we are expecting the European Manufacturing and Service PMI figures, which measure the activity level of purchasing managers in the manufacturing and services sector, respectively. Both these figures are expected to release slightly weaker than last month but still with a reading above 50, which indicates expansion. Also President Trichet will speak today and it will be closely followed by investors, particularly after yesterday's events, because his speeches can sometimes cause market volatility as traders react to clues regarding future monetary policy. The near term outlook for the EUR, in stark contrast to the greenback, remains bright and most analysts believe that it will once again head towards the 1.5000 level against the USD. However it may slip slightly today before resuming its upward momentum as the market digests yesterday's rate cut causing some temporary greenback consolidation.
JPY
Yesterday the JPY was the only major currency to weaken against the greenback as the rate cut by the Fed induced an increased risk appetite among investors, thereby prompting carry trades. This rejuvenation of carry trades may continue for a bit longer, as earlier today during the Asian trading session, Asian stocks managed to rebound after a sustained sell-off on the back of yesterday's Fed rate cut. Nevertheless, we are now beginning to see the JPY crosses declining once again, so it may be wise to stick to the mainstream opinion that the resumption of carry trades was only a temporary phenomenon. The main news from the Japanese market today was the Interest Rate Announcement that remained unchanged at 0.50%. However BoJ Governor Fukui hinted in his speech, that followed immediately after the rate announcement, that the next move of the BoJ will be to raise the key benchmark rate. This could strengthen the JPY in the longer term. However with the Fed expected to make another rate cut towards the end of the month, this could alleviate equities and push the JPY lower. Traders should also closely follow the release of the Japanese CPI figures later this week as it will shed more light in determining the future monetary policy of the BoJ, whose hands have been tied in the past with regards to hiking rates as a result of negative inflation or so-called deflation.
Technical News
EUR/USD
After bottoming out at 1.4400 the pair is in the midst of a correction move that already broke the key Fibonacci level of 1.4584. All daily oscillators are in a bullish formation, and the hourlies are showing that there might be a moderate bearish move before the bigger bullish trend resumes.
GBP/USD
The 4 hour chart is showing the first signs of an additional bearish move after the correction that topped a bit above 1.9600. The daily slow stochastic is regaining a bearish formation, and the daily downwards channel indicates a continuation of the main downtrend that was initiated at the 2.1000 level.
USD/JPY
The pair is trading in a range for the past few days, and shows no distinct direction after a very massive bearish move. At the moment the hourly study is giving out mixed signals and the daily chart is showing moderate bearish momentum. It appears that waiting for a clearer signal or a significant break in either direction, might be the smart move for this pair.
USD/CHF
There is a bullish cross forming on the 4 hour chart indicating that we might see a delicate move before the next massive bearish move returns. The daily chart is very bearish, which makes it preferable to sell on highs. The next target price is an additional break through the 1.0900 level.
The Wild Card
Crude Oil
There is a very strong bearish channel on the 4 hour chart as crude oil now floats at the upper level. There is a fresh bearish momentum being created as the RSI and slow stochastic clearly indicate. This is a great entry point for forex traders who are looking for a swinging move with plenty of room to run.
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24/01/'08 - Will The Fed Cut Again?
Economic News
USD
The greenback is floating in relatively quite waters, after the storm caused by the fed's surprise cut of 75 basis points two days ago. When taking a deeper a look at the USD behavior post cut we can see that the reaction of the USD was in fact softer than one would expect from such a radical move that was not seen since 9/11. This could partly be explained by the fact that the cut was partly priced in, as the crisis was quite strong and traders were expecting a massive cut. Now there is a certain argument amongst some traders about whether the Fed will again lower its rates by at least a quarter of a percentage point next week. Others said it would depend on how Wall Street would perform for the rest of the week until their meeting on Tuesday.
These extreme policy changes are aimed at boosting liquidity and easing the credit crunch, restoring confidence and encouraging consumers and businesses to start borrowing, investing and spending again to keep the world's largest economy from slipping into a recession, although many predict that a recession might be inevitable.
As for today there are two major economical events expected to come from the US, the first is Unemployment Claims which is widely expected to be released at 320K after a previous figure of 301K, and the second is Existing Home Sales that is expected to remain at the 5 Million level, and will probably not generate strong volatility that is usually expected from housing data at this poor economical period.
US Treasury Secretary Henry Paulson will speak today about risk and the financial system at the World Economic Forum, in Switzerland. The speech might generate some choppy price movements, as those speeches often do. It appears that if no other surprises will be pulled from the fed's sleeve, we should see the Greenback continue to drop as a part of the ongoing attempts to initiate the healing process for the American economy.
EUR
There are many opinions as to what the ECB can do in order to help the situation in the US to cause a bigger global turmoil that could eventually lead to a world crisis. A very vivid example was given a few days ago where most of the world markets fell in an average of 5-6%. The ECB's part in all this is very important, as a rate cut on their side might ease the pressure from the US, and cause the EUR/USD to return to normal level. It could be interesting to see how fast the ECB will comply with the need to cut the rates.
However, Trichet said yesterday that a rate cut was not to be expected, which will keep the EUR afloat for now. But as rates remain at 4% in Europe as rates drop in the US, the stock market crashes may cause a reversal of fortune for the EUR by way of a correction in the coming week.
