ForexYard's Commentaries - page 12
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10/01/'08 - BoE & ECB Interest Rate Statements On Tap
Economic News
USD
On Wednesday the greenback saw gains against its major counterparts, amidst negative world economic data. The greenback was not able to hold on to such gains as early morning trading on Thursday from Asia, saw the dollar once again slip against the Euro and the Yen.
The release of weak German industrial data along with equally poor retail numbers from the euro-zone state, sparked investors to push the EUR/USD back under 1.47, dropping as low as 1.4640 during Wednesday's trading. With continued speculation over Fed interest rate cuts, the dollar was not able to sustain its momentum as it once again crept toward 1.47 against it European rival.
Two economic events were released from the US on yesterday's calendar, as St. Louis Fed President William Poole gave a speech at the Financial Planning Association of Missouri, in St. Louis. Poole was adamant that the investors should not take the US financial market problems and assume they will bring a recession. He went on to add that "2008 looks to be a year of rising growth," as he looked to make positive light of the greenback gains during yesterday's trading. The release of Housing Starts did little to change trading behavior yesterday, as investors expected very little to begin with.
Today is a day largely dominated by European economic events with a host of important data to be released. The US will release Unemployment Claims today, at 13:30 GMT, followed by a speech at 1800 GMT by Fed Chairman Ben Bernanke. Bernanke will give a speech titled "Financial Markets, the Economic Outlook, and Monetary Policy" which should clarify a great deal regarding interest rate speculation. The dollar will most likely move in the direction that the European economic takes it. Another day of poor European economic data should spur gains in the dollar.
EUR
Europe was taken a bit off guard yesterday by a string of negative data from Germany and France as the EUR suffered some losses against the dollar. German industrial production numbers came back 1.2% below initial forecasts at -0.9%. German retail sales, which were expecting a 3.5% increase, only managed 1% as the December figure came in at -1.3%. French Trade Balance was released with an unexpected 1.2 Billion decrease to bring its total to -4.8 Billion. This data sparked a quick increase in dollar confidence, as investors questioned how much longer the ECB could keep up its hawkish stance on European monetary policy.
Today's economic calendar is posted with several important economic events form Europe. At 7:45 GMT the release of French industrial production and government budget balance is expected as industrial numbers are slated for a 2.5% decrease. The day will continue with several UK events followed by the Sterling and Euro Interest Rate Statements at 12 and 12:45 GMT, respectively. To finish up, ECB President Jean-Claude Trichet will hold a press conference in Frankfurt following the Governing Council's interest rate announcement. Expect high volatility as the Interest Rate press conference normally delivers a clear message of EU monetary policy.
JPY
The JPY traded with gains on 15 of the 16 major currencies yesterday, amidst disappointing results from the Nikkei. Investors were inclined to cut holdings in high-yielding assets that were directly being funded by Japanese loans. As Japanese stocks continue to weaken speculation over the effect on the JPY is still unclear.
Carry trades resumed heavy volume as well yesterday, as the Dow Jones Industrial average showed significant gains as it rose by 148 points. Resumption of carry trades came during a very volatile point in the market day which magnified the JPY gains in the Forex market.
The Japanese economic calendar posts no significant events today as the main focus regarding the JPY will be the movement in the Nikkei and Dow Jones.
Technical News
EUR/USD
The pair has been floating in a relatively tight range for several days and now shows some moderate bullish sentiment. There is a bearish channel forming on the 4 hour chart with a top barrier of 1.4705. A breach over that level will validate the next bullish move to 1.4800.
GBP/USD
Yesterday's bearish momentum continues to build up as the pair reached the level of 1.9550. It looks as if there isn't any bullish sentiment to indicate even the slightest corrective move, and the bearish steam appears to be blowing at full strength. It appears that going short still looks like the right choice today.
USD/JPY
The daily chart indicates that the next key level for the bullish correction move is 110.20 which are the 23.6% Fibonacci level of the 117.90/107.85 move. The will most likely test it soon, and if the breach will occur we should see the pair correcting further, possibly back to the 111.00/112.00 zone.
USD/CHF
The slow stochastic and the RSI on the 4 hour chart indicate that the local correction move still has some steam in it, as both figures float at around the 50 level. The daily chart supports the bullish notion with a slightly more moderate signal. It is advised to hold the entry for a stronger signal, as the sentiment is quite vague and a stronger one will surely appear soon.
