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06/08/'07 - The Greenback Pulls Further Back.
Economic News
USD
The greenback pulled back quite massively last week, as we saw that the small strengthening signal was very short lived and was replaced by a deep drop all across the board. The news that came from the US last week was very consistent as the negative sentiment prevailed time after time and pushed the USD down one step after the other. After weak releases of the Chicago PMI, unemployment claims, ISM manufacturing, and the ADP Nonfarm index, we saw some more negative sentiment on Friday. The Nonfarm Payrolls was released at a disappointing 92K after it was widely expected to come in at around 135K. The unemployment rate also rose a bit to 4.6%, painting a gloomy picture for the US labor market. The release showed strong correlation to the ADP release that although was released much lower than 92K at 46K, still forecasted the extremely negative sentiment that caused the NFP to be released that low. On top of all this the ISM Non manufacturing Index was released a bit later showing a dip from 60.7 to 55.8 and a consensus of 59.5, which completed an extremely negative week for the greenback in regards to news events.
This week might be very interesting for the USD, as it might be light on news events, but the two major events that are expected to be released are the Fed's Rate Announcement, and the Nonfarm productivity, both are expected tomorrow. It looks as if it is not going to be easy for the greenback to pull back from the ongoing depreciation if the negative sentiment will continue, especially with the Sub-Prime condition that doesn't seem to be getting better any time soon.
EUR
There weren't many important currency trading news events which came from Europe last week, and the few that were, came out quite as expected, like the ECB and BOE rate announcements which came inline with expectations, and provided little price movement as they were overshadowed by a packed US calendar. Trichet's speech at the end of last week which stated that the ECB will take a “strong vigilance” policy might raise the expectations that we will see a rate hike next month, in order to further stabilize the Euro-Zone conditio
This week should not be very exciting with regards to news releases, as the UK Inflation report will be the only major event that is expected to deliver some excitement from the European market.
JPY
The unwinding of the carry trades continues at full steam, as the deterioration in USD situation takes the USD/JPY to levels it has not seen since March 2007. The positive news flow from Japan such as the better unemployment rate which went down to 3.7%, and the housing starts which soared 6.0% from negative territories also contributed to the situation.
This week will not contain many news events apart from the Core Machinery Orders release which is expected to drop to -1%, and the M2 CD Money Supply which is expected to remain unchanged at 1.8%. The JPY movement will be heavily influenced by the USD market this week, and the unwinding of the carry trades will most likely continue.
Technical News
EUR/USD
The pair is now trading around 1.3840 which is the July High level, and a very strong resistance. If the level will be breached violently, we might see a further move to the 1.3900. The daily charts are waiting validation, and the hourlies are very bullish.
GBP/USD
The Cable is now in the middle of a short correction move and will probably test 2.0400 shortly. The daily charts are moderately bullish, and the hourlies are unwinding from overbought territories. Next target price might be 2.0500.
USD/JPY
The pair is in consolidation around the 117.70 level, probably before making the next break down. The down trend is very strong, and the pair will probably try to test 117.00 shortly.
USD/CHF
After the 1.1900 level has been breached, a very strong psychological barrier has been broken. This notion is supported by extremely bearish dailies. The hourlies are a bit oversold, which makes it preferable to try to go short on tops.
The Wild Card
Crude Oil
The Oil is floating at a key level, at the bottom of an upwards channel. This provides Forex traders with the opportunity of a great entry point for a long position that might provide a pullback to the 76.50 levels again.
07/08/'07 - U.S Interest Rate on Tap.
Economic News
USD
Yesterday, USD hit a 15-year low against a basket of major currencies as traders speculate that the worst of the credit issues in the US does not seem to be over yet. Equities, bond yields and the US dollar are all higher today indicating that the markets are collectively hoping for some reassurance from the Federal Reserve tomorrow. The turmoil in the mortgage market has everyone worried that the worst has yet to come, but if the Fed still feels that the economy will 'continue to expand at a moderate pace over the coming quarters,' and the upside risks to inflation is a bigger problem than the downside risk to growth, then the rest of us may be able to relax as well.
Crude oil took a plunge of 4.5% as the credit problems in the US have many seeing it as affecting economic growth thus demand for oil from the world's largest consumer. Oil fell by US$3.58 to US$71.17 a barrel.
The USD index (USDX), a gauge of the greenback's value against six major currencies slipped to a low below 80 which has not been seen since 1992.however on contrary the Dow Jones rebounded sharply, rising 286pts (2.2%), while the NASDAQ strengthened by 36pts (1.4%).
Today'a main focus expected to be the Interest rate statement, when the Fed is not expected to lower interest rates since the deflation pressures it may cause. However if analysts perspective were that no rate change will take place until 2008 ,well now according to equities and bonds yields status it is not unlikely for a rate cut taking place in the end of 4th quarter .
Today, cautionary comments from the Fed are very possible when actually at his semi-annual testimony on the economy and monetary policy, Fed Chairman Bernanke warned that things will get worse before they get better and indeed it has already gotten worse since then, the chances that the problems will become even more severe still exist and more likely that a deterioration will take place before the awaited recovery. In addition of the Interest rate announcement we have also the Non farm Productivity q/q which not expected to improve comparing to the 1% last quarter figure, and the Unit labor Costs q/q which no change is expected within this quarter figure.
EUR
The EUR was mixed against the USD as market shows signs of anxiety. According to European Central Bank, the strong Euro has helped cap inflationary pressures due to rising oil prices. Overall, the EUR\USD traded with a range of a low 1.3784 and a high of 1.3840 before closing the day at 1.3795 in the New York session.
Much stronger than expected German factory orders and demand for EUR/JPY has helped the EUR/USD hold steady despite a strong rally in US stocks and US bond yields. However the strong Euro seems to have only a limited impact on demand since orders increased 4.6 percent which compares to the market's -0.6 percent forecast. This suggests that Tuesday's industrial production numbers could also be firm. Trichet installed a strong bid tone in the currency last week when he held a surprise press conference to announce that they essentially plan on raising rates next month. In an environment where the US is on the verge of lowering rates, this has become very bullish for the Euro at the expense of the US dollar.
