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Tuesday, 3 Feb 2009
Aussies Slash Rates; European Rate Cuts May Follow
The currency pair which could experience the highest volatility today may be the AUD/USD. The Royal Bank of Australia (RBA) slashed Interest Rates by 100 basis points this morning at 3:30 GMT. This would be the 5th consecutive rate cut by the RBA. In the coming days, the European Central Bank and the Bank of England are expecting similar meetings to their discuss interest rates. These falling global interest rates have been bouncing the market to bizarre highs and lows. Forex traders should take advantage of this volatility today and start opening large positions during these price swings.
USD - Risk Aversion Drives the Dollar Higher but Gains Fail to Hold
The Dollar began this week's trading by strengthening against its major pairs, only to rescind those gains against the EUR in later trading. Gains against the GBP held and the GBP/USD stands at a 1-week low. Risk aversion was the driving force in the currency markets yesterday and this theme typically lends support for the greenback. As risk recedes in the market, riskier bets that are funded by USD are sold and converted back into Dollars, helping to appreciate the currency.
The greenback saw a boost against the European currencies as Moody's downgraded the credit rating for Barclays Bank. This decreased traders' risk appetite, but would soon prove to be short-lived as the Institute for Supply Management's Index beat market forecasts. The report helped to spark a late-day rally in the EUR/USD, erasing the Dollar's earlier gains. Some traders reported thin liquidity in the forex market as a large snow storm didn't allow for many of London's traders to make it to their offices today. Stymied liquidity can help to exaggerate price swings in the currency markets. At one point the EUR/USD reached as low as 1.2705 but the pair would later rebound to close the day at 1.2874.
Looking ahead to today's trading session, a pair that may experience high volatility could be the AUD/USD. The Royal Bank of Australia (RBA) is forecasted to cut Interest Rates by the enormous amount of 100 basis points today at 3:30 a.m. GMT. This would be the 5th consecutive rate cut by the RBA. A dovish statement accompanying the rate cut could send the pair higher than the 0.6500 level. The pair has shed almost 10% this year on poor economic performance coming from down under.
EUR - Traders Await EUR Interest Rate Announcement
The EUR has taken a back seat lately, as fundamental issues surrounding the U.S. economy have been driving the EUR/USD pair. The release of the Obama administration's economic stimulus package and U.S. GDP numbers last week took most of the headlines, along with the gains. The pair dropped more than 1% the previous week on stronger U.S economic fundamentals and overall market risk aversion.
Today, market participants will await the release of the monthly German Retail Sales report. Germany is the Euro-Zone's largest economy and this report could provide a glimpse into the consumer sentiment going forward in a recessionary economic state.
On Thursday all eyes will be focused on the European Central Bank (ECB) and their decision to adjust European Interest Rates. Most economists forecast the rate will remain steady at 2.00%. This should create high volatility for the EUR/USD as the announcement approaches, creating ripe opportunities to make profits on these price spikes.
JPY - Government Gridlock May Hurt the Yen
An economic bailout package currently being debated in Japan may be delayed over a dispute between Japanese Prime Minister Aso and Japan's legislative body. The refusal of the Diet to pass a Japanese economic stimulus plan comes at a time when Aso's approval rating stands at an all time low. Aso refuses to call early elections while the Diet will not budge with the stimulus package until a date for the elections is set.
This could have a dire effect on the Japanese economy to overcome the most recent recession. Japanese Interest Rates stand close to 0%. This limits the government's options for tackling the economic crisis or influencing fiscal policy. But the strife between the Prime Minister and the Diet threaten any type of fiscal policy changes. Now that the government is deadlocked in a political stalemate, the economic recovery may be significantly slower than both its neighboring economies.
A delayed economic recovery could spell trouble for the Yen. Forex markets tend to be forward-looking and may begin to depreciate the Yen for suspected economic weakness. Any further delays to a government stimulus package may cost the USD/JPY to rise to back to the 95.00 level in the coming weeks.
Oil - Averted Refinery Strike Does Little to Lift Crude Oil
Crude Oil fell for the 4th consecutive day as the likelihood of a strike by U.S. refinery workers dissipated. Crude finished the day down more than 2% to close at $40.51. On Sunday, Oil refinery owners and workers appeared closer to a deal that would avert a strike.
Events such as these offer short-term traders the ability to profit from limited interruptions in the steady decline of the price of Crude Oil. Eventually the price of Crude will climb, but only when the market feels a bottom is approaching. Crude traders may not find any support tomorrow when U.S. Crude Oil Inventories are due to be released. We may see the price drop below the $40 mark once again in the coming days.
It appears that the bearish trend may have run out of strength as the pair currently floats near the bottom barrier of the daily chart's Slow Stochastic, suggesting that a bullish correction may be imminent. When the upward breach occurs, going long with tight stops appears to be the preferable strategy.
The 4-chart is showing mixed signals with its RSI fluctuating in the neutral territory. However, the daily chart's Slow Stochastic is showing a bearish cross suggesting that the downwards trend may continue. In that case, going short with tight stops appears to be preferable strategy.
According to the daily chart, this pair is still floating in a neutral territory with no distinct price direction. However, a cross above the 70 line on the 4- hour chart's Slow Stochastic is indicating that the next move is likely to be bearish. Traders should wait for the breach and swing.
The pair is continuing to provide mixed results, and is now trading around the 1.16 level. The one-hour chart demonstrates a flat line since yesterday. The daily Slow Stochastic is showing no crosses, which indicates that the bearish trend may continue. Going short appears to be preferable today.
The Wild Card
The gold price is once again dropping and an ounce of gold is currently traded around $900. However, the hourly chart's RSI is floating in an over-sold territory suggesting that a recent downwards trend is loosing steam and a bullish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
|01:00||NZD||GDT Price Index||-1.3%||-||-|
|01:00||USD||Total Vehicle Sales||17.8M||17.2M||-|
|01:30||AUD||AIG Manufacturing Index||52.3||-||-|
|01:50||JPY||Tankan Manufacturing Index||12||12||-|
|01:50||JPY||Tankan Non-Manufacturing Index||19||23||-|
|03:35||JPY||Final Manufacturing PMI||49.9||49.9||-|
|09:15||EUR||Spanish Manufacturing PMI||55.8||55.6||-|
|09:45||EUR||Italian Manufacturing PMI||54.8||55.2||-|
|09:50||EUR||French Manufacturing PMI (p)||50.5||50.5||-|
|09:55||USD||German Manufacturing PMI||51.9||51.9||-|
|10:00||EUR||Final Manufacturing PMI||52.5||52.5|
|11:30||GBP||BoE Financial Stability Report||-||-||-|
|13:30||USD||Challenger Job Cuts||y/y||-22.5%||-||-|
|14:15||USD||ADP Non-Farm Employment Change||201K||212K||-|
|15:45||USD||Final Manufacturing PMI||53.4||53.4||-|