As for today, the European calendar contains several interesting events such as the German Ifo Business Climate Index at 9:00 GMT which is expected to drop a bit from 103.00 to 102.3. slightly later at 9:30 GMT we should be expecting new from the UK housing sector in the form of the British Bankers' Association (BBA) Mortgage Approvals which measures the number of home loans issued by the BBA during the previous month, and might have some impact on the ongoing weakening GBP. European Central Bank (ECB) President Jean-Claude Trichet will also speak at the World Economic Forum, in Switzerland shortly after US Treasury Secretary Paulson, and strong price movement is expected in that time frame, especially in the EUR/USD.
It looks like the EUR will continue its path of strengthening today, as it will probably do until the end of this month when the feds will indeed make a very important decision whether the US rate will be cut again or not.
JPY
The credit crunch in the U.S. and the slow growth are causing the JPY to surge, clouding the outlook for the nation's exporters. The JPY gained 5% against the dollar this year, cutting the value of overseas sales. Half of Japan's shipments overseas are settled in U.S. dollars even though the country is relying more on China and other emerging markets for trade. Gains in the currency are already hurting exporters' earnings. Toyota Motor's annual operating profit falls about 33 billion yen for every yen that the currency gains against the dollar past 115, according to Credit Suisse Group. Toyota's shares have fallen 16% this year.
It looks as if the JPY is approaching a point where companies won't be profitable. Exporters say they can make money as long as the USD/JPY is weaker than 106.06. Japan's currency is already 8% higher than the level the nation's largest exporters based their profit forecasts on for the year ending March. Today, there are two Derivatives of the Consumer Price Index (CPI) expected to be released from Japan. The first is the Core CPI y/y which is expected to rise a bit from 0.4% to 0.6%, and the second is the Core Tokyo CPI y/y which is expected to remain unchanged at 0.3%. Both releases are due at 23:30, and will probably push the JPY further up, as we have grown accustomed to in recent times.
Technical News
EUR/USD
The pair is floating around 1.4600 which is a 76.4% Fibonacci level of the 1.3388/1.4960 move. A breach through that level will validate the next bullish move into the 1.4700 zone. It looks like going long might be the better choice today.
GBP/USD
The bearish channel formation is getting tighter and appears to be approaching the melting point. The cable is floating at the top barrier of the channel, and if a break above 1.9600 will not occur on the next attempt, it appears that the bearish channel will continue with strong momentum.
USD/JPY
The attempt to break the 105.00 level has failed and the pair now consolidates around 106.00. The 4 hour chart is showing a bearish slow stochastic, and the daily RSI indicates that another attempt to break the support level is quite imminent. Target price of 105.40 appears to be a valid target for the next move
USD/CHF
The pair is in the middle of a strong bearish move, as the 4 hour slow stochastic clearly indicates. The pair has established a strong support level at 1.0850, which means that a breach through this level might unleash a much stronger downtrend that could take the pair beyond the 1.0800 level quite quickly.
The Wild Card
Crude Oil
The bearish channel on the 4 hour chart continues with no exceptional breaks. Oil is floating at the upper level of it which could be a great opportunity for forex traders to get in a short position at a very early stage, before the touch at the upper barrier may send the Oil down again.
29/01/'08 - Market awaits tomorrow's rate cut
Economic News
USD
The greenback continued to take a hit as yesterday's New Home sales figure spurred speculation that the Federal Reserve will cut its benchmark lending rate by 0.5% this week to prop up the economy. The Fed will announce its rate decision tomorrow at the end of a two-day policy meeting. Interest Rate Futures reflect a roughly 90% chance of a 0.5% rate cut by the Fed this week.
Short-term U.S. interest rates are already among the lowest in the developed world, encouraging investors to borrow in dollars and buy another currency to profit on the difference in yields, which would put pressure on the dollar.
Data showing sales of new U.S. homes declined in December, stoking fears of an imminent economic recession. Purchases of new homes in the U.S. unexpectedly fell yesterday to a 12-year low in December, ending the worst sales year since 1963. Sales decreased 4.7% to an annual pace of 604K, according to Washington Commerce Department.
By now, markets show little willingness to force a dollar bounce ahead of a critical week of U.S. economic developments. We may see the greenback remain in a relatively narrow range against the EUR ahead of the highly anticipated U.S. Federal Reserve rate decision due Wednesday, while similarly critical Non Farm Payrolls data will be due Friday.
Today, the release of the U.S. economic data will likely highlight some of the reasons why traders are ramping up speculation that the country is in midst of a recession. Durable Goods Orders are forecasted to rise 0.1% after falling 0.8 % during the month prior. On the other hand, the U.S. Consumer Confidence is forecasted to fall to a 2 year low.
EUR
The Federal Reserve's emergency rate cut helped propel the EUR/USD up towards the level of 1.4900. However, with Fed Futures pricing in another round of rate cuts on Wednesday and the ECB maintaining a hawkish tone, it may only be a matter of time before the pair takes its rally towards the psychologically important 1.50 level.
Meanwhile, yesterday's European M3 Money Supply contracted for the first time in 4 months suggesting that the slowdown in lending and business activity is spreading across the Atlantic. The M3 indicator, which measures the value of all currency and liquid cash assets held by the public, printed at 11.5% which was considerably lower than the 12.3% forecast. The news took traders by surprise and EUR/USD immediately plummeted 30 points before stabilizing and recovering back to the 1.4700 level.
In the following days, there are only a bits pieces of potentially market moving European economic data, namely Euro zone retail PMI, German unemployment, German Retail sales and manufacturing PMI. The lack of big events on the European calendar suggests that the movements of the EUR will be largely driven by the U.S. economic data.