JPY
The JPY advanced to its highest level in more than 2 weeks against the USD as a slide in Asian stocks and the problematic US housing market encouraged traders to scale back investments in emerging markets funded by borrowing in Japan. The currency also rebounded from a record low against the Euro after Asian shares followed a decline in U.S. equities on concern of mortgage defaults which may cause investors to continue to flee riskier assets. With the sub-prime loan problem in the U.S. getting worst, the JPY's weakening trend has reached its end. The (JPY) was mixed against the greenback and remained little changed from the previous close in the absence of market moving data from either country. Overall, the USDJPY traded with a range of a low 117.19 and a high of 119.10 before closing the day at 118.91 in the New York session.
Technical News
EUR/USD
The forex trading pair has been ranging in the past few days but it still gained no distinct direction. The daily studies are showing bearish signals and the hourlies are currently neutral. On the daily chart we may observe a forming Eliot wave structure. A preferable strategy might be to wait for the hourlies to deliver a positive signal, and look for a good entry point for a short position.
GBP/USD
The pair is going through a choppy session in the past few days, and gives mixed signals on the hourly level. The daily chart is still showing a bearish formation, and it looks as if the pair is heading 2.0200 again. A preferable strategy might be to wait for the hourlies to unwind before going short.
USD/JPY
The downtrend is continuing, creating a bearish sentiment on daily charts. The Hourly chart support the negative notion and are setting a target price of 117.00 The pair is still trading within the boundaries of the upward channel on the daily chart, and if the 116.50 will be breached, than the reverse move is affirmed.
USD/CHF
The pair is floating in a low range similar to the one in December. The 1.1950 level is established as an almost impossible level to break. The dailies are showing bullish signals, and the dailies support the bullish notion. It might be preferable to buy on dips, as the bullish sentiment is quite strong.
The Wild Card
Silver
There is an upcoming reversal which Forex traders might use for profit taking in the upcoming days. On the daily chart, the 5 Eliot waves pattern is shown and the A B C wave's formation might bring silver to 13.00 however it might touch 13.40 first.
08/08/'07 - BOE Inflation Report (GBP)
Economic News
USD
The most significant forex trading news to be released from the US yesterday was the Feds key interest rate statement which left the interest rate unchanged at 5.25 %. Before the release of the statement the greenback experienced a slight revival against the majors as it was widely expected that the Fed would reiterate their robust stance on controlling inflation. This was indeed the case as the Federal Open Market Committee stated yesterday that inflation remained its primary concern and therefore the greenback extended its earlier gains particularly against the EUR. The Fed stated that the resilience of the labor market coupled with rising incomes will keep economic growth stable. Therefore although the Fed has kept its key benchmark rate unchanged in over a year, yesterday's statement was interpreted by investors as being hawkish as the Fed indicated that it will not cut rates in the near future even with the prevailing housing and credit concerns. Traders must pay close attention to any future comments from the Fed regarding its monetary policy as it seems that the Fed is trying to temporarily reassure investors that there is an underlying strength in the US economy and that growth will continue. However the Fed may very quickly change their tune in future statements as the sub-prime crisis and credit woes could drive the US economy into a recession if it is not aided by a rate cut from the Fed.
Today there is no market moving news expected from the US so we should see the greenback consolidate on yesterday's gains however the market remains edgy on the back of the Fed statement so investors, particularly this week, should pay close attention to future US news releases as there will be heightened volatility which may put the USD back onto the familiar slippery slope.
EUR
Yesterday the EUR lost ground against the USD on the back of the Feds interest rate statement which was interpreted as being hawkish. The only news which was released from the European market yesterday was the German Industrial production which released in negative territory at -0.4 %, well below the expected figure of 0.4 %. However this did not have much of an impact on the EUR as traders shifted their attention to the Feds statement, therefore most of the EUR movement was dollar centric. There is no real market moving news to be released from the Euro-zone for the rest of the week, so with the Fed maintaining its current interest rate level and the ECB expected to raise rates in September we should see the resilient EUR target a fresh bullish surge. However whether future US indicators support the Feds decision to keep rates on hold could prove to be a key in determining the direction of the EUR/USD pair.
Elsewhere, the BoE will release its inflation report today which should provide the market with further indication to its future monetary policy. Traders should pay close attention to this report as there is some confusion in the market as too how many future BoE rate hikes should be priced in. There will be volatility on the back of this report and the GBP could lose some ground in choppy trading as market forecasts are heading towards a single rate hike instead of two further rate increases to 6.25 % as was initially expected. However the inflation report will have a significant impact on these expectations.
JPY
Yesterday the US stock market dropped ahead of the Fed statement and this drove a bullish JPY surge as it reached the 117.98 against the greenback. However the JPY strength was premature as the greenback combined with the US stock market rebounded on the back of the interest rate statement. Also speculation on gains in Asian stocks which will further encourage carry trades caused the JPY to depreciate sharply against the high yielding currencies. Also earlier today in the Asian trading session the JPY extended its losses as Core Machinery Orders came in significantly below expectations at -10.4 %. However there is light at the end of the tunnel for the JPY and it may just be able to consolidate its recent rallies as the Bank of Japan is planning to discuss hiking its key interest rate to 0. 75 %. The widening interest rate differential between Japan and the rest of the world has been a thorn in the side of the JPY, as this fact coupled with a rising US stock market has fuelled carry trades over the recent months. Therefore a rate hike by the BoJ could provide the JPY with some much needed reprieve.
Technical News
EUR/USD
The pair has been ranging in the past few days but it still gained no distinct direction. The daily studies are showing bearish signals and the hourlies are currently neutral. On the daily chart we may observe a forming Eliot wave structure. A preferable strategy might be to wait for the hourlies to deliver a positive signal, and look for a good entry point for a short position.