The Wild Card
Gold
There is a very distinct and sharp bullish channel on the 4 hour chart as Gold now floats at the bottom level of it. Its inability to breach the level indicates that the very strong bullish momentum is not over yet. This could be a great opportunity for Forex traders to go long at a bottom price and enjoy the high profit potential from the technical pattern.
14/01/'08 - Another Bearish Move For The Greenback
Economic News
USD
The Greenback started the week on the defensive side, as markets await upcoming inflation and retail sales data. Currency markets are also stressed for Fed chairman Bernanke's testimony which is expected on Thursday. It seems that the debate of whether the Feds are prepared to cut the rate aggressively has been answered, as the testimony by Fed chairman Bernanke insinuated a possible 0.5% cut. However, the statement might have a limited impact on currencies in that regard, due to an early morning market reaction which sent the dollar tumbling. Us equities have remained weak in recent days despite a possible 0.5% Fed rate cut which is almost fully priced in market prices. The greenback is highly vulnerable to disappointment, and if we will see a different rate cut that is not correlated to the market expectations we might see a major runaway and a massive actualization in the equity market. Currency markets largely ignored a blowout in the US trade deficit. The November trade report revealed surprising strength in goods imported, led by a price-induced 8.5% surge for industrial supplies. The export components revealed generally modest shortfalls following hefty gains through October. In addition the OPEC Secretary General El-Badri said that the price of oil will not collapse, even if there is a period of slower global growth. Spot gold once again saw some profit-taking ahead of $900/oz, as traders wait for this week's inflation report before deciding whether to push the commodity higher. Shanghai copper is higher on Friday's gains in the LME contract and weakness in the USD, as the metal continues to ignore concerns about slowing in the global growth.
EUR
The EUR reversed its earlier losses against the USD as the Trade Deficit widened more than expected for the month of November in the world's largest economy. Looking ahead, Industrial Production data is scheduled for release out of the EZ, with the forecast expecting to show 2.8%, a decline for the month of November (Prior: 3.8%) a better figure then expected may lead to an additional boost for the EUR against the majors and especially against the greenback and the British pound.
The GBP confirmed its fourth weekly decline versus the Euro, and second consecutive weekly decline against the greenback as traders continued to add to bets that the BoE will be forced to cut interest rates next month. On last measurement, markets are now pricing in an 88% possibility that the Central bank will loosen its monetary policy by 0.25% on the 7th of February. In other news, Manufacturing data did little to give any confidence to the pound as output decreased for the month of November fuelling the rate cut anticipations. In addition, we can note that the GBP was one of the worst performing currencies against the JPY in relation to the credit crunch pushing the GBPJPY to a low of 212.07. Looking ahead PPI data is due to be out today as traders expect to get a clearer picture of the manufacturing industry status in the UK.
JPY
The first Asia session of the week was a choppy one, as most Japanese traders were out on holiday. Liquidity issues fueled decent swings for most of the majors and the JPY crosses, while a lack of fundamental data for the session kept substantial moves at bay.
The JPY was one of the best performing currencies on Friday as signs of credit market losses worsening prompted investors to pare carry trades. As a result of significant carry trades being squared, the Japanese Yen was able to reverse its 0.4% decline versus the dollar as much of its pressure was relieved. Tomorrow, the month to month Core Machinery Orders is due to be out, as this indicator measures the total value of new orders placed with machine manufacturers, excluding orders for items with a volatile sales cycle, as a rising trend has a positive effect on the nation's currency. When manufacturers increase their purchasing of machinery it signals that the manufacturing industry is in an expansion phase. It seems that the JPY will maintain its positive momentum and will keep it's strengthening especially against the greenback and the cable.
Technical News
EUR/USD
After shooting up on Friday, the pair made an additional jump of 60 pips to the 1.4860 level. The daily chart is very bullish, and the RSI of the 4 hour chart supports the bullish notion. It appears that the next target price might be around 1.4920.
GBP/USD
The cable is in the middle of an extremely massive downtrend with very aggressive bearish momentum. There is a moderate cross on the daily chart that indicates a possible reversal that might become a more valid corrective move. It would be wise to stay out of this one until a stronger signal will be validated.
USD/JPY
The pair is currently in a strong bearish formation, and is slowly approaching the 108.00 level. The daily oscillators indicate that there is still more room to run and that if the 108.00 level will indeed be breached, we shall see the next move as valid. The 107.50 level will be a very strong support that needs to be carefully observed. In general, going short appears to be the way to go today.