JPY
Fears of a U.S. recession have now spread to Japan as slowing global activity and dropping foreign demand have led to speculations of Japan also entering a recession.
As expected, the Bank of Japan kept its leading interest rate unchanged at this past week's monetary policy meeting. The central message from the BoJ remains that it believes that the current weakness in the Japanese economy is temporary, and that the next move in interest rates will probably be up.
Today there is no economic data expected to be released from the Japanese markets apart from the Industrial Production, which is expected to finally move into positive territory. The JPY may still continue to drop further downwards against the USD during the day, although it appears that the pair has apparently stabilized in the 106.00-108.00 area.
Trading the USD/JPY pair this week is likely to be dominated almost exclusively by the U.S. news flow. Therefore, traders will be looking ahead to the 2 key events on the U.S. calendar this week- the FOMC and NFP.
Technical News
EUR/USD
The pair is in the middle of an uptrend initiated at 1.4350, and appears to be having some more room to run on the daily level. On the 4 hour chart there is a bearish cross forming indicating that there might be a bearish correction before the uptrend resumes.
GBP/USD
After bottoming at 1.9360 the cable is continuing the corrective move at full momentum and is now floating around 1.9840. All oscillators show that the correction move still holds some fuel in it, and if the 1.9900 level will be breached, a new uptrend will be validated and might push the cable above the 2.0000 level once again.
USD/JPY
The pair is trading in a range for almost two weeks now, and has formed a very strong support at 105.20. The local momentum appears to be bullish but the daily trend is a very strong bearish one. Traders must look for a key break on the bearish side before considering an entry position, as the range might continue before one occurs.
USD/CHF
After several failed attempts to breach through the 1.0850 level, it appears that the pair might make an additional attempt of a break. If and when a breach of that level occurs, it will most probably unleash an intensive follow-up bearish trend that might be targeted at 1.0750 at its lowest point. Going short appears to be preferable today.
The Wild Card
Crude Oil
Oil has been traded in a very distinct bearish channel on the 4 hour chart since the beginning of January. The first breach through the upper barrier of the channel has occurred and a very strong bullish trend is expected to take Oil back into the 95.00 levels towards the beginning of next week. This is a great opportunity for forex traders to join a very strong potential trend that might yield high profits.
30/01/'08 - US Interest Rate Statement On Tap.
Economic News
USD
Today at 19:15 GMT, we are scheduled to see the release of the US interest rate statement. The greenback was steady against its major crosses yesterday, as investors waited to see how big an interest rate cut the Federal Reserve will deliver today in its fight against the threat of a U.S. recession. With the Dow rising as well yesterday, investors look towards bullish behavior of the dollar ahead of the expected 50bp rate cut, which will likely drive the dollar's value down. Federal Reserve fund futures were pricing in a roughly 75% chance that the rate cut will come in at 50bp, with the other quarter allocated to the much more conservative and unlikely 25bp cut. A hefty cut from the current interest rate of 3.5 % could send the dollar in either direction, as lately it has slipped back towards record lows hit last year against a basket of currencies. A rate drop any bigger than 50bp would deteriorate the dollar's yield appeal for investors. A rate cut of 25bp would service as a medium between keeping with market expectations and servicing the real needs of the economy.
During yesterday's trading news events from the US came back with mixed results, nonetheless far better than what was originally expected, giving investors even more incentive to push the dollar up. Durable goods returned roughly 3% higher than initially forecasted, as the 5.2% mark, coupled with solid core durable goods figures gave a much needed boost to the dollar in afternoon trading. National HPI Composite and Consumer Confidence figures were released as well yesterday to predicted negative results, preventing any real significant gains in the greenback.
Before the evening release of the US interest rate, we will see several key US figures. The 15:30 GMT release of ADP Non Farm Employment Change is expected to stay put at 40K, ahead of Friday's non farm payroll data. Also, an advanced release of quarterly GDP and the GDP deflator is scheduled to come back with negative results. If today's economic data comes back with better than expected results, the dollar and the US economy as a whole will see some much needed relief.
EUR
The EUR saw a slowdown toward the top of its week long rise against a basket of currencies, ahead of today's Fed rate cut. As investors turned their attention across the Atlantic, a small set of Eurozone data was released in line with expectations, but saw unexpected responses from investors in the market. Eurozone current account info came back with negative results, which should have resulted in bearish Euro behavior. Instead, the EUR stayed relatively unchanged against the dollar, due in large part to the tight monetary policies issued by the ECB. ECB President Jean Claude Trichets' speech from last week once again reiterated the hawkish stance from the ECB, as no interest rate cut should be expected in the near future. This should keep the EUR in line for steady progress in the future against a basket of currencies including the greenback.
Today there are no events on the European calendar, as all eyes will be focused on news from the US. We should expect a slight strengthening of the 13 nation currency today, unless news from the US comes back better than expected.
Currency trading tutorial
JPY
Japan's industrial production rose less than expected in December, as the Japanese government downgraded its assessment on industrial production. Initial reports showed a moderate rise in output trends; however the decline in production numbers resulted in a flattening out of trends. The index for industrial output in December was released at 111.9, Japan's second-highest reading since January '98, also reached briefly in August of last year. Industrial production rose 0.7% in December from a year earlier, as the figure has risen consistently for over 2 years. Manufacturers' output is expected to drop 0.4% in January and a further 2.2% in February, according to the survey.
