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Tuesday, 30 Sep 2008
CB Consumer Confidence on Tap
As the U.S. Congress studies the government's $700 billion rescue proposal, the dollar will face some pressure to go lower as trader confidence in the dollar becomes further damaged. There is still great uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on the U.S. tax payers
USD - Core PCE Price Index Help boost the USD
As the U.S. Congress studies the government's $700 billion rescue proposal, the dollar will face some pressure to go lower as trader confidence in the dollar becomes further damaged. There is still great uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on the U.S. tax payers. In order to stabilize the USD, the federal government must inject permanent capital into the financial system in order to restore confidence and halt the financial turmoil in the markets.
The federal government is broadening its effort to revive confidence in the market. Last week the Fed expanded its swap lines with the European Central Bank and Swiss National Bank by $70 billion, and created $110 billion in new facilities with central banks in Japan. These steps were designed to improve liquidity conditions in global financial markets. However, the dollar may not regain its bullish trend so soon. The speculation on the effectiveness of the U.S. government's proposed $700 billion bailout plan still hovers over the financial sector. The main focus is on whether Congress will approve the rescue plan within the week. And if indeed it is passed, will the plan function as hoped.
Today the Consumer Confidence Index indicator will be released. This is a survey of about 5,000 households which rates the relative level of current and future economic conditions. If the actual result will turn out to be higher than the forecast 55.0, which is lower than the previous 56.9, then we will probably see the U.S. currency gaining back some of last week's losses.
EUR - Will the Economic Data Today Help to Boost the EUR
The European Central Bank (ECB) continues its latest attempt to ease money market turmoil. The ECB began offering overnight dollar funding last week as part of a joint effort with U.S. Federal Reserve, and other top central banks, to ease shortages in short-term dollar liquidity. The EUR sentiment remained bearish through the week primary due to uncertainty in the U.S. financial sector. Furthermore a move by Central Banks to inject money into the European financial system also supported the Euro-Zone currency versus the dollar.
However, despite the EUR's recent positive momentum, the economic news coming from the Euro-Zone has not been too encouraging. The European financial sector is still struggling with the looming threat of economic recession. The latest data released from the Euro-Zone indicated that the crisis in Europe is far from over. In Germany, Europe's biggest economy, the Munich-based Ifo institute's business climate index fell to a three-year low of 92.9 from 94.8 in August. In France, business confidence declined to the weakest in five years, while sentiment in Italy dropped to a seven-year low.
The economic outlook is clouded by the turmoil in financial markets. Financial institutions worldwide have reported more than $520 billion in losses and write-downs since the lending crisis started. The market looks ahead for ECB President Jean-Claude Trichet's speech today at 16:00 GMT. 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 - Positive Economic Indicators Boosted JPY
In Japan, the recent nomination of Taro Aso, a 68-year old former foreign minister, will almost certainly bring some stability to the Japanese currency. The country's economic decline in the second quarter of 2008 was due largely to the latest political turmoil following Prime Minister Yasuo Fukuda's resignation in September.
The outlook for Japan's economy in the third quarter is expecting further weakness, and economic concerns have risen to the top of the political agenda. The main reasons for this downgrade are the figures from private consumption and exports of goods and services. Exports, which contribute not only to economic growth but also stimulate business investment, and indirectly consumer spending, fell recently. As a result, private consumption contracted by 0.5% in the second quarter. There is great pressure on the new Prime Minister to articulate plans to revive the economy, while also taking into account the structural constraints the country faces, such as its poor fiscal position and ageing population. Taro Aso has come out most clearly in favor of increasing spending, and therefore of delaying the proposed return to primary fiscal balance.
Today, the movement of the JPY will likely be affected by the release of the Tankan Manufacturing Index. This Index is a leading indicator of the country's economic health. Since businesses are more likely to react quickly to changes in the market. A change in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment.
OIL - What is Moving the Price of Crude Oil?
The price of Crude Oil has recently been rising because of the worsening prospects for the world economy and the closure of several refineries during recent hurricanes, which reduced Oil supplies. However, Crude Oil's prices may fall as oil companies restart petroleum production plants and refineries in the aftermath of Gustav and Ike.
US Congressional leaders from both parties said they had reached a tentative agreement on the proposed government rescue plan. Since announced, this rescue package plan has strengthened the U.S. currency pushing the price of Oil further down.
On the other hand, the fact that the bailout package plan has been passed, doesn't necessarily mean that there won't be any further obstacles on the road to U.S. economic recovery. There is still much worry about the outlook for America's financial future, and its demand for Oil.
If the U.S. bank bailout plan fails to prevent an economic slowdown, the demand for food and fuel will likely go down, lowering the price of Oil even further.
There is a very distinct bearish channel forming on the daily chart, as the pair is now floating in the middle of it. Currently, as all oscillators are pointing down it seems that the bearish movement should extend.
The cable is in the middle of a bearish corrective move that was initiated at the 1.8600 level. The hourlies are showing additional bearish momentum and the daily chart supports that notion. Going short seems to be preferable
The range trading continues as the pair fails to create a significant breach. However, a bullish cross on the daily chart's Slow Stochastic suggests that the pair should see a rising trend. Going long might be the right choice today.
There is a very accurate channel forming on the 4 hour chart, as the pair is now floating on the upper barrier of it. A flag formation on the daily chart indicates that the bullish trend has more room to go. Going long with tight stops might be a good strategy.
The Wild Card
After peaking at $917 an ounce, gold prices have failed to reach this level once again. And now, as all oscillators on the daily chart are giving bearish signals, it seems that gold prices might face a sharp drop. Forex traders could have an opportunity to benefit from what could be a very strong trend.
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