USD/CHF
We have seen a very sharp move since the end of December, as the pair went down from 1.1550 to 1.0950 with very strong bearish momentum. The daily chart is showing no signs of a correction, and the hourlies support the bearish notion, at least for the next trading day. Going short might be favorable today.
The Wild Card
Gold
We saw a massive breach through the 900.00 level today. Gold is still traded within a bullish channel, as oscillators are as bullish as they can be. This could be a great opportunity for Forex traders to ride the break, with huge profit potential.
15/01/'08 - U.S. Core Retail Sales & PPI On Tap.
Economic News
USD
The greenback continued to see significant decline yesterday, as it posted close to record lows against several major currency pairs. Concerns over the state of the US economy are still dismal, as the dovish stance taken by the Feds has done nothing to change current trends. Investors are gearing up for what most feel will be another interest rate cut from the Fed, by as much as 0.5%. With the EUR/USD already traded well within the range of its all-time high of 1.4960, speculation that it will break the 1.50 support level is gaining steam.
One of the main issues for the Feds is whether or not the problems from the failing credit and housing markets will spill over into other economic sectors, such as retail and consumer confidence. With the mostly disappointing figures that have been released in 2008 so far, there is little that can be expected in the way of drastically changing the dollar's downward pile.
Today is expected to produce a host of key economic data from the US. Events from the US start at 13:30 GMT, as the release Retails Sales, Core PPI, PPI, and the Empire State Business Conditions Index are on tap. The aforementioned events will be followed by the 14:00 GMT of Business Inventories for the month of December. The real standout figure of the bunch should be Retail Sales, which could single-handedly drive the dollar down, if already poor expectations return even worse. If US economic data returns with negative results, it could very well be the day that the EUR/USD makes a serious push toward 1.50 and even further as the market approaches the rate statement. It appears that from all points of view the greenback's near future looks extremely gloomy.
EUR
The strength of the EUR has become a point of regularity, as the 15-nation currency continues to perform well against all of its major counterparts. As the EUR/USD slowly closes in on the 1.50 level, speculation is rising as to the behavior of the ECB after such levels are achieved. Investors must question whether or not President Jean-Claude Trichet's hawkish stance toward monetary policy in the EU could continue if the Euro keeps rising toward "inflationary" levels against its counterparts. A considerable rise in the Euro could directly contribute to the slowing of Euro-zone growth, especially in industries in direct competition with the US and Asia.
As we enter the second day of what has been the busiest economic event week in 2008, we are due to hear back about two low-volatility news events today. Today at 10:00 GMT will see the release of ZEW Economic figures from Germany and the whole of Europe. Figures are expected to be positive and could help push any negative US data toward the 1.50 break point for EUR/USD. The EUR will likely take a backseat to investor's focus on the dollar today; however it will be intriguing to see if the ECB hint to any change in their current monetary policy if the Euro-zone currency continues to strengthen.
JPY
The Yen was rewarded with positive gains against all 16 major currencies, as a combination of foreign economic data and the recovery in the Dow helped instill more investor confidence. The Dow rallied yesterday to finish 171 points up, and was critical in resurrection carry trading for the day. Though the recovery did not initially affect the Yens big pairs (USD/JPY, GBP/JPY, and EUR/JPY), a string of unexpected data from the US helped the Yen sufficiently increase their gains for the day.
In addition to outside factors, news that Japan will exchange roughly sixty million dollars of coupons and principal payments to Euro, (which will be claimed by a handful of European nations this week) sparked a local growth in the Japanese currency as well. The Japanese economic calendar was empty yesterday, as the country celebrated the coming of age holiday. Today we expect to see the release of Core Machinery Orders as well as current account information. Expectations show a significant drop in Core Machinery orders as the month December failed to produce expected growth. Those news events are expected to generate relatively small interest amongst traders, as most of the focus will be on USD related events. This situation will probably be quite common in the near future, as the fate of the greenback will have much more effect on global economic events.
Technical News
EUR/USD
The pair is in the middle of a bullish trend which was initiated in the end of December. The 4 hour chart is showing a bearish cross on the slow stochastic, and a breach of the 80 level on the RSI. It looks as if there might be a bearish correction before the pair resumes the journey to 1.50.