GBP/USD
There is very distinct 5 Elliot wave pattern forming on the 4 Hour chart. The formation is now at the A B and C stage and close to completion. This trend may consolidate at 2.0165 at the end of it, and forex traders would have the chance to enjoy profit taking on dips and tops if they will identify correctly the reversals on this pattern. The general direction of the waves is bearish and targeted at 2.0100.
USD/JPY
The Slow Stochastic on the 4 Hour chart implies an upcoming reversal as it crossed above 80 (clearly over bought territory). The long term moving average (weighted 21) is flat, which may note on an upcoming crossing between the short term moving average (exponential 3). In case of a breach through the daily pivot point at 118.62 the bearish trend might reach 117.65. It is assumed that the pair won't be able to breach the pivot point and will most likely sail at 118.45 - 119.50
USD/CHF
The Daily and the 4 Hour charts are implying a bullish trend continuation before a reversal will take place. On the long term the pair expected to test the 1.1985 Fibonacci level and in case of a breakout, the next target would be the 1.2073 Fibonacci level. It seems that going long will be a preferable strategy in the upcoming weeks.
The Wild Card
Gold
On the daily chart a strong 5 Elliot waves pattern is establishing and the A B C waves are expected to take place and send the Gold to a $662.69 per ounce price. It seems like a great opportunity for Forex traders to take advantage of the situation.
This is a long term analysis which means that it will take at least one month to verify, and must be treated with great caution , as this is a very volatile instrument.
13/08/'07 - USD PPI and Retail Sales
Economic News
USD
Last week was characterized by a relatively empty US forex trading news calendar aside from the interest rate statement that was left unchanged. But the biggest event of last week was no doubt the declaration of BNP Paribas bank, that all withdrawals are now frozen, and there shall be almost no liquidity in the European market. This indicates that the Sub-Prime crisis in the US is starting to be a much more global problem, as it is now bursting in full scale in Europe as well. The BNP statement caused the EUR/USD to fall down more than 150 pips, it appears that the fall was originated from EUR weakness far more than USD strength, yet it marked a bullish trading day for the USD all across the board.
As for this week, the US calendar will be quite full with major events, starting today with the US Retail Sales which is very important as it makes up a large portion of consumer spending, is a major driver of the economy, and has a sizable impact on GDP. Traders pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and usually delivers interesting trading sessions. Today's release is expected to come out at 0.3% after hitting negative territory of -0.9% last month. The Core Retail Sales figure is also expected to come higher than last month -0.4%, and be released at 0.3%. If the figures will indeed come out this positive, we might see the greenback showing strong performance over the course of this week, especially with the heavy US calendar that is packed with events such as the US PPI, CPI, Trade Balance, and the Empire State Business Conditions Index.
EUR
The foreign exchange market reacted calmly on Friday as the Federal Reserve, European Central Bank, and Bank of Japan injected more than USD300 billion of cash into the financial system in order to allow financial markets to continue and function properly.
The three central banks of the leading economies acted instantly and injected the funds in order to ensure that market participants can continue to trade and prices will remain stable. In addition worldwide banks began to be acquainted with the deteriorating sub prime mortgage policies that now threaten the world's leading economies.
The EUR also suffered from the drop in global financial markets as we mentioned above however the stability was seen only after the ECB added 61.05 billion Euros in liquidity to financial markets.
Generally, traders are holding their breath regarding the latest developments in the world's economies, as the sub prime crisis is hovering above and threatening the market with a colossal collapsing. Traders need to be cautious with their bonds and yield investments and should be considering the Forex market as a defense mechanism for their investment.
JPY
The JPY held steady against the majors, floating around the 118.00-level versus the USD and 162.00 against the EUR. Earlier in the session, data released showed softer than expected second quarter GDP Deflator, at -0.3% y/y and 0.1% q/q compared to a -0.4% and 0.2% forecast. Capital expenditures were in line with forecasts, up 1.2% in Q2, while private sector-consumption increased by 0.4% which may contribute to the recently strengthening Japanese economy. The June current account surplus was softer than consensus estimates, up by 48.4% to 1.5203 trillion yen, missing calls for a rise of 57.0% to 1.6090 trillion yen. Japan's Minister of Economy Ota supported the strength of the economy, saying the recovery remained intact, Ota added that he would carefully intend to monitor the oil prices and the US economy, bolding the fact that he is concerned from the impact of sub prime issues on the real economy. He also mentioned that the end of deflation was in sight but still not over yet. The Bank of Japan will deliberate policy on August 23rd, and is not expected to change rates. We do not anticipate the BoJ to hike rates until early 2008; it seems that the Japanese economy is back on track.
Technical News
EUR/USD
The pair is floating in a wide range of 250 pips since the beginning of July, and the trend looks to continue. The daily chart is showing moderate bearish sentiment, and the hourlies support this. 1.3600 is now the key support level, and if breached will probably deliver a clear sign that the EUR bearishness has begun, and the move down is now validated.
GBP/USD
After losing more than 400 pips in the last two weeks, the bearish sentiment continues. The daily charts are showing that there is still more room to run and the hourlies are showing a light oversold status. A preferable strategy might be to look for a good short entry point.
USD/JPY
The massive downtrend continues with full steam, as clearly demonstrated by the slow stochastic and RSI on the daily chart. The momentum is still very high and shows no signs of a stop. Next target price would be 117.20 and if it will be breached than it will probably validate the moves' length to the 116.00 levels.
USD/CHF
The daily chart indicates a clear downwards channel, and the pair is now floating at the upper level. A break through the 1.2010 level will validate a channel breach and will unleash a massive bullish move. If the pair will be shy of the break, a moderate bearish movement is expected.
The Wild Card
Crude Oil
After a 800 pip fall in the last 14 days, Oil shows its first signs of a reversal. The slow stochastic shows a bullish cross, and the RSI indicates that the momentum is strong. This provides Forex traders with a great opportunity to get in a reversal move in a relatively early stage and generate high profit potential. Forex traders with a great opportunity to enter a short position on a very stable strong move. Next target price should be around 71.00.