Yesterday, the JPY made gains on most of its major currency crosses, as Asian stock markets continue to fall ahead of today's Federal Reserve statement. Looking ahead, Japan will release its Manufacturing PMI today at 23:15 GMT; the data is forecasted to stay close to last month's figure of 52.3, and should not affect JPY prices by that much.It is unclear to how the JPY will respond to today's news events as it has range traded for most of January.
Technical News
EUR/USD
The pair is in a consolidation formation on the 4 hour chart, and is accumulating fresh momentum towards the next bullish move. An upcoming bearish cross might be forming on the daily chart indicating that the bullish move might not be very strong and could be subject to a corrective move soon.
GBP/USD
The bullish corrective move continues with strong momentum, as the daily chart indicates no sign of a halt. Hourlies studies support the bullish notion, as RSI and slow stochastic both indicate that the bullish trend might very well continue uninterrupted. Being on the buy side appears to be preferable.
USD/JPY
As the pair continues to be traded in relatively tight range, no distinct direction is being observed on the hourly and daily studies. The pair might continue to linger in neutral territory until a more distinct signal will be formed. It is advised to stay out of this one until the smoke of uncertainty clears.
USD/CHF
The very strong support level of 1.0850 has not yet been breached as the pair shows some mixed price momentum. The overall momentum is bearish, and traders should pay attention to a breach of the key support to enjoy a very strong additional bearish move that might take the pair into the 1.0750 area quite quickly.
The Wild Card
Gold
Gold is in the midst of a very strong uptrend that shows very small will to stop. All oscillators support the bullish bonanza, and it appears that an all time high breach might be quite imminent. This could be a great opportunity for forex traders to enjoy the road to a record high with very strong profit potential.
31/01/'08 - Greenback on its way down.
Economic News
USD
Yesterday the greenback slipped sharply against most of the major currencies on the back of the news that the Fed had slashed the Fed Fund Rate and the Discount Rate by an additional 0.5%. The Federal Funded rate, which is the U.S inter-bank lending rate, was cut from 3.50% to 3.00%. While the Discount Rate, which is the rate at which U.S banks can borrow funds directly from the Reserve Bank, was slashed from 4.00% to 3.50%. The Fed has been continuously slashing the interest rate over the last few months in an attempt to stabilize the faltering U.S economy and to stave off a recession. Yesterday's rate cut comes just over a week after the Fed surprisingly cut its benchmark lending rate by 0.75%, in order to stimulate the economy. This series of aggressive monetary expansion by the Fed will significantly boost U.S consumer spending, which will mean that the number of unsold U.S homes will decrease thereby alleviating the housing slump and loosening the persistency of the recent credit crisis. However the Fed will have to keep a close eye on future inflation figures, particularly since the recent Personnel Consumer Expenditure figure released above expectations. The PCE figure is not relied upon by many economists and therefore it's is widely believed that inflation is not a major concern and that yesterday's 0.50% rate cut was absolutely necessary in order to prevent the U.S economy from spiraling into recession. Inflation is expected to remain moderate in the near term, although there is a slight risk of it spiking on the back of the rate cuts. Nevertheless, stagflation is highly unlikely and it seems that the worst case scenario for the U.S economy will be a recession.
In other U.S news yesterday, the Annualized GDP quarterly figure released at 0.6%, which was well below the forecasted figure of 1.2%, giving further indication of slowing U.S economy. Also released yesterday was the ADP report, which has some predictive value for the Non-Farm Payrolls report which is to be released this Friday. The ADP report surprised on the upside, coming in at 130K and far-surpassing the expected figure of 40K. Therefore looking ahead, traders will now begin to shift their focus on Friday's NFP report, which is usually a major market mover. The greenback may be able to pull back some lost ground on Friday as according to the ADP report we may see a positive surprise for the significant NFP report. Nevertheless, due to instability in the U.S financial markets coupled with slowing growth the short term outlook for the greenback remains very bleak. However we remain optimistic longer term and believe that towards the second half of 2008 the U.S economy will climb out of this deep pit and it will be accompanied by a sustained USD rally.
EUR
There was no significant Eurozone news yesterday as all attention shifted to the U.S interest rate announcement. The EUR rallied sharply against the greenback on the back of the Fed rate cut and it reached above the 1.4900 level. The EUR also rallied strongly against the GBP, as the BOE still struggles to balance rising inflation and slowing growth. However, the European currency had a mixed trading day against most of the other majors. Looking ahead to today, there will a host of Eurozone news which will be released kicking off with the German Retail Sales and Unemployment Rate. The German economy, which is heavily reliant on exports, remains resilient despite the recent appreciation of the EUR. The other key news today will be the Eurozone CPI, which will give some indication as to the inflationary pressures that the ECB may have to face. Many analysts believe that the strong EUR will eventually take its toll on the European economy and that it may take more hawkish comments from the ECB with regards to inflation in order for the EUR to keep its bullish momentum.
The near term outlook for the EUR, in stark contrast to the greenback, remains bright and most analysts believe that it will once again head towards the 1.5000 level against the USD. However it may slip slightly this week before resuming its upward momentum as the market digests yesterday's rate cut causing some temporary greenback consolidation.