GBP/USD
The intensive bearish trend is calming on the hourly charts, yet shows no real indication of a halt or a correction move. The cable is now at the lowest level it has been since mid August, and will probably continue its road south even further. Being on the sell side still appears to be the right move.
USD/JPY
The key level of 107.80 was breached, as this level was the last support on the daily chart which the pair touched in the middle of November. This break validates the next bearish move and might take the pair beyond the 106.50 even before the weekend.
USD/CHF
The pair is floating at a very strong support level of 1.0920 which is the bottom of the recent downtrend the pair had. A violent breach beyond that level would indicate that the bearish momentum might continue at a higher strength. Next target price appears to be around 1.0860.
The Wild Card
Gold
Gold is trading at records levels with incredible momentum, as yesterday's all time high touch strengthens the notion that we might see gold hit the 920.00 level soon. This is a great opportunity for Forex traders to enjoy the very high profit potential and enter the market on a very healthy trend.
16/01/'08 - U.S. Core CPI & Industrial Production On Tap.
Economic News
USD
Yesterday the greenback continued its bearish trend against most of the majors, nevertheless it did eventually manage to rally back sharply against the EUR on the back of weak Eurozone news. The most significant news released from the U.S yesterday was the Retail Sales and PPI figures which both came in well below expectations. These soft figures once again raised concerns that the U.S economy is heading towards a recession and therefore the greenback slipped sharply on the back of these news releases, falling beyond the 1.4900 level against the EUR and continuing its dramatic slide versus the JPY. The greenback fell to a 2-1/2 year low versus the JPY yesterday as the current global growth problem is creating a risk-averse sentiment among investors and therefore we are now seeing a sustained carry trade unwind.
The greenback has been on a steep decline since last week Friday which was mainly driven by increased speculation of an aggressive rate cut by the Fed. Yesterday's weak U.S news only fuelled the fire once more as it seems that only an aggressive rate cut will save the U.S economy from increasingly likely recession. However it may not all be doom and gloom for the greenback this week as many major U.S banks will be announcing there quarterly earnings and already yesterday Citigroup reported quarterly losses which were less than what the market expected . Investors will be closely following these figures for an indication as to how deeply the credit crisis has affected some of the largest financial institutions in the U.S. The Citigroup surprise helped the greenback regain some lost ground against the EUR and if other major U.S banks also report smaller than expected losses then this will provide a boost for the U.S equitiy markets and therefore the greenback could also regain some ground against the JPY as carry trades will be back in action.
Looking ahead, there is another string of important U.S news releases today which will kick off with the CPI figures. Due to yesterday's disappointing PPI figures there is a strong possibility that the CPI figures will also release below expectations, as the producer prices are usually passed on to the consumer. This news release will be followed by the TIC Report, Industrial Production and the Capacity Utilization Rate. All these events will be closely followed by investors as any downside surprise will place the greenback firmly on the bearish express. Another important report to follow today will be the Beige Book, which is produced two weeks before each Federal Open Market Committee (FOMC) meeting to help guide the committee when setting short term interest rates. Now although the FOMC receives two other books that are not made public, the Green Book and the Blue Book and it is widely believed that the FOMC pays more notice to these private publications, investors will nevertheless be sifting through the report for future monetary policy clues. At the moment many analysts believe that the Fed will cut rates by at least 25-50bps at its next meeting on 29-30 Jan. The size of the rate cut will have a significant impact on the future direction of the greenback, so the economic indicators throughout today and leading up to that time are expected to cause sharp volatility as investors continuously adjust to the resulting ever-changing rate cut speculation.
EUR
Yesterday the main news released from the European economy was the German and Eurozone ZEW Economic Sentiment. These figures, which measure institutional investor sentiment, released at -41.6 and -41.7 respectively. This was below the forecasted figures of -40.0 and -37.8, which is an indication that at least 80% of market participants surveyed are pessimistic, in contrast to 40% that are optimistic, with regards to the European economic outlook. This negative sentiment can mainly be attributed to the fact that the strong EUR is beginning to dampen exports and therefore slowdown productivity and growth. Also the ECB is struggling at the moment to balance out growth and inflation, as the ECB has reiterated many times in its MPC meeting that inflation risks remain on the upside. Therefore on the back of this soft data the EUR depreciated sharply yesterday against most of the majors. Although it did initially bounce up beyond the 1.4900 level against the greenback on the back of weak U.S Retail Sales figures, it eventually got pulled down again as the negative sentiment surrounding the German and Eurozone economy prompted investors to sell the usually resilient EUR.
