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Friday, 3 Oct 2008
American Economy Takes Center-Stage
With the $700 billion bailout package on tap from the House of Representatives today, everyone's attention is focused on the economy of the United States. However, this is not the only important indicator coming from the U.S. for today's trading. Also emanating from the U.S. economy are figures on Non-Farm Employment Change, Unemployment Rates, Average Hourly Earnings, and the ISM Manufacturing Index. The movement of the USD will undoubtedly be the driving force in today's market.
USD - U.S. Bailout Package on Tap
All eyes look to the U.S. House of Representatives as the $700 billion bailout plan, passed in the Senate yesterday, is put forward for a second round of voting. This bill was killed the first time it reached the House since congressmen were not yet in agreement over the various stipulations included in the package. Witnessing an immense single-day drop in stocks following Monday's defeat of this bailout package may have indeed convinced Congress of the dangers in not passing this legislation. The short-term benefit of implementing this rescue plan is obvious; it should stabilize markets and boost investor confidence. However, some analysts expect it to do little more than ease the inevitable recession the U.S. will experience in the near future. The long-term costs and benefits of this package are still unknown.
Yesterday, traders who took advantage of the strengthening USD had the potential to make lucrative sums of money as the dollar reached a price level unseen in over a year. Diving as low as 1.3750 against the EUR and 1.7546 against the GBP, the USD gained some momentum and now sits steadily near 1.3850 in anticipation of today's news. The only currency beating the greenback's bullish trading day was the JPY, ending yesterday's session at 105.11, 70 points below the day's opening.
The bailout package is not the only thing on tap today, either. Also emanating from the U.S. economy are figures on Non-Farm Employment Change, Unemployment Rates, Average Hourly Earnings, and the ISM Manufacturing Index. Starting at 12:30 GMT traders should keep an eye on these figures as any worse-than-forecasted numbers have the potential to create a slight downturn to the USD. Keep in mind, however, that the primary driving force in today's market is the bailout plan. The news surrounding this monumental event will drive the market far more than any other factor.
EUR - Dovish Speech by Trichet Foreshadows a Cut to Interest Rates
As the trading week ends, analysts have observed one of the worst short-period downturns in the history of the EUR. Starting the week from a relatively high position, but on a slight bearish run, the EUR then tapered off throughout the week dropping to a 13-month low versus the USD. Pushed by decreasing economic growth, poor figures from the biggest European economies, and less risk appetite from investors, the EUR is starving for attention.
Following the speech delivered by Jean-Claude Trichet, President of the European Central Bank (ECB), yesterday led to a disastrous trading day for the EUR. Analysts are now forecasting a cut to interest rates in the Euro-Zone as his speech was far less hawkish than anticipated. He spoke of diminished inflation risks, the possibility of easing interest rates in next month's meeting, and the U.S. bailout package, but did little to lessen the fears within the Euro-Zone economy of the coming recession. These worries of a European recession have grown as the 15-nation currency took a major hit following the passage of the U.S. bailout package in the Senate yesterday, and from bank failures across Europe. Sagging below 1.3800 versus the USD and hitting as low as 0.7813 against the GBP, the recent outlook for the EUR is not good as it hit a record one-week drop against its primary currency rivals.
As for today, traders have little to look for in terms of economic data from Europe. With German banks on holiday and the only significant figure being European Retail Sales, the actor standing in the spot light today will be the bailout package being voted on by the House of Representatives in the U.S.
JPY - Japanese Yen the only Currency to Beat USD's Bullish Run
The JPY underwent a bullish trading session yesterday as it appreciated against all of its major currency rivals as well as being the only currency to beat the USD's bullish run. The JPY closed yesterday's trading session at 105.11 versus the USD. Moreover, the traumatic trading day experienced by the EUR led the JPY to reach a 2-year high of 144.55 against the 15-nation currency.
Japan was absent from the economic calendar yesterday as no indicators were published. However, the export-based Japanese economy took advantage of the drop in the price of Crude Oil which helped to lower the transportation costs of Japanese goods exported to the global economy.
Today is also expected to be a quiet news day from Japan. The JPY's trends will be affected by the rallies of its primary currency pairs. It seems as if both the USD and EUR are expected to undergo a volatile trading session today and their crosses with the JPY will likely be affected. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY's movement today, especially the U.S. bailout plan currently being looked over by the U.S. House of Representatives.
Oil - Crude Declines amid Worsening Demand Outlook
The price of Crude Oil continues to fall, dropping 4.6% to $93.97 a barrel so far this week. This weekly drop is the biggest since the December of 2004. The price of Oil most likely will not stay at current levels near $100 if the global economy skids into recession and economic activity slows, dragging down demand for Crude Oil. With the ongoing financial crisis, demand for energy in the world's largest energy consuming nation, the U.S., has reduced. If indeed the U.S. falls into a deep, sustained recession, the price of Oil will likely go even lower, potentially reaching as low as $50 a barrel!
Today's chapter will be about whether or not the U.S. House of Representatives approves the government's $700 billion bank-bailout plan. After the House rejected the first version on Monday, the legislative body will now consider the Senate's revised bill again today. However, the market remains pessimistic about this legislation; even if the financial bailout plan is passed it is highly unlikely that it will slow down the onset of the coming recession.
The downward pressure on the price of Crude Oil is likely to persist, and it depends now on whether or not the Organization of the Petroleum Exporting Countries (OPEC) can maintain production discipline and restrict supplies. If OPEC can control its Oil exports, it may be able to keep the price of Crude Oil near its recent highs; if not, prices will continue to deteriorate.
It seems that the pair has reached it bottom after breaching the 1.3750 level. Currently, a bullish cross on the 4 hour chart's Slow Stochastic suggests that a bullish correction is impending. Going long with tight stops looks to be the right strategy today.
After breaching through the 1.7560 level, the cable seems to be on its way to initiate a bullish reversal. A bullish cross on the 4 hour chart's Slow Stochastic implies that the move is quite imminent. Going long might be preferable today.
The pair continues to provide mixed results, and is now traded around the 105.25 level. It seems that a moderate bullish movement might take place as all oscillators on the 4 hour chart are pointing up. Buying on lows appears to be the right choice.
There is a very distinct bullish channel forming on the daily chart, however as the Bollinger Bands on the hourlies are tightening, suggesting that a sharp movement is forthcoming, and as the RSI has crossed the 40 line, the pair seems to be facing a mild downtrend.
The Wild Card
There is a very accurate bearish channel forming on the daily chart, as gold prices had consecutively dropped since reaching the $926 an ounce price. Currently, as the RSI on the daily chart is floating near the 50 line and the Slow Stochastic is pointing down, gold might extend its bearish trend. This might be a great opportunity for forex traders to join a very popular trend.
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||-||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||-||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|