JPY
The JPY rallied sharply yesterday on the back of the Fed rate cut as investors pared off any risky positions thereby causing carry trades to unwind further. The current uncertainty in the global financial markets is causing all the high yielding currencies to depreciate sharply and we should see the JPY continue its bullish momentum as risk seeking investors run for the hills. The Japanese economy is showing moderate growth and it is finally beginning to experience some positive inflation, so this could be a good launching pad for a future rate hike from the BoJ. In the meantime a rate hike remains unlikely due to possible deflationary pressures and there will need to be sustained expansion before the BoJ can consider a rate hike. The outlook for the JPY remains very bullish particularly as global market instability and currency volatility continue to drive risk-aversion. However, as soon as the U.S economy is back on its feet, investors will once again be willing to take risks and this could pull the JPY off the bullish express.
Technical News
EUR/USD
The 4 Hour chart indicates that there is still room for the pair to reach new heights, particularly after breaching the key 1.4850 resistance level yesterday. Both the RSI and momentum are indicating that this pair should continue its bullish rampage. Oscillators show that a breach through 1.4950 will validate an additional bullish move into the 1.50 levels.
GBP/USD
The cable is trading in a very unstable and choppy manner in the past few days. The daily studies show a slight bullish momentum and the hourlies show mixed signals. The RSI and Momentum on the daily chart are positively sloped indicating that this pair still has steam left in its bullish movement. However the 4 Hour chart is slightly bearish, so a preferred strategy for today might be to buy on dips, as the daily movement should still be bullish.
USD/JPY
The breach through the wide range is showing the full power of the bearish momentum. The pair is traded at the 106.50 levels, and another bearish move is quite imminent. All the indicators are showing that the bearish momentum has not yet said its last word, and a target price of 105.00 will no be a big surprise.
USD/CHF
This pair is still in the midst of a steady downtrend which is not yet showing any sign of leveling out. The RSI and Momentum are still negatively sloped indicating that there is still plenty of steam left in this bearish move. The oscillators show that a positive breach is quite unlikely, and the daily charts are also showing bearish momentum. Going short still might be a preferable strategy.
The Wild Card
Gold
This commodity has been on a sharp rise over the last week and this bullish trend is likely to stick around in the near future. All charts are still giving a strong bullish signal, however there might be short term corrections during this uptrend. forex traders can maximize profits by buying on a dip and taking advantage of a sharp bullish trend.
04/02/'08 - Will the Greenback Maintain It's Recovery?
Economic News
USD
After a week full of mixed U.S. economic data, a steady stream of negative news from the U.S. housing sector and even after the reduction of the interest rate, the greenback is only marginally lower. Friday's dismal U.S. Non Farm Payrolls report sent the USD near record-lows against the EUR. The highly-anticipated NFP report showed that employers shed 17K jobs through the month of January - the first negative figure in 4 years. However, an impressive recovery eventually left the USD slightly higher through the late Friday New York trading session. The U.S. currency rose against the EUR after a report showing the U.S. manufacturing sector expanded in January, helping the greenback to recover from news of the contraction in the labor market. Nonetheless, the overall U.S. economy is cooling. The loss of 17K of jobs, as was reflected by the NFP report, makes it difficult to argue that the U.S. economy is not already in a recession. The forecast is that the Federal Reserve will need to continue to lower interest rates and unless there is a strong rebound in job growth during this month, it is realistic to expect an additional 0.25% point rate cut somewhere in the next 2 months.
Today the most significant news to come out of the U.S. will be the Factory Orders figures. The figure is expected to release at 2.3%, almost twice higher than in the prior month. During the week, traders will also closely follow the figures of the Nonfarm Productivity index as well as Unemployment Claims and the Pending Home Sales indices.
It appears that the negative US releases will cause the greenback to continue its bearishness, at least until a spur of positive releases will hit the board.
EUR
During the previous week European economic data was stronger than expected and the U.S. data was weak, but still the EUR failed to close above 1.49. Last Friday, the EUR fell to $1.4805, down 0.4% from its mid-week trading levels, reversing course after touching a two-month high of $1.4952 earlier in the session. While the Fed cuts the rate twice in 9 days, the ECB continues to dwell on inflation keeping its benchmark rate unchanged at a 7 year high of 4%. On Feb. 7th, ECB officials will be meeting to decide on interest rates and even though rates are expected to be left unchanged for the 8th consecutive month, all traders should keep an eye on the comments made by ECB President Trichet at the accompanying press conference. From a strategic point of view, the medium-term outlook continues to be dominated primarily by the deterioration of the macroeconomic environment and the flow of disappointing news. Analysts predict that the worsening U.S. economy will likely be the main factor in the currency market in the months ahead. As conditions currently stand, the EUR seems destined for a further short-term correction before making another substantive run at the $1.5000 mark.
JPY
The JPY was slightly down in the early Monday session, trading at 106.90 against the USD and continuing to move in lock-step with equity markets.
The coming week holds at least a few indicators of interest. The preliminary Leading Economic Index for December will be posted on Wednesday. This indicator has been bouncing off its record lows over the past few months, so a notable print may be in order. On the following day, the Machine Tool Orders figure will define expectations for foreign demand and shipments. Finally, Friday brings the Economy Watchers Current survey. This indicator measures the current mood of businesses that directly service consumers and isn't considered to be a big price mover, yet it holds considerable potential nonetheless.
Technical News
EUR/USD
The pair is starting to move back up, after a choppy session on Friday, and a small correction afterwards. The 4 Hour Slow Stochastic crossed at 13 and is supported by the RSI which shows a positive slope. The momentum is bullish, and the next target price appears to be 1.4900.