Looking ahead, the only news to be released from the Eurozone today will be the German and European CPI figures. Both these figures are expected to remain unchanged and should not have any noticeable impact on today's EUR movement, which will be more depended on some key U.S data releases. Also ECB President Trichet will give a speech later today and it will be closely followed by investors for hints on future ECB monetary policy. For the moment the main question on analysts' minds is how high the ECB will permit the EUR to rise before we see a direct policy intervention. It seems that negative U.S data could push the EUR beyond the 1.5000 level against the greenback but it is unlikely that the ECB will permit it to rise any further before intervening.
JPY
The JPY appreciated sharply yesterday on the back of the soft U.S Retails Sales figures. This negative news unsettled the global financial markets and therefore prompted carry trades to unwind further. Ever since the decline of the greenback began, the JPY has been gaining steadily all across the board and this is mainly due to the risk-averse sentiment that is got a stranglehold on carry trades. Earlier today, during the Asian trading session, there was more positive news for the JPY as the Japanese CGPI figure, which measures the rate of inflation experienced by corporations when purchasing goods, released at a beating expectations figure of 2.6%. This upside surprise is a positive sign for the Japanese economy as this rise in corporate inflation could be passed down to the consumer. The Japanese economy has been experiencing deflation in recent months and therefore this has been preventing the BoJ from seriously considering a rate hike, as an interest rate increase would further lower inflation. However if this positive CGPI figure results in an increase of consumer inflation then we may finally see a rate hike by the JPY, which will cause the Japanese currency to continue to appreciate sharply particularly against the high yielders.
There was more good news for the JPY as the Japanese Current Account released at 2.16T, beating the forecasted figure of 1.87T and this give further indication to investors that the Japanese economy is in a healthy state because such a current account surplus is mainly influenced by the large differential between exports and imports which in turn will positively influence growth. The medium term outlook for the JPY remains very much bullish and a reversal will only occur in tandem with the U.S financial sector.
Technical News
EUR/USD
The pair has corrected to the 1.4780 level, and now shows some positive momentum again. There is a bullish cross on the 4 hour slow stochastic which indicates that the bullish trend might return pretty soon. The daily chart supports the bullish notion, and it looks as if the pair is heading back to the 1.4900 level.
GBP/USD
The cable was looking for support at 1.9500 and found it, as a breach through that level was unsuccessful. It appears that a breach through that level would indeed validate an additional move, yet another failure to break might define that point as a potential reversal point for the ongoing downtrend.
USD/JPY
The very strong bearish trend continues with full steam and shows no signs of a halt. All oscillators are bearish and no bullish crosses appear in sight. It looks as if there is much more room to run and being on the short side appears to be very preferable.
USD/CHF
The very strong support level of 1.0900 was breached and validated the next move into the 1.0800 zone. Although on the short term charts there appears to be a correction up, the pair direction is down. The daily chart supports the bearish notion, and selling on highs looks like the right call today.
The Wild Card
Gold
After a very clear signal for a bullish bonanza, gold now makes a local correction, but still did not break the bottom barrier of the upwards channel on the 4 hour chart. Its inability to break the 887.00 level will provide forex traders with a great entry point for a long position with great profit potential.
17/01/'08 - Packed US Calendar Today
Economic News
USD
Today the US calendar is packed with important releases such as the Housing Starts, Building Permits, Philadelphia Fed Manufacturing Index, and the speech by Federal Reserve Chairman Ben Bernanke, who will speak about the US economic outlook before the US House of Representatives Committee, in Washington DC.
As it seems, weaker-than-expected figures can trigger the Fed to cut interest rates by 75 basis points instead of 50, a move that will make it harder for the U.S. dollar to rebound in the midterm. It's likely, though, that the U.S. economy will be relatively weak through the first half of 2008 - and possibly for most of the year.
Inflation data was released yesterday. The U.S. government reported that the Core CPI rose just 0.2% in December, which was right in line with expectations, indicating that inflation remains in check.