14/08/'07 - Will the USD uptrend continue?
Economic News
USD
US core retail sales in July surprised positively with an increase to 0.4% and additionally the retail sales from June experienced an upward correction to 0.3% instead of the previously stated -0.7%. Strong growth was recorded in the areas of entertainment electronics, (1.0%) and in the clothing industry (1.3%). Strong consumer spending last month sheds positive light on economic growth and might, combined with the positive development in the major financial markets today, reduce investors' fear and open the possibility for a partial recovery of the USD this week.
Yesterday the Fed, as well as other major central banks, continued injecting funds into the financial markets in order to assure liquidity on the back of the sub prime credit problems. After this strong intervention the question remains open if the Fed will cut interest rates at the upcoming meeting on September 18th. With the Feds interest not to be ruled by actions on the stock market and the sentiment of moderate underlying growth, investors might wait vainly for the interest rate cut to come.
Today, we expect the July data for PPI and the US Trade Balance. Overall PPI is expected to rise from the previous -0.2% to 1.0%, indicating a slight increase in inflation. The Trade Balance is expected to increase by 1 billion to -61.0 billion, indicating an increase in the amount of imports to the US what can have a negative effect on the USD. More market moving news like CPI, Industrial Production, Housing stats and consumer sentiment are expected to be released in the coming days. For today, the USD is expected to be slightly bullish with decreased volatility in the USD crosses.
EUR
Yesterdays' economic calendar was rather light with only the announcement of the German WPI, which rose to 0.4% from the previous 0.1%. Today, we will see the new figures for German GDP (6:00GMT) as well as CPI and Real Price Index (RPI) from Great Britain (8:30 GMT). German GDP is expected to fall by 0.1% from the previous value of 0.5%. Great Britain's CPI is also expected to fall to a value of 2.3% from the previous 2.4% and RPI is expected to fall to 4.3% from the previous 4.4%. Negative figures may indicate a depreciation of the EUR among the majors in the current session.
As well as the Fed, did the ECB repeatedly stepped in today to lend money to European banks after the announcement of BNP Paribas to freeze redemptions of their investment funds last week, this way they could take pressure off of the banks which had to cope with skyrocketing overnight lending rates. After yesterdays improvement in the global equity markets volatility is expected to decrease and we should see a stabilization of the EUR which lost approximately 195 pips against the Dollar since last Thursday.
JPY
The JPY's rally against the major currencies since Thursday last week when it gained approximately 150 Pips against the USD, 430 pips against the EUR, 220 Pips against the CHF, and 600 pips against the GBP might be over now. Due to recovery equity markets, a decrease in volatility as well as less implied risk in financial markets , the JPY well revert back to its familiar Carry Trade based activity whereby the Yen is increasingly sold in order to invest in higher interest yielding currencies.
The positive outcome of the Tertiary Industry Activity Index last night, which released at 1.0% above the expected value of -0.2% and above the previous value of -1.0%, showed yet again time that an interest hike in the August meeting of the BOJ would lack fundamental basis, with inflation being low despite recent signs of economical growth of the Japanese economy.
Technical News
EUR/USD
Daily and 4 H chart indicate an upcoming reversal when a bearish wedge structure is observed which seems to be out of energy however still has room to go . On the 4 H chart ,Slow Stochastic crossed at 10 which strengthens the fact that a reversal will occur today. We still seek the signs from the MACD that will determine timing for going long in this pair.
GBP/USD
The daily chart implies that this forex trading pair still has room on the bearish side when Slow Stochastic show a negative slope and point to bearish territory . Hourlies are mixed however a double Doji may imply that range trading is expected in the upcoming hours . The support barrier of the bearish channel which is seen on the 4 H chart has now tested and in case of a breakout this pair is to test the 1.9977 ,however its more likely that a reversal will take place and thus going long seems to be preferable.
USD/JPY
Dailies and hourly indicators are in neutral territory which indicates range trading today, traders need to pay attention to the bullish flag structure which is establishing on the 4 H chart and may signal an upcoming bullish trend however not yet completed. In case of completion this pair may head to 118.83 Fibonacci (61.8%) and then going long seems to be the preferable strategy.
USD/CHF
On the 4 H chart a bullish pennant can be observed and it may imply of an upcoming bullish trend that may send this pair to consolidate at 1.2070 Fibonacci (76.4%). In case of breaking the 1.2070, this pair will head to 1.2113. Going long may be preferable.
The Wild Card
Crude Oil
On the daily chart, we can see a descending triangle which is forming and it may indicate on an upcoming bearish trend . Currently, Crude Oil is testing the 71.63 USD per barrel which is an important Fibonacci level 38.2%,in case of a breakout we may see a reduction to a 70.14 USD per barrel which is the next Fibonacci retracement level (23.6%) this will provide Forex traders with a great opportunity to enter the market with a short position.
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15/08/'07 - The Greenback Continues To Push Higher
Economic News
USD
There was some positive forex trading news for the greenback yesterday as the headline US Producer Price Index surprised on the upside releasing at 0.6 %, beating the expected figure of 0.1 % and this rise in producer inflation increases speculation that the Fed will cut rates in the near future. There was more good news to follow for the greenback as the US trade deficit shrunk to 58.1 B. The market was expecting the trade deficit to rise from last months figure of 59.2 B to 61.0 B, so this surprisingly strong data was the main driver of the greenbacks bullish burst against most of the majors. The two key factors responsible for shrinking the US trade deficit is the drop in oil prices and the weak USD. The decrease oil prices means that the US is spending less on imports while a weak dollar is improving the US exporter's ability to compete against the Chinese and US goods are gradually becoming a more preferable alternative to the foreign consumer. The greenback has been steadily pulling back lost ground against the GBP and the EUR in the last two days and yesterday's weak UK CPI figures coupled with the growing investor speculation that the ECB will not raise rates in September contributed to the continuing decline of the GBP/USD and EUR/USD crosses. The US and European equity markets suffered further losses yesterday and although the USD managed to hold its ground against the JPY it did eventually begin to depreciate against the Japanese currency giving further indication that the market is beginning to experience the full extent of a carry trade unwind particularly with today's looming hedge fund deadline.