GBP/USD
The 4 Hour Slow Stochastic crossed at 8 implying an upcoming bullish trend with an initial target price of 1.9801. Although the daily momentum is bullish, the hourly momentum is starting to form. Forex traders should wait for Momentum and RSI to have a positive slope before initiating any action and going long.
USD/JPY
A slightly bearish narrow channel is forming on the 4 Hour chart as the next target price is located at 106.16, in case of a breach through the bottom barrier, 105.53 will be the next target price. There is still a possibility of a bullish breach as well, so a preferable strategy could be to wait for a clear signal before entering the market.
USD/CHF
There is a bearish cross forming on the slow stochastic of the 4 hour chart. In addition we see that there are three consecutive doji bars, which indicates that the bearish break might be quite imminent. Going short appears to be the right direction today.
The Wild Card
Gold
Gold has been on a sharp rise during the last week and this trend is expected to continue in the short term. The bullish signal is still strong; however there might be short term corrections during the uptrend. Forex traders can maximize profits by buying on a dip and taking advantage of a sharp bullish trend with a relatively good entry price.
05/02/'08 - ISM Non-Manufacturing on Tap
Economic News
USD
Yesterday, saw a return to mixed results by the greenback against its most commonly traded currency pairs, as the week continues to be driven by how world economies react to the unstable and disappointing US economy. Last Friday's release of the Non Farm payrolls could still have a lasting effect on dollar value, as the 17K job loss from January had initially ravaged the greenback, leaving some uncertainty as to if and for how long it will be a factor.
A large portion of the focus for this week will not be on US economic data alone, but outside data which in large part will be reacting to last week's full schedule from the US.
Interest rate statements will be announced this week in Australia, Europe and Great Britain, each of which are expected to react differently to the greenback's 125bp cut over the last 2 weeks by the Federal Reserve. Firstly, Australia is expected to raise their interest rate to 7%, a 25bp bump from its benchmark rate, as Australian economists expect to see record highs for the Aussie dollar against the USD, which could breach the 90 cent mark today. The British, on the other hand, seem to be leaning toward rate cuts to try and revive the British economy. As the week continues on, a small collection of important US economic data will be released. Pending Home Sales, Unemployment claims, Non-Farm Productivity are all set to individually push the greenback forward. On tap today is the release of ISM Non-Manufacturing Index for the month of January. The 15:00 GMT release is expected to fall slightly from 54.4 to 53.0 but should not cause as much volatility as usual, due to the small expected change. The manufacturing figure, coupled with 3 less significant figures to be released today, will likely keep the dollar trading within a small range.
EUR
With all the talk of movement in world interest rates, such as cuts in Britain and the US and hikes in Australia, the ECB continues its hawkish stance regarding it currency and will more likely than not keep rates the same ahead of Thursday's scheduled Interest Rate announcement. ECB President Jean-Claude Trichet, seems keen on keeping the thriving 15 nation currency intact, keeping rates at 4% flat. PPI and Consumer Confidence both returned negatively yesterday, having little effect on the EUR currency crosses.
As Thursday's interest rate announcement slowly approaches, today could be an important one for the EUR, as most of its significant data for the week is on today's schedule. First is the 8:55 GMT release of German Service PMI, which is forecasted to lose 0.7 points. That will be followed by a 10:00 GMT announcement of Retail Sales for the month of January, which is forecasting at 0.2%, 7 percentage points up from its last measurement. These two figures should set the tone for the next couple of days, as all other EUR data will not appear until Thursday.
It is no surprise that the EUR continues to dominate the USD, with elections and uncertainty still a big factor regarding the dollar; we should begin to see a bigger push by the EUR as it moves toward $1.50. If economic data returns with better than expected results, we could very well get to that mark faster than expected.
JPY
The JPY saw a decline in value yesterday versus most of its major counterparts as carry trading slowly picked up pace ahead of expected Australian interest rate hikes. Another interesting trend has been the relationship between the JPY and the global stock markets, as the Japanese currency gets its most movement when responding to global financial trends. More importantly has been the direct relationship between carry trading and the Dow Jones. The two used to be directly correlated as one dictated the others movement in the opposite direction; however in recent days the trend seems to be changing. Yesterday the JPY spent a good portion of its time, in the midst of growing carry trade behavior, whereas the Dow Jones slowly fell all day long. Such behavior has forced investors to retool their strategies regarding the JPY.
Today, the Japanese economy will be absent on the economic calendar as we look ahead towards Wednesday's Leading Index and Thursday's Machine Tool Orders.
As the Aussie dollar continues to strengthen, this could push the JPY down further and further. This will likely be the case until at least the end of this week.
Technical News
EUR/USD
After a relatively choppy session overnight the pair now consolidates around 1.4820. The momentum on the 4 hour chart is mixed with a slight bullish tendency, as the daily chart indicates a stronger bullish momentum. It is advised to wait for a break above 1.4830 before initiating a long position.
GBP/USD
The cable bottomed at 1.9350 and since, is showing bullish momentum that appears to be continuing with little interruption. The hourlies are moderately bullish, and the daily chart is showing that a bullish break might be imminent. Going long appears to be the right choice today.
USD/JPY
The pair is still floating in a range with no distinct direction or momentum. The hourlies are floating in neutral territory and the daily slow stochastic is showing a slightly bullish momentum. Forex traders are advised to wait for a clear signal before entering in any direction.
USD/CHF
The pair has started to accumulate bullish momentum as the 1.0900 level was breached. The 4 hour slow stochastic is showing a growing bullish momentum as the daily chart supports the bullish notion. A breach through 1.0940 will validate this move and might take the pair back to the 1.1000 levels again.