December's CPI increase followed a sharp 0.8% jump in November and was modestly ahead of economists' forecasts. The department reported both food and energy costs rose during the full year of 2007 at the fastest rates since 1990. Energy costs in the last 12 months were up 17.4% while food gained 4.9%. The Federal Reserve is closely watching to see whether the jump in food and energy becomes more widespread and starts pushing core inflation higher. On the basis of yesterday's Capacity Utilization Rate report, Industrial production was unchanged in December, against the median forecast for a drop. Capacity utilization, which measures the proportion of plants in use, fell to 81.4% from 81.6% in November. Workers' salary failed to keep up with the higher inflation and Average weekly earnings, after adjusting for inflation, dropped by 0.9 percent in 2007, the biggest slow down since a 1.5 percent fall in 2005. Although a local strengthening move did occur for the USD, it still appears like a minutes before the rate statement will be quite violent and the state of the greenback will continue to be quite bearish in the near future.
EUR
Yesterday, we noticed an impressive recovery of the USD versus the Cable and the 15-nation currency, this progress began after the Federal Reserve report showed the US economy increased at a humble pace at the end of 2007. The Euro traded at 1.4721, down from 1.4833 late Tuesday in New York. Later, in midday trading in New York, it reached the 1.4637 at its lowest point. An additional fact which assisted to weaken the Euro was the warning which arrived from the European Central Bank (ECB) policy maker Yves Mersch who suggested that the Euro zone economy is facing a significant faze of a slowdown, he also mentioned several dovish comments about a possible up coming risks to the Euro zone economy due to slowdown in the world's economy. As for today's European calendar, the Euro-Zone Trade Balance is expected to be released with a consensus of 3.8B after a previous release of 4.0B, and together with the ECB monthly bulletin might take the EUR further down if the trade balance comes out lower than expected. It appears that most of today's movement will derive from the US, as most of the important economic events will be coming from there, and attract most of the traders attention.
JPY
Yesterday, the Japanese Yen gained against 15 of the 16 most-active currencies after economists in the U.S. and in the European central bank said that western economic growth is slowing down. Japanese economic data was mixed with machine orders and CGPI beating expectations but the trade numbers fell short of expectations.
The yen climbed for a third day against the euro, but the most significant move was made in the USD/JPY and the NZD/JPY pairs. The Japanese currency stroke new two-and-a-half-year highs against the USD and traded around 106.00 at several points. Japan's Nikkei 225 Stock Average advanced 1.1 percent to 13,656.95, rising from its lowest close since October 2005. The Topix Index, valued at 16 times earnings compared with its average 29 times for the past four years, advanced 0.9 percent.
As for today, the Japanese calendar will be void of any major releases, which will probably cause the positive JPY momentum to continue, and for all the crosses to react more with US and EUR markets.
Technical News
EUR/USD
An opposite head & shoulders structure is forming on the daily chart which indicates on an upcoming bullish trend with a first target price of 1.4713 (Fibonacci 61.8%), and a second of 1.4811 (Fibonacci 76.4%). This trend is expected to be quite aggressive, and if key levels mentioned above will be breached the momentum will become slightly stronger.
GBP/USD
A bearish channel is forming on the 4 hour chart, indicating a continuation of the bearish trend, however 1.9633 is a key resistant level as it is considered as the top barrier of the channel. In case of a breakout, the next target price is located at 1.9794 (Fibonacci 23.6%) which will create a good entry point for a long position.
USD/JPY
The 4 hour Slow Stochastic is crossing the 68 level from above which is a classic bearish signal; however the RSI and Momentum have a positive slope which contradicts the bearish signal. The direction of the future trend is a bit vague at the moment, and traders should wait for key level breaks on both sides to better determine the trend's momentum
USD/CHF
The daily chart implies a clear bullish trend as the Slow Stochastic crossed the 8 and have a positive slope. The momentum is bullish and RSI floating in neutral territory which may indicates on a possible long position with some steam is left in it. At the moment, going long appears to be preferable.
The Wild Card
Crude Oil
Oil is floating at the bottom barrier of a downwards channel on the 4 hour chart. It also crossed a key Fibonacci level of 91.30 which indicates an increasing bullish momentum. This is a great opportunity for forex traders to enter the market with a long position, and being supported by a strong technical formation.
21/01/'08 - US Holiday, Martin Luther King Day.