Today volatility should remain high as there is a host of market moving data to be released from the US kicking off with the CPI figures that are expected to remain unchanged at 0.2 %. The other important data to be released today is the Empire State Business Conditions, TIC report, Industrial production and the Capacity Uitilization Rate. The USD has experienced a pile of negative economic data in recent weeks so we may be in for a downside surprise today. However with the credit woes also placing the EUR under pressure the greenback may be able to maintain its bullish run against the EUR and the GBP. It will be important for traders to identify a connection between the US economic data releases and their impact on the Fed's future monetary policy.
EUR
A string of negative data releases from the Eurozone yesterday coupled with the spreading credit concerns further fuelled the growing sentiment that the ECB may be forced to leave interest rates unchanged in September. The German, French and overall Eurozone GDP all released below expectations at 0.3 %. Also Industrial Production released in negative territory at -0.1 %, well below last months figure of 1.0 %. This basket of negative Eurozone data is a further indication that cracks are appearing in the normally resilient European economy. Also investors will be paying close attention to the ECB's approach in staving off the money market crunch as this will bear a significant impact on the ECB decision on whether to hike rates.
Today there are no significant news events to be released from the European market so any sharp EUR movement will be dollar centric. However it will also be important to follow how the equity markets react today as another decline could spark further risk aversion and then the EUR will continue its freefall versus the JPY.
JPY
The JPY is in a utopian phase as it continued to extend its gains all across the board yesterday. With the US and European equity markets taking another hit yesterday and with the problems in the credit market, the carry trade unwind is now fully rearing its head. The JPY should continue to strengthen particularly against the high yielding currencies as the credit concerns that started in the US are making a ripple effect and are negatively influencing the global markets. This in turn is creating a feeling of risk aversion among investors which is fuelling the current carry trade unwind. There is no important news to be released from Japan for the rest of the week but with the problems in the subprime sector being far from over, there should be further hedge fund liquidations and therefore carry trades will remain the name of the game in the near future. So it seems that the JPY is only now stepping into the bullring and we could see the Japanese currency gore its way to new heights in the next few days.
Technical News
EUR/USD
There are two bearish flags forming on the 4 Hour chart that sent the pair to 1.3483 which is a two month low. The daily chart shows that the bearish trend has not ended yet and sets 1.3437 as a significant barrier which probably slows down the current bearish trend. The Momentum Indicator is supporting this aggressive trend and traders should seek the upcoming reversal which may offer a good entry point for a short term buy position.
GBP/USD
There is a bearish channel forming on the daily chart with a bottom barrier located at 1.9841. Traders should pay attention for a breakout as this pair is expected to consolidate at 1.9798. The 4 Hour chart supports the bearish trend continuance as the slow stochastic is clearly in over sold territory with a negative slope. A preferable strategy might be to go short on peaks.
USD/JPY
A mild bearish channel is forming On the 4 Hour chart with 116.67 as a support barrier which is going to be tested, probably today. In case of a breach the pair might be in its way to 116.23. Going long might be preferable after the reversal will take place.
USD/CHF
The pair is in the middle of a very intense up trend, which was initiated after a breach through the 1.2000 level has occurred. The slow stochastic shows an overbought status which indicates that a correction might occur before the uptrend continues. Target price appears to be 1.2220.
The Wild Card
Gold
There has been a bearish flag forming on the 4 Hour chart, indicating that the momentum is still down. The RSI is floating around 50, which supports the notion that there is still plenty of room to run. This provides forex traders with a great opportunity to go short on a very solid downtrend.
16/08/'07 - Will the US housing market recover?
Economic News
USD
Yesterday, the USD extended its gains across the board after a string of positive US economic data. The US Core CPI data released inline with expectations at 0.2% and overall remained unchanged since last month. The Empire State Business Conditions Index released at 25.1, surprisingly beating the expected figure of 18,which gives a strong indication that future reports on manufacturing in the US are also likely to support the USD's rise. Housing and credit concerns are still here and the crisis hasn't been resolved yet. In order to make cash available, central banks worldwide have pumped billions in funds to banks over the past week, but along with this, Federal Reserve officials are insisting that there are no signs that the subprime issue is harming the broader economy and an interest-rate cut is not yet needed despite the fact that the fund injection could be compared to an interest rate cut from the perspective of the market. On the back of these positive sentiments, the US currency hiked to 1.3400 against the EUR. There is no real market moving news to be released from the US markets today. The news coming out of the US will be the Housing Starts and Building Permits figures and since there are no particular expectations, these indicators will likely generate little interest. Consumer Sentiment Index is the only news release expected from USD for the rest of the week. The core figure is expected to release at 88.5 which is a slight drop from last month's figure 90.4. Therefore, it will be crucial for those trading forex to identify how the preceding economic indicators from Europe and the UK will affect the greenback.
EUR
Yesterday, the majority of news releases from the Euro zone came out quite negative. The GBP Average Earnings Index figure released at 3.3%, slightly lower than the expected figure of 3.5%. This negative momentum was further exacerbated by the weaker than expected GBP Claimant Count Change. This index measures the change in the number of people claiming unemployment related benefits over the previous month. A falling trend has a positive effect on the nation's currency. The figure released in negative territory at -8.5K. This number didn't beat the expected figure of -9.8K, it was still significantly lower than last month's figure of -14.1K. Analysts continue to assert that a EUR interest rate hike is expected despite the fund injections that occurred in the Euro zone.
Today the most significant news coming out of the Euro zone will be the England's Retail Sales. The figure is expected to release at 0.1%, which is 50% below the previous month's figure which might strengthen the negative momentum which the GBP is suffering from.