The Wild Card
Gold
Gold has made a failed attempt to breach through the 898.60 level which is a key Fibonacci support level. The inability to breach that level generates fresh new bullish momentum with a target of 907.00 at the local level. This could be a great opportunity for Forex trader to enjoy a very strong reversal move.
06/02/'08 - USD Correction Continues...
Economic News
USD
It has been a long time since we have seen a broad based greenback rally, including against the JPY, where despite a widespread liquidation of carry trades, the USD/JPY barely budged. The USD rose yesterday despite a surprise drop in the ISM non-manufacturing index. Trading was volatile largely on the back of a significant contraction in ISM services figures which came in at 41.9, the lowest reading since Oct 2001.
That intensifies concerns of a recession in the U.S. economy, pressuring the Fed to cut rates further. Currently, the Fed Fund Futures are pricing a 70% chance of another 50bp cut next month.
Along with this, it's important to mention that there are signs in the FOMC policy statement from last week according to which, the Fed may moderate its aggressive policy actions. Nevertheless, if the U.S. financial markets will destabilize once again, there is no doubt that Federal Reserve will cut again. The U.S. economy is in trouble and it seems as if the recession has hit. The continuing deterioration of the labor market, housing market and now the service sector, leaves little doubt that the biggest economy is falling into a recession. As for today's' U.S. calendar, expect Nonfarm Productivity and Unit Labor Costs indices on tap. Both of these indicators are due to be released at 13:30 GMT. Later today, the Philadelphia Fed President Plosser is scheduled to deliver a speech. It appears that the greenback might continue yesterday's correction move before probably initiating another bearish move.
EUR
The EUR fell yesterday against USD. The European currency lost yesterday some 180 pips, which makes it the biggest move in the pair since the Fed surprised the markets with a 75bp intermeeting rate cut. The EUR particularly dropped after the German Services PMI and Retail Sales fell more than expected, indicating that the U.S. economic slowdown is spreading to Europe. This is a reliable indication that the Euro zone is heading towards a period of significantly weaker growth during the remainder 2008. The poor PMI Services data, which was released at 50.6, the lowest figure since July 2003, prompted speculations that the ECB will be forced to trim its growth forecast and eventually ease monetary policy this year. Also yesterday, the Euro zone Retail Sales fell short of expectations in the month of December as weak consumption in Germany offset stronger spending in France.
Overall, the EUR traded with a low of 1.4620 and a high of 1.4834 before closing the day at 1.4648 in the New York session. As for today, there is no economic data due to be released from the Euro zone. Although the EUR slipped yesterday, it is too early to eulogize the European currency. The accelerating U.S. economic recession leaves quite a little doubt that the EUR will head back up after the current correction will lose its steam.
JPY
Despite a widespread liquidation of carry trades, the JPY was little changed against the USD yesterday. The JPY rallied against a number of majors due to continued concerns surrounding the U.S. economic slowdown. Overall the USD/JPY traded with a low of 106.60 and a high of 107.74 before closing the day at 106.73 in the New York session.
This morning, the Japanese index of Leading Economic indicators released inline with expectations at 40%, but still the number stands much below 50% (the acceptable minimum for a growing economy). The data suggest that downside risks to the Japanese economy are increasing. Recently released industrial output figures showed negative production forecasts for January and February.
Today is expected to be a devoid of data so we should see the JPY continues on its bearish path.
Technical News
EUR/USD
The pair dropped more than 200 pips since the beginning of the week, and it looks as if the corrective move might continue. The 4 hour chart shows a bullish cross that might slow down the downtrend locally, yet the daily chart confirms that the bearish move is valid. Next target price might be 1.4580.
GBP/USD
The cable dropped massively in the last 48 hours yet failed to breach the 1.9600 level. The 4 hour slow stochastic indicates a moderate bullish momentum, however the daily studies show distinct bearish notion. Selling on highs might be wise today.
USD/JPY
The pair has traded in a tight range for a while with no distinct direction. The Bollinger Bands are getting tighter, and the 4 hour Slow Stochastic is showing a bullish cross. Oscillators strengthen the notion that if a sharp break will occur, it will most likely be bullish. Forex traders are advised to wait for the break and swing with it.
USD/CHF
After spiking through the 1.0750 level without a significant breach, the pair is in the middle of a correction that appears to have some more steam in it. The slow stochastic and RSI of the 4 hour chart show that a reversal cross is not due today, which means that the bullish momentum might continue.
The Wild Card
Crude Oil
Oil is correcting down with great momentum and initiated the first step in a bearish channel formation. The 4 hour chart is showing strong bearish momentum, and the lack of a cross in the daily slow stochastic should strengthen Forex trader's confidence in the bearish trend. Next target price might be 87.00$ a barrel.
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07/02/'08 - The U.S. Pending Home Sales on Tap.