Economic News
USD
The greenback made a local correction against the EUR and the CHF on Friday, and appears to be continuing what it started at the opening of this week's trading session. The EURUSD now trades around 1.4530 and the USD/CHF went up by 150 pips to the 1.1050 area. Although on the local level things look pretty positive for the USD, most traders believe that this is merely a technical correction that would probably end towards next week's rate statement. On Friday, President Bush announced plans for a stimulus package that would put a small chunk of change into the pockets of American taxpayers. President Bush proposed a series of short-term tax cuts which will provide a boost for the struggling U.S. economy. The president did not give details of his plan but mentioned it would include tax breaks for businesses and individuals worth at least 1% of the nation's GDP, or approximately $140 billion to $150 billion. Although having some optimistic data in the U.S. economy, the U.S. economy tribulations appear to remain severe, and on the basis of this fact many traders expect the Fed to cut a further 50 basis points at its next meeting on Jan. 29-30, as bad news is expected to come from the house prices and investment banking losses. Today, the US markets will be closed for Martin Luther King Day, and no major news events are expected to come from the area. Low volatility is expected in Dollar crosses, and it looks like most of the price movement will come from Europe which will also be quite light with news.
EUR
Last week, the EUR declined to a three-week low versus the dollar on speculation that the economy of the 15-nation region will slow, leading the European Central Bank to a possible rate cut in the future. The EUR weakened against 15 of the 16 most- active currencies and at the same time it has decreased to a four-month low against the Japanese yen.
ECB council member Yves Mersch said on Jan. 16 that policy makers should use caution as risks to economic growth increase. A day later, Mersch said officials didn't discuss the option of an interest-rate cut at their meeting last month, when the central bank kept the rate at 4%.
Today's European calendar will be relatively empty aside from the Swiss PPI which is due at 8:15 GMT and has a forecast of 0.2% and a previous figure of 0.3. It looks as if the EUR will continue the weakening move up to a certain point, and will then regain the positive momentum back to the level where the expected US rate cut will be relatively encapsulated in market prices.
JPY
Last week the Japanese currency reached its highest peak versus the U.S. dollar since May 2005. The Japanese currency got stronger versus all of the 16 most- active currencies as the U.S. manufacturing index decreased to a six-year low.
The BoJ will probably keep interest rates on hold this week. Governor Toshihiko Fukui will leave the benchmark overnight lending rate at 0.5% on Jan. 22. The BoJ will publish its monthly assessment of the economy and a review of the twice- yearly outlook at 3 p.m. and Fukui will speak at a news briefing at 3:30 p.m.
Fukui repeated last week that rates need to be increased progressively on condition that the economy expands as projected. He mentioned that by keeping interest rates low for an extended period could make growth unsound. In addition, Japan's Nikkei 225 Average recovered from an early dive to end 0.6% higher, lifted by expectations that Bush will propose measures to boost the declining U.S. economy and thus bolster consumption thereby aiding the Japanese export market. It looks as if the JPY will continue its relatively strong bullish move, and if the Japanese rate will remain unchanged for an additional month, we might see carry trades resume at a moderate rate if the US equity will allow the move with a certain strengthening period.
Technical News
EUR/USD
The pair is in the middle of a very strong bearish move ever since it peaked at 1.4900, and is now traded at 1.4530. The daily cross on the slow stochastic indicates that the momentum is close to a finish, and the hourly chart supports that notion. 1.4500 will be a very strong support level that if breached will validate a stronger move into the 1.4400 levels quite quickly.
GBP/USD
The cable continues its nonstop bearish journey overlooking every possible support level and shows no sign of a stop. All oscillators are very bearish and the trend appears to have much more room to run even on the daily level. Being on the short side appears to be a wiser move this week.
USD/JPY
After reaching the 106.00 level, the pair has marked a very strong support at the level and is showing difficulties breaking it locally. If that support will sustain an additional attempt, we might see a very strong bullish correction move that might take the pair to the 108.20 level as a first step. Traders should pay close attention to that level as it holds high profit potential.
USD/CHF
The bearish move the pair is going through appears to have diminishing momentum, and lacks the ability to make a significant breach beyond the 1.0800 level. The hourly studies show mixed signals, and the daily chart is indicating a mild bearish direction. Waiting for a clearer signal on that pair appears to be a good decision today.
The Wild Card
Crude Oil
There is a very strong downwards channel pattern forming on the 4 hour chart as Oil now floats at the upper level. After a failed attempt to break the upper barrier, Oil is regaining some bearish momentum which provides forex traders with a great opportunity to enjoy a trend that might have a target price of 88.50.