JPY
Yesterday, the JPY rose to a 4 month high against the EUR and the USD. The Japanese Yen has enjoyed a sustained bullish run as results of the carry trade unwind which was driven by increased risk aversion. The Yen rose 0.8% to 154.99 per EUR and gained to 115.68 per USD. Yesterday's U.S stock losses sparked speculations that the biggest mortgage lender in the U.S. may be forced into bankruptcy. Rising risk aversion caused investors to liquidate risky positions and triggered carry trades to unwind, thus the yen gained some momentum. The persistent problems in the US sub-prime mortgage market, coupled with further reports of hedge fund worries are fuelling the risk aversion sentiment, therefore we may expect the JPY to strengthen all across the board in the coming days.
Technical News
EUR/USD
The 4 hour chart implies an upcoming bullish trend with Momentum (98.6285) having a positive slope and a slow stochastic which crossed at 13. The correction will try to test the 1.3483 Fibonacci 38.2% retracement level. Going long seems like the preferable strategy today.
GBP/USD
The 4 hour chart notes that a tight bearish channel is forming and traders should seek the breakout to get into the market at a good entry point for a long position. However the daily chart indicates a breakout of the bullish channel, supporting the fact that the GBP depreciation would be maintained in the long term.
USD/JPY
The 4 hour chart implies that a tight channel is about to form which has an extreme negative slope, and a breakout is expected. A breakout will probably send this pair to test the 117.04 Fibonacci 23.6%. If a breach of the upper barrier will take place we expect a mild bullish channel and therefore going long seems preferable.
USD/CHF
A reversal is forming on the 4 hour chart as the slow stochastic crossed already twice above 80 and this notion is also supported by the RSI which is clearly in the overbought area for a couple of days already. If this development is also supported by a cross of the MACD it seems like a preferable strategy is to enter into a short position.
The Wild Card
Crude Oil
On the 4 hour chart we can see that a channel with positive slope has been formed with an upper level which could be breached at the 74.32 (50%) Fibonacci level. If this break out takes place we could expect an incline up to the 75.22 Fibonacci level (61.8%). On the 15 minutes chart the formation of a negative wedge is about to be completed, increasing the possibility of an upcoming breakout at 74.32. Forex traders may prefer to enter into a long position when the right signal will be shown.
20/08/'07 - How Will The Currencies React Post The Rate Cut?
Economic News
USD
Last week's news releases were mixed with positive outcomes like the better than expected Core Retail Sales at 0.4%, a PPI which grew from 0.1% to 0.6%, a decrease in the Trade Balance (-58.1B), and an increase of TIC Net Long-Term Transactions (120.9B), and on the other hand negative results such as an unchanged Core CPI at 0.2% and a CPI which decreased to 0.1%, Housing Stats as well as building permits also decreased while unemployment claims rose. Then on Friday the news showed an erosion of consumer sentiment from the previous value of 88.5 to 83.3 and could therewith indicate a reduction of consumer spending that could potentially weaken the USD. This week will be relatively on news releases with only the Unemployment Claims on Thursday and Durable Good Orders and New Home Sales on Friday. A release of Core Durable Goods has an expected value of 0.6%, and a positive surprise on the site of Home Sales Value (above 826K) could strengthen the dollar.
To get hold on the liquidity shortage on the financial markets the Fed surprisingly cut the discount rate - the rate it charges banks for direct loans - on Friday in order to improve liquidity, it also issued a statement accrediting that besides inflation concerns the situation on the financial markets is posing a possible threat for the US economy. With this turnaround of the Feds perspective on the US economy, the discussion about an interest rate cut is newly ignited and we could probably see the beginning of smoothening monetary policy with a cut in the interest rate.
As for today the greenback is expected to float low post the negative releases of last weeks end and growing concerns about inflation.
EUR
Last week's German GDP was released below expectations at 0.3% (previous 0.5%) and the French Nonfarm Employment was released with a disappointing 0.0% compared to the previous 0.8% and the expected 0.5%. This week will be very light on market moving news from the Euro-zone with only German ZEW Economic sentiment on Tuesday, expected to come out at -1.0. This negative value indicates that the majority of investors have a negative outlook on the economical situation in Europe during the upcoming 6 months; an upward surprise could have an important psychological influence on investors who are still shaken by the dimensions of the US credit crisis.
After the announcement of the discount rate cut by the Feds on Friday, financial markets worldwide rallied and the EUR to strengthen against the USD for the first time in the last week. If investors' fears recede and European financial markets will see a recovery, the bullish trend that was set off on Friday could continue today.
Other news expected to come from Europe this week are the Swiss PPI on Monday (expected 0.3%), UK's CBI Industrial Trends Orders on Wednesday (expected -4), and the UK GDP (expected 0.8%) on Friday.
JPY
Last week ended the impressive JPY rally that showed an unbelievable dip from 123.77 to 112.72, a stunning 1105 pip increase against the USD, during the last 4 weeks. The JPY rally went on fairly independent from any Japanese News releases last week and was pushed by an intense unwinding of the carry trades which climaxed on Thursday and Friday last week. With carry trades unwinding, we should see JPY fluctuations being dollar centered today.
This week's interest announcement followed by a speech of BOJ Governor Fukui is expected to stay unchanged, as the BOJ is not able to justify such a move by underlying economical reasons.
Even with an approximation of Japan's interest rate to 1.0%, differences between the JPY and high yielding currencies like the AUD and NZD as well as most of the majors stays significant, and with a return of risk seeking in the global markets we will see carry trades returning in the medium-term.
Technical News
EUR/USD
The pair is in the midst of a correction move initiated at 1.3400 and is now consolidating around 1.3500. the slow stochastic together with the RSI on the 4 Hour chart indicate that there is still more momentum in that move, and the next target price now stands at 1.3550.
GBP/USD
There is a bullish cross forming on the slow stochastic of the daily chart, and a breach thought the 20 level on the RSI. Both indicators are showing a positive reversal with great momentum that might take the pair back to the 2.0000 levels.
USD/JPY
The incredible unwinding move seems to have bottomed at 111.60 and is going up since Friday. The daily studies are bullish, and the hourlies support the bullish notion. A breach through 115.60 will validate the move, and create a great opportunity for a long run buying position.