Economic News
USD
The greenback has been appreciating sharply against the EUR since the release of the surprisingly weak U.S NFP report last Friday. Many analysts are still at odds as to why the greenback appreciated last Friday since the weak NFP report should have added to the existing bearish dollar sentiment. Also there was more significant negative data for the greenback this week as the ISM Non-Manufacturing Index released on Tuesday at 41.9 which indicated a sharp contraction in every major component of the report from new orders, to employment and to business activity. This negative data should have thrown the greenback to the bears as these disappointing key economic figures practically assure another Fed rate cut at the next FOMC meeting in March. This rate cut in March may once again be 0.50% as the Fed will make a last ditch attempt to pull the U.S economy out of a recession. Therefore this weeks' greenback rally against the EUR is somewhat of an economic phenomenon from the fundamental perspective. Also the greenback continued its rally against the EUR yesterday as traders remained cautious ahead of todays ECB Interest Rate Announcement. The main theory as to why the greenback is currently rallying against EUR on the back of this weeks' very negative U.S data, is that many analysts expect the U.S economy to rebound in the second half of 2008 while Euro-zone growth is believed to be heading for a freefall. Also the Fed is prepared to continue slashing rates in order to prevent the U.S economy from slipping into recession, while the ECB may stick to its hawkish stance with regards to its monetary policy today amid signs of slowing economic growth in the Euro-zone. So on a broader and longer term scale it seems that the when the U.S economy will be in reparation phase the Euro-zone economy may very well be falling into the dark pit of slowing growth and rising inflation. This is one of the main explanations for this weeks' greenback rally as at the end of a dark tunnel there is always light. Also the fact that the greenback is currently appreciating while there is very negative U.S data is another sure sign that this rally could be the beginning of a longer term trend.
Yesterday there was no real market moving news from the U.S and traders will shift all their attention to today's interest rate announcements by the ECB and the BoE, therefore the greenback is likely remain relatively flat leading up to the announcements and the speech by President Trichet. However there could be sharp volatiliy on the back of these economic announcements. Traders should remain cautious as we could be at the beginning of a rallying greenback trend, which is not sufficiently justifiable at the moment.
EUR
There was no significant data released from the Euro-zone yesterday but the EUR continued to depreciate as traders remained cautious ahead of today's ECB meeting. The Euro-zone economy suffered a solid blow on Tuesday when the Euro-zone PMI released unexpectedly weaker, indicating a serious deterioration in demand and that the U.S economic slowdown is now spreading into the Euro-zone. The ECB is expected to keep interests rates unchanged at 4.00%, despite falling growth as it maintains its hawkish stance with regards to inflation. However as a result of falling growth the ECB will encounter criticism and an overly tight monetary policy may damage the ECB's credibility. Also investors will closely watch President Trichet's speech that will follow the interest rate announcement for clues on future monetary policy and how the ECB is planning on tackling the issue of slowing growth and rising inflation. This is a very pivotal moment for the Euro-zone economy as growth is slowing so today's monetary policy by the ECB will have tremendous significance in determining the future direction of the EUR. The EUR should experience some sharp movement all across the board on the back of these news events today. Elsewhere, the BoE will also announce its benchmark interest rate and it is expected to cut rates by 0.25%, from 5.50% to 5. 25%. The UK economy has been severely hit by the spreading credit crisis, particularly the Northern Rock Bank, which is one of the major UK banks. Therefore the UK economy has been on slumping ever since the credit crisis emerged and so the BoE may attempt to stimulate the economy by cutting rates and thereby making credit more available. However the BoE will struggle to balance slowing growth and keeping inflation within targets. The GBP has been weakening steadily throughout this week against the greenback and once today's rate cut is behind us the GBP should consolidate in the near term.
JPY
The JPY continued its bullish surge yesterday as carry trades continued to unwind ahead of today's two major interest rate announcements by the BoE and the ECB. Also another major contributor to the current carry trade unwind was the fact that Asian stocks posted their biggest loss in over two weeks as a result of concerns over the state of the global economy. The JPY is likely to continue to appreciate as long as risk-aversion maintains a strangle hold on investors. Earlier today during the Asian session the only news released out of Japan was the Machine Tool Orders figure, which measures the total value of new orders placed with machine tool manufacturers, and it remained unchanged at 3.7%. The only other important news to be released from the Japanese economy this week will be the Core Machine Orders, which measures the total value of new orders placed with machine manufacturers, excluding orders for items with a volatile sales cycle. This figure is expected to come in significantly better than last month's figure of -2.8%, at -1.0%. This is very positive for the Japanese economy as when manufacturers increase their purchasing of machinery it signals that the manufacturing industry is in an expansion phase. However this data is unlikely to cause any sharp movements in the JPY as the JPY gains remain consistent with the current situation of higher risk aversion.
Technical News
EUR/USD
The pair is trading in a range for the past three days showing after the previous sharp bearish correction and is now consolidating around 1.4620. The 4 hour chart is showing first buds of a bullish momentum whereas the daily chart is still bearish. Selling on high might be preferable today.
GBP/USD
The 4 hour chart is showing that the bearish momentum is regaining strength. The slow stochastic indicates that this trend might continue until the cable reaches the 1.9520 level. The daily studies confirm the bearish notion, and it appears preferable to go short today.
USD/JPY
The ongoing tight range continues without a break of any significant importance. The daily chart is maintaining a slightly bearish indication yet with no distinct conclusion. The Bollinger Bands are tightening which indicates that the break might be imminent. Traders are advised to hold for the break and then swing into it.
USD/CHF
Due to high momentum, it looks as though the bullish correction will continue. The RSI and slow stochastic of the 4 hour chart are showing a floating status which strengthens the notion that the bullish move might continue. The current target price is around 1.1040.
The Wild Card
Crude Oil
There is a narrowing bearish channel forming on the 4 hour chart as Oil now floats on the upper level of it. All oscillators show that an additional bearish break through the 86.20 level will unleash a much stronger bearish move which can provide Forex traders a great opportunity of a strong swing.