22/01/'08 - US Equity Market Falls
Economic News
USD
Continued speculation about the further slowdown in the US economy proved to be detrimental yesterday, as a large number of world markets plunged. Shortly following remarks by President George W. Bush about plans to bolster the US economy with tax breaks, markets around the world began to sink, at an alarmingly fast pace. Markets in Asia, Europe and other key regions saw sharp drops, some of which came close to all-time record lows. Markets could not withstand growing concerns that a US recession will lead to a string of recessionary issues around the globe. Investors saw the greenback make significant gains, mostly against its European counterpart, dropping under 1.45, something that had not been seen since the very end of 2007. The dollar was able to sustain positive movement due to the absence of the US stock market as the Martin Luther King Jr. Holiday was celebrated yestarday. Although it did escape the initial brunt of losses, the US stock markets should see heavy losses today, as Dow futures dropped 4.5 %. If indications stay as planned, there will be a similar drop in actual indices today.
Today's economic calendar contains no really important US news events. At 13:00 GMT, US Treasury Secretary Henry Paulson will speak in Washington D.C. followed by the 15:00 GMT release of the Richmond Fed Index. Most eyes will be on how stock exchanges in the US will react to yesterday's abysmal day, and if Asian and European markets can turn yesterday's misfortunes around.
Initial pressure from economic policy makers in the US to force a more constructive solution succeeded, as Fed Chairman Ben Bernanke's request for a stimulus package looks as if it will be granted by the Bush administration. The question for many is if it will be able to withstand mounting pressure on the US economy and the dollar. Look for the dollar to continue to make gains once again today, as we await the opening of the US stock market.
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EUR
European financial markets were hit hard yesterday, as growing fears of recession in the US took its toll on stock markets within the Eurozone. UK's FTSE index dropped by over 5 % and the German DAX dropped over 7 %, its worst performance in six years. Free falling numbers like what was seen yesterday, had been absent since the 9/11.
Drops in the stock markets of Europe contributed to an even bigger drop in EUR strength, as it fell nearly 200 points. Yesterday's economic data from Europe was limited, as German PPI was the only index released. PPI numbers came back lower than expected and added to the already tense conditions in the market place. While ECB President Jean Claude Trichet has been hawkish with economic policy during the last several months, recent dovish comments by a host of ECB officials only strengthened the drop in markets and currency yesterday.
Today's economic calendar is absent of any Eurozone news, as investors brace themselves for what could be yet another record day of lows for the 13 nation currency.
JPY
The JPY was the one currency that rallied against the USD boosted by risk aversion and plunging global stocks. No surprises from the Bank of Japan which unanimously voted for unchanged rates for the 12th consecutive month. Clearly the market has been marking forward the next anticipated hike from the BOJ further and further out and now most are not expecting a hike until next year. With central banks and finance ministers all admitting that forecasts have dashed by the stronger than expected impact of the subprime induced slowdown the outlook for Japanese exporters remains bleak. The BOJ has been adamant that Japan's long, but extremely shallow, recovery is still in place. However, without the foundation of a healthy domestic economy the risks are high for Japan to return into a recession.
Today's publication of year to year Supermarket Sales in Japan released at an abysmal -1.8% as compared with forecasts calling for a -0.4% release.
Technical News
EUR/USD
The 15-nation currency is in a strong bearish momentum and losing strength versus the U.S. dollar, the daily chart is bearish, and the hourlies support the notion with a bearish cross above the 80 level on the slow stochastic. It appears that the pair is heading to the 1.4300 level.
GBP/USD
After a short correction, the pair regains the bearish path and seems to be quite confident to reach the target point of 1.9300. The hourlies are quite bearish, as the dailies produce mixed signals. At the moment, GPB/USD is trading in the 1.9250 to 1.9500 range. The volatility is high and we should expect to see also today a continuation of bearish pressure on the cable.
USD/JPY
A falling wedge structure is forming on the 4 hour chart, implying on the continuation of the current bearish trend as next target price is located at 104.37. Going short seems to be preferable.
USD/CHF
The pair is still in the beginning of the uptrend correction initiated at 1.0858. Dailies are bullish, and the hourlies are a bit overbought. Buying on dips might be a preferable strategy.
The Wild Card
Gold
There is a bearish channel forming on the daily chart, as gold is floating at the upper level of it. The slow stochastic has completed the cross above the 80 level, which validates the move as bearish. This provides forex traders with a great opportunity to enter a short position with strong bearish momentum.
Hello FOREXYARD,
Thank you for all these contributions!
I try to read it every day.
But I wanted to ask you a question, do you trade also for your own?
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Forexyard
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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