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Tuesday, 21 Oct 2008

Are we seeing the Beginning of the End of the Credit Crisis?

In a speech delivered by U.S. Fed Chairman Ben Bernanke yesterday, the proposal for further government spending was again confirmed which has many analysts claiming the worst of the financial crisis may have passed. What investors are seeing now is the rebuilding and restructuring process of the global economy. This may pose challenges of various forms, but it is better than the alternative of economic collapse.

Daily Trenddowndowndownupdownup
Weekly Trenddowndowndownupupup

Economic News

USD - USD Makes Strong Headway against Currency Counterparts

U.S. Federal Reserve Chairman Ben Bernanke backed more government spending yesterday, prompting renewed hope that the worst of the financial crisis may be over. As of yesterday, the greenback underwent a strong trading session against most of its currency counterparts, making a jump through the price level of 1.3350 and closing around 1.3300 versus the EUR. Directly following Bernanke's speech yesterday afternoon, the value of the USD made a significant upturn followed by a period of uncertain floating as traders speculated about the new price level.

Bernanke stated yesterday that any congressional stimulus package should be significant, but he declined to provide a number for lawmakers considering such a package. He recommended that Congress consider measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers, which might be particularly effective at promoting economic growth and job creation. This is because the tightened conditions which led to the slowdown thus far could contribute to delaying economic recovery.

As for today, with a speech set to be delivered by Federal Open Market Committee (FOMC) member Gary Stern at 23:45 GMT, traders could pick up a signal about the next move to be made by Fed regarding the recent financial crisis. If this speech comes off as hawkish it could boost the value of the USD and help decide its next direction. However, if his speech appears weak, we could potentially see a reversal to the USD's recent gains.

EUR - While Losing Value, the EUR was able to Hold Back Dangerous Volatility

The EUR saw very little change in its overall value against the other currencies yesterday. While continuing with its recent downward trend, it has managed to remain rather calm in light of recent news from the Euro-Zone market. The EUR fell against the USD for a fourth day as Federal Reserve Board Chairman Ben Bernanke endorsed additional fiscal stimulus. The pair closed at 1.3300. The only economic event out of the Euro-Zone yesterday was the German Producer Price Index (PPI), which ended up higher than the forecasted, helping to keep volatility to a minimum.

Sentiment in the U.S. economy has brightened in the past week following better-than-expected news. However, the EUR is still showing signs of resilience as it traded in a relatively close range yesterday even though there was volatility throughout non-Euro crosses. It will be crucial for traders to identify how the preceding economic indicators from the U.S., European and Japanese economies will affect their positions.

Today, the EUR will be absent from the economic calendar, and traders should follow overseas events in order to determine the EUR's direction for today. Special attention should be given to the speech by FOMC member Gary Stern that will be delivered at 23:45 GMT, as this will be today's leading publication.

JPY - Rising US Dollar Outpaces JPY for First Time in Weeks

Despite depreciating in value against the USD, the JPY saw bullish trends against most of its other major currency counterparts. The USD was unusually strong yesterday as a result of Fed Chairman Ben Bernanke's speech yesterday. The JPY showed its strength against the rest of its crosses later in the trading session, however, especially against the other major currencies as it saw a 150 point rise against the GBP, and a 120 point rise against the EUR.

There will only be one data release from Japan today as All Industries Activity will be announced during the later trading sessions. The official forecast for this measure is lower than the previous reading and a rising trend will have a positive effect on the nation's currency. Traders should pay close attention to the response of equity markets to the rising dollar to determine how to continue with JPY positions.

Oil - Crude Oil Prices on the Rise in Light of Production Cuts

Crude Oil prices rose for a third day as signs that the Organization of Petroleum Exporting Countries (OPEC) will begin to cut output from 1 to 2 million barrels a day in stages, starting this week, in order to stabilize prices. Reducing Crude Oil output will be heavily debated as a possible way to increase Crude Oil's price in the last few months of 2008. In addition, forecasts of colder weather in the U.S. Northeast also supported this expectation as it will lead to a rise in demand for heating oil.

Signs that the global credit crunch might be easing, as well as comments by U.S. Federal Reserve Board Chairman Ben Bernanke urging more government spending, prompted renewed hopes that the worst of the financial crisis may be over, lending support to Oil prices. Traders may look for another rise in value, potentially reaching into the $75-$80 range before day's end if this trend continues.

Technical News


It appears that the pair has fully resumed its downtrend and is currently testing the 1.3240 level. If the breach will indeed take place, another bearish movement is likely to take place, with a target price of 1.3170.


The pair is in the midst of a very strong bearish move, as it dropped about 400 pips in one day. And now, as the Slow Stochastic on both the hourlies and the daily chart are pointing down, it seems that the bearish move might extend. Going short appears to be the preferable choice today.


The pair is still range-trading without making a significant breach, and is currently traded around the 101.20 level. However, a bullish cross on the 1-hour chart's Slow Stochastic suggests that a bullish momentum is building up. Going long with tight stops seems to be the right strategy today.


The pair has breached through the fibonacci key level of 1.1500, and is currently traded around the 1.1520 level. Currently, a flag formation on the daily chart implies that the bullish momentum has more steam in it. Going long might be the right choice today.

The Wild Card


For the past few days Crude Oil prices rose to almost $76 a barrel at what seems to be a mild bullish correction. However now, the Bollinger Bands on the 4-hour chart are tightening, indicating that a strong move is impending, and a bearish cross on the 4-hour chart's Slow Stochastic is taking place, suggesting that Crude Oil is resuming its downtrend. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Current Time: 12/02 02:55 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
01:30AUD+ GDPq/q0.2%0.7%-5
02:00EUR+ FOMC Member Kohn Speaks---3
08:00EUR+ German Retail Salesm/m---3
09:00EUR+ Spanish Unemployment Change82.3K--3
09:30GBP+ Halifax HPI---3
10:30GBP+ Construction PMI58.858.4-5
11:00EUR+ CPI Flash Estimate y/y0.1%0.2%-3
11:00EUR+ Core CPI y/y1.1%1.1%-3
11:00EUR+ PPI m/m-0.3%-0.4%-1
14:10USD+ FOMC Member Lockhart Speaks---3
14:30USD+ Fed Chair Yellen Speaks---5
14:30USD+ Revised Nonfarm Productivityq/q1.6%2.2%-3
14:30USD+ Revised Unit Labor Costsq/q1.4%1.1%-1
15:15USD+ ADP Non-Farm Employment Change182K191K -5
16:00CAD+ BoC Rate Statement---5
16:00CAD+ Overnight Rate0.50% 0.50%-5
16:30USD+ Crude Oil Inventories1.0M--3
18:25USD+ Fed Chair Yellen Speaks---5
20:00USD+ Beige Book---1
21:40USD+ FOMC Member Williams Speaks---3
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