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Tuesday, 7 Oct 2008
Bailout Plan Fails To Impress Stock Prices. USD Strengthen Nonetheless
The USD completed yesterday's trading session with mixed results versus its major rival currencies amid the financial turbulence which is shaking global markets.
Yesterday world stocks tumbled to three-year lows in a day know now as Black Monday after stocks became victim to the panic regarding the current world financial crisis and the increasing risk of more banks going bankrupt..
USD - EUR/USD Currently Testing 2 Year Lows
The USD completed yesterday's trading session with mixed results versus its major rival currencies amid the financial turbulence which is shaking global markets. The greenback saw its opportunity in moments after the bailout rescue plan was finally approved by the US government, as it climbed to a 14 month high vs. the EUR after been traded below 1.3500. Against the JPY the greenback got close to the key psychological level of 100.00 after investors fled government bonds and low yielding currencies fearing that the rescue plan wouldn't be enough to prevent the economy from seeing outright recession.
Yesterday world stocks tumbled to three-year lows in a day know now as Black Monday after stocks became victim to the panic regarding the current world financial crisis and the increasing risk of more banks going bankrupt.. Retail sales have also suffered as most consumers are still skeptical to believe that the rescue plan will produce a rapid effect over the financial markets and the global economy. Until now the approval of the Paulson plan to heal the financial system has not been enough to calm down investors.
On tap from the US today there are not many economic indicators to be released. The Federal Reserve Chairman Ben Bernanke will speak about the economic outlook and the future of financial markets; Traders should anticipate high volatility around the time of his speech. Later today at 18:00GMT, the FOMC Meeting Minutes from the Federal Reserve's September meeting may also be the event to watch. This record of the FOMC's latest meeting is expected to provide insights into the economic conditions that influenced member's votes on Interest Rates as well as offering clues to the possible outcome of future votes.
EUR - EUR Loses Big Against JPY as EZ Markets Crash
The EUR dropped towards a 14 month low against the USD yesterday, when it was quoted at 1.3472 its lowest value since August 22 of 2007. The 15 nation-currency has lost 16% of its value compared with its historical high of 1.6038 reached in July of this year. Against the JPY the EUR fell as low as 135.00 touching levels from September 2005, and losing more than 600 pips from the opening rate at 141.91.
Investors are avoiding the EUR after its situation deteriorated drastically following the announcement that the leaders of the four largest European economies have decided not to implement a coordinated rescue plan. This lack of agreement from the European officials to present a plan looking to stop and avoid the financial crisis that threatens global growth has been listed as the cause of the Black Monday, in which the European shares experienced their worst one day percentage fall on record. The index sank to four year closing lows. The stock fall was also sparked following the emergency rescue of two big European banks and a move by several European governments to guarantee bank deposits.
Today, only two major economic events will be on tap in the European Economic-Zone. The German Factory Orders indicator is predicted to rise by 0.2%, a 1.9% difference in change from last months 1.7% drop. This indicator measures the value of new purchase orders placed with domestic manufacturers for durable and non-durable goods and is an accurate pre-cursor for overall European movement. Today we can also expect ECB President Jean-Claude Trichet's speech at 1:30 GMT, where he will likely receive pressing questions regarding the current state of the EZ. Traders are advised to follow his speech as high volatility is often experienced during these events. As the head of the ECB, Trichet has more influence over the EUR's value than any other person. In the upcoming speech the traders may detect subtle clues regarding future monetary policy for the 15-nation currency.
JPY - JPY Benefits from Strong Risk Appetite as It Advances Against Majors
The JPY underwent a bullish trading session yesterday, as it appreciated against all of its major currency rivals. The JPY was up big, mainly on the unwinding of carry trades responding to the sharp moves in stocks as it did earlier in the year when any sharp equity slide sent the Yen flying higher. Forex carry trading is based on lending the low-interest yen to buy high yielding currencies such as NZD, AUD and EUR.
Carry trading spurred the sale of the EUR against the JPY as U.S. financial shares dragged equity markets lower on persistent credit concerns, which prompted investors to reduce risk.
As usual, the move in the Japanese Yen has little to do with Japanese fundamentals, and instead depends much more on broad risk appetite. Looking ahead today, the Japanese market should have a heavy effect on the JPY versus its major currency counterparts. The Overnight Call Rate was held steady at 0.50%, but traders should pay close attention to the BoJ Press Conference that will follow it to look for expectations of Japan's economic future.
OIL - The Crude Oil Reverses Its Course
Yesterday some optimism prevailed in the market as investors became more secure that government's steps will succeed in easing the global credit crisis. As a result the Crude Oil rose more than $2 a barrel for the first time in five days. The rise in Crude apparently came because the stock market began to recover from the large drop it saw in earlier trading. The Dow Jones Industrial Average rose 430 points from the intraday low on speculation that the Federal Reserve will cut interest rates to stabilize credit markets. Another cause for the oil rebound is the Organization of the Petroleum Exporting Countries (OPEC) announcement that it will take appropriate measures to stabilize international markets. OPEC, is the supplier of about 40% of the world's oil and may announce output cuts at its December meeting if the demand for crude continues to slow down. A crisis that began with the overheated U.S. property market is still rocking confidence worldwide. The financial crisis reduces oil demand in the United States and other industrialized countries. Crude Oil demand in China, which is one of the biggest oil consuming countries, will be the key. The market is watching for signs that the crisis is hitting consumption there as well.
Unfortunately the downward decline that we witness in most markets, is not likely to end anytime soon, even if credit markets will reverse themselves. Nevertheless, latest news coming from Mexico that the state-owned oil company Pemex is evacuating four offshore oil platforms due to tropical storm Marco could become supportive for Crude prices.
The pair crossed the key psychological level of 1.3450 yesterday, for the first time since August 2007, further demonstrating how strong the current downtrend is. On the daily chart, the pair is still floating beneath the Bollinger Band's lower border, indicating that the pair might extend its bearish move. Going short with tight stops might be the right choice today
After dropping to a record low at the 1.7330 level, the cable has entered a correction move that was halted at the 1.7640 level. Currently, as all oscillators on the 1-hour chart are pointing down, it seems that going long will be the right choice today.
With the beginning of the trading week the pair has dropped over 600 pips, and tested the 100.20 level. However, since a bullish cross took place on the 4-hour chart's Slow Stochastic, the pair has significantly risen and is currently traded around the 101.80 level. The Slow Stochastic is currently floating near the 50 line, suggesting that the bullish move has more room to go. Going long seems to be the right choice today.
There is a very accurate bullish channel forming on the daily chart, as the pair is now floating in the middle of it. However, right now all oscillators on the 4-hour chart are giving bearish signals, implying that the pair might slightly drop. Going short with tight stops appears to be preferable
The Wild Card
Wild - Gold
Gold prices saw an immense bullish move, rising from $830 an ounce up to over $870. A bullish cross on the daily chart's Slow Stochastic indicates that gold prices might rise even more. This might be a good opportunity for forex traders to enter a very promising trend.
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|