USD/CHF
The pair is in consolidation at the 38.2 level of the 1.2450/1.1820 move, after a touch at the 61.8 level and a bounce back to 1.2060. The daily studies show strong bullish momentum, as the hourlies support. The next target price might be 1.2200.
The Wild Card
Crude Oil
There is a bullish cross forming on the 4 Hour chart, and together with a breach beyond the 20 level on the RSI a strong bullish notion is created. This provides those forex trading with a great opportunity to enter a long position with good momentum and a very low entry point.
21/08/'07 - Today's focus is on Canadian Core Retail Sales.
Economic News
USD
Yesterday, USD Trading was flat against most currencies as equity markets seem to be stabilized. Analysts have cautioned investors with views that the credit crisis is far from ending and ensured that the USD will remain in a tight range against a number of currencies. In other news, US short- term rate futures were strongly higher yesterday as the cash federal funds rate dropped below the Federal Reserve's target rate and short-dated yields for U.S government debt fell sharply. Today the USD will be affected by other currencies when no special news is due to be released, we however offer to watch carefully the Canadian Core Retail Sales and CPI which are mixed in their forecasts and a significant movement is expected to occur if figures surprise the market . Crude oil fell by $1.30 a barrel to $70.68; however, tomorrow Crude Oil Inventories is due to be out we might see a bit of a movement in this commodity instrument .
There is an interesting situation going on as Fed credibility is in focus. The U.S. senator Kent Conrad, who chairs the Senate's budget panel, called for the resignation of voting Fed member Poole. Conrad said that Poole's comment last week that only a 'calamity' would justify a Fed interest rate cut before a scheduled Sept. 18 meeting was 'reckless' and 'irresponsible.' Conrad's comments come at a time when markets worry that the Fed discount rate cut on Friday may signal that their outlook has been flawed all along. The markets echoed Conrad's concerns when reacting in mixed and indecisive movements. Treasury bills rallied on Monday, with the three-month yield posting its biggest one-day drop since the stock market crash of 1987, and some suggest that today's movements in yields show that the Fed has failed to convince investors that sub prime losses will be contained and for now the sub prime crisis seems to pervade and threaten all of the US economy. Bottom line ,in spite of last week's Greenback strengthening, traders still have the feeling that the US economy has a long way to go until this current crisis will vanish ,which means that in the long term the USD is expected to remain depreciated among the majors ,especially against the EUR.
EUR
The Euro ended the day unchanged against the US dollar as the currency trading market tries to figure out whether the European Central Bank will continue to press forward with raising interest rates next month. The guessing game will be helped by today's German ZEW report, which tends to be one of the more market moving reports for the EUR. Given the turmoil in the financial markets, we expect analyst sentiment to be significantly deteriorates. As we mentioned earlier, due to lack of data today in the US calendar, the German ZEW is expected to be a bigger than usual market mover. Meanwhile over in Switzerland, producer and import prices were weaker than expected however no significant movements were observed on the CHF charts. The GBP traded on the back of currencies, while also benefiting from a return to risky carry trades and seems to have recovered after it's last week sharp reduction.
Yesterdays' GBP strengthening both against the USD and the EUR, was caused thanks to stronger economic data, when house prices, money supply, BBA mortgage approvals and public finances all came out stronger than expected.
This suggests that domestic demand remains robust while the housing market remains stable. This stability may be one of the main reasons why the Bank of England has not felt pressured to add liquidity into the financial markets. However the main discussion recently has been about the possibility that a mortgage crisis will take place also in Great Britain, since there is a similar mortgage policy as in the US and if the real estate market will experience a crisis or even just a revaluation we may see the same market reactions that took place in US, that may bode severely on the England economy and on the GBP currency. In addition, after the recent credit problems which occurred it may cause even a deeper crisis in England, however from our experience the BoE will react instantly if those kinds of signs will suddenly be seen .
JPY
The US dollar has begun to correct against the Japanese Yen. Still, the JPY remains firm and stable in its consistency against most of the majors. Yesterday, the Japanese Yen fell to 154.93 against the Euro from as high as 154.34 and 154.94 late yesterday. It also dropped to 115 against the dollar from as strong as 114.61 and 114.88.As we expect, the Japanese currency may give up early gains and drift lower against the dollar to 115.50 and 157 per Euro. Yesterday, the All Industries Activity Index was published in Japan. This index covers a broad range of economic activity including the tertiary index. Production in all sectors of the Japanese economy rose 0.2 % in June from May. The increase in the all industry activity index, only the fourth in the past 10 months, was spurred by the rise in the tertiary index as well as industrial output. Construction activity was the lone component that showed a contraction, -1.7% in June. The Bank of Japan added one trillion yen to its money markets today. This additional liquidity indicates that the BOJ will not have any intentions to raise interest rates during this week. In the meantime, the Yen crosses are driven less by interest rate expectations for Japan and more by the market's overall risk appetite. As we can expect the further decrease in JPY crosses depends upon the Nikkei. On Sunday night the Nikkei respond very slowly to the recovery in the Dow, but after all, the Japanese stock market ended much lower than its intraday high. This situation shows that many traders still don't believe that the worst is behind us and the consensus opinion is that the central banks will keep attempting to normalize the markets.
Technical News
EUR/USD
The pair is going through a choppy session in the past few days, and gives mixed signal on the hourly level. The daily chart is still showing a bullish formation and it looks as if the pair is heading 1.3600 again. A preferable strategy might be to wait for the hourlies to unwind before going long. Going short seems risky at this point.
GBP/USD
The daily chart implies that this pair still has room on the bullish side, while Slow Stochastic shows a positive slope and points to bullish territory. We may expect the pair to test 2.0100 in the short term; therefore going long may be preferable.
USD/JPY
The daily chart is clearly bullish with still much room left ahead. Slow Stochastic has a positive divergence which should carry this pair to test the 118.00 level in upcoming days. Hourlies also support the bullish notion; therefore buying on dips might be a preferable here.
USD/CHF
The USD/CHF is still in a bullish configuration. The volatility has increased. Hourlies are showing that the pair moves without a clear trend and swings around exponential moving average (EMA 50 and 100). 4H Elliott pattern implies a continuation of the bearish pressure.
The Wild Card
Silver
There is still a bearish configuration on the 4 Hour chart, indicating that the momentum is still down. The RSI is floating around 50, which supports the notion that there is still plenty of room to run. This provides Forex traders with a great opportunity to go short on a very solid downtrend.
22/08/'07 - CBI Industrial Trends Orders (GBP)
Economic News
USD
Yesterday was void of significant US economic releases, however there was a very important meeting comprising of US banking official to discuss the ever-growing credit crisis. U.S Treasury Secretary Paulson reaffirmed his opinion that the US economy will manage to deal with the growing credit concerns hinting that an imminent rate cut by the Fed may not be necessary. On the other hand US Senator Dodd that met with Paulson and Fed Chairman Bernanke urged the Fed to use all its available resources to put the brakes on the spreading credit crisis. Also yesterday the Fed injected another $3.75 B into the financial markets in an attempt to provide additional stability, the Fed has injected over $100 B last week. This action by the Fed coupled with Dodd's and Paulson's opposing rhetoric caused volatility all across the board and the USD had a mixed performance yesterday, as it continued on its bullish path against the EUR and the Sterling but lost ground against the JPY. The current market sentiment seems to be that the Fed will lower its benchmark rate in September and this was further reaffirmed by a reference in yesterday's meeting that Bernanke is unsatisfied with the way the stock market reacted to Friday's discount rate cut by the Fed. However the Fed will be able to avoid lowering its key interest rate if the market begins to experience signs of increased liquidity as a result of it dropping the discount rate from 6.25 % to 5.75 %.
Today there is also no market moving news expected from the US so greenback volatility will arise from factors that will affect the Feds descision on future monetary policy, namely the spreading credit concerns and the performance of the equity markets. The expectations of a rate cut from the Fed in September should provide stability to the equity markets and it will ease the credit crisis, therefore we should see the greenback maintain its bullish momentum in the near future.
EUR
The most significant news to be released from the Eurozone yesterday was the German and European ZEW Economic Sentiment, which measure institutional investor sentiment, both released in negative territory and well below expectations at -6.9 and -6.1 respectively. This negative data strengthened the markets sentiment that the ECB will be forced to leave interest rates unchanged in September. The unrelenting problems in the US subprime housing sector coupled with the spreading credit concerns and reeling global markets will leave little room for the ECB to consider a rate hike in September and it is very possible that may even leave rates on hold in October and November as well. Future ECB monetary policy will very much depend on to what extent the US subprime mortgage crisis continues to negatively impact the financial markets. However in the meantime the fact that the majority of investors feel that the ECB will keep interest rates on hold in its next meeting is putting significant pressure on the EUR and it continued on its bearish path against the greenback yesterday. There was some positive news for the European economy yesterday as the Eurozone Trade Balance released at 5.2 B beating the expected figure of 3.2 B, but this news did not manage to provide the EUR with some much needed reprieve.
Today the only news to be released from the Eurozone will be the Current Account and the Industrial New Orders figures. Both of these indicators are not expected to have much influence on the EUR's direction whose movement today will be mostly dollar centric as investors will also pay close attention to the financial markets which are expected to have a significant impact on future ECB monetary policy.
JPY
The JPY range traded yesterday against the greenback and the EUR, consolidating on its recent gains that have resulted from a sharp rise in volatility which is making carry trades less appealing due to increased risk. The JPY has risen sharply against the EUR in the last few days as a result of the spreading credit concerns and its strength against the greenback has been mainly driven by the market sentiment that the Fed will lower its interest rate in September whilst the BoJ is expected to leave its key benchmark rate unchanged at 0.5 %. The Japanese interest rate announcement will be released later on today and there should be no surprises. The JPY could launch another bullish surge if the credit concerns persist and the equity market start reeling again. However the Feds descision to lower the discount rate has acted as a temporary safety net for the stock market and we could see increased liquidity, so this will slowdown the recent carry trade unwind thus causing the JPY to jump onto its all too familiar bear wagon.
Technical News
EUR/USD
The Pair was range trading yesterday between a support level of 1.3460 and a resistance level of 1.3510. Should the pair trade today above the pivot level of 1.3483 we could see a break through the resistance level and then the bullish trend for the EUR/USD could continue up to the 50% Fibonacci Level. An outbreak through the resistance level instead could indicate a drop down to 1.3400, the 0% Fibonacci level.
The traders have to wait for either breakthrough to occur in order to enter in the appropriate position.
GBP/USD
The 4 hour chart indicates on an upcoming bullish trend when the long term Moving Average (Weighted 21) crossed by a bullish bar. Additionally the ADX (Average Directional Movement) also strengthens our opinion while the DI+ is on its way crossing the DI- from below which is considered a bullish signal. Going long seems to be preferable .
USD/JPY
The pair moved yesterday with a slightly bearish trend between the upper level of 115.10 and the lower level of 114.10, slow stochastic on the hourlies indicates that it won't become a reversal soon and that the pair might instead continue range trading today. Also MACD and RSI reside in neutral territory and thus point to an uneventful day for the USD/JPY.
USD/CHF
The 4 hour chart implies on an upcoming bearish trend as the Slow Stochastic is crossed at 78 and has a negative slope ,however we need to pay attention to the current 4 hour bar ,when a positive bar may indicate an upcoming bullish trend and negative bar will imply on a range trading. Traders need to be aware during the next 4 hours where the market is headed and to take action .
The Wild Card
Gold
The 4 hour chart implies on an upcoming bearish trend as the Slow Stochastic is crossed at 78 and has a negative slope ,however we need to pay attention to the current 4 hour bar ,when a positive bar may indicate an upcoming bullish trend and negative bar will imply on a range trading. Those trading Forex need to be aware during the next 4 hours where the market is headed and to take action .