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Tuesday, 16 Sep 2008
Damages from Lehman Being Evaluated
With the US Federal Funds Rate being released today, the question is whether or not the recent bank failures will have an impact on the forecast that the Fed will maintain current rates. Traders may see high volatility as important data gets released throughout the day from the U.S. and Euro-Zone.
USD - US Federal Funds Rate on Tap
The greenback experienced an intense trading session yesterday against all the other major currencies. The EUR/USD pair crossed the 1.4475 level then suddenly dropped as low as 1.4090! As of right now the USD is trading around 1.4250 against the Euro. The USD/JPY, on the other hand, saw a straight downtrend falling from almost 108.00 to the 104.00 level.
"Financial Tsunami" was probably the most common phrase on Wall Street yesterday, as $700 billion were erased from shareholder wealth. Wall Street saw its worst day since the September 11, 2001, attacks, following Lehman Brothers' filing for bankruptcy protection. This announcement was given after the Bank of America decided to purchase Merrill Lynch instead, leaving the seniors of the 4th largest investment bank in the U.S., Lehman Brothers Holdings Inc., with no other option as they watched their stock drop 95%. However, it seems that investors have an even greater concern in mind than that of Lehman's crash, as AIG, the word's largest insurance company, is currently seeking funding to shore up its balance sheet, and rumors suggest that the Fed has asked JPMorgan Chase & Co. and Goldman-Sachs Group Inc. to explore arranging the amount of $75 billion in loans in order to support AIG. The faltering of AIG will most likely have repercussions far more severe than what was observed yesterday, and could unequivocally point out a global recession. The only reason the USD managed to end the trading day at a relatively high level against the EUR was because investors were aware that the rest of the world will also probably be largely affected by the U.S economic condition, and the European economies don't seem to be able to prevent what could be a world-wide depression either.
As for today, a massive fundamental day is expected from the U.S, with the Federal Funds Rate on tap. Former expectations did not predict an interest rate change; however, yesterday's events have placed a great question mark on that notion and rumors regarding an interest rate cut were passed around. If the Fed will eventually decide to manipulate its interest rate to the downside, the USD will probably face a bearish session against its major currency rivals.
EUR - ECB Infuses Funds in Attempt to Stabilize EUR
Yesterday, the EUR saw a volatile session against its major currency counterparts. The EUR sharply dropped against the JPY; however, it fluctuated very heavily against the USD, and eventually returned to previous levels as the pair is now being traded around 1.4250.
Yesterday's events have clearly demonstrated that the gloomy condition of the U.S. economy has a great impact on the Euro-Zone. After Lehman Brothers filed for bankruptcy protection, the European Central Bank (ECB) held a money market operation in which it parceled out 30 billion Euros to European banks, only a third of the level demanded, in order to try and calm the local markets within the current financial turmoil. The German, French, British and Swiss economic chiefs have acted in similar methods, all in order to increase the demand for cash. However, the EUR failed to recuperate, and even lost all its gains versus the USD.
As for today, a batch of data is scheduled from the Euro-Zone. The most influencing financial indicator will be the European Consumer Price Index, which is forecasted by analysts to increase by 3.8%. A figure below it will likely push the EUR down. Nevertheless, it appears that news from the U.S. will once again call the tone today, and traders are advised to stay fully alert of U.S. data.
JPY - JPY Stability Pushes its Value Higher
Traders witnessed the JPY undergo a strong bullish session yesterday versus the Majors. The JPY appreciated almost 400 pips against the USD, setting the pair around the 104.20 level, and rose over 450 pips against the EUR; the pair is now trading around 148.40.
The main reason for the JPY's bullish behavior is of course the breaking crisis in the U.S. that pushed the market to fluctuate excessively yesterday, and as speculations about the Fed cutting interest rates today grow stronger, the JPY extends its rising trend even further. Moreover, the rise in risk aversion led investors to cut the amount of carry trade holdings for higher-yielding assets funded by the JPY, pushing the JPY up against all the major currencies.
Looking ahead today, no significant data is expected from the Japanese economy; however, the market is expected to be anything but stable. The news from the U.S will once again be a main focus for today's trading. Traders should follow it closely, as any crucial information might ignite a new trend in the market. Until then, the JPY might slightly depreciate today, correcting yesterday's trading session.
Oil - US Data Had No Impact on Crude Oil's Falling Price
Will the price of oil continue to drop? It seems like the only question asked recently about the movement of this commodity, and is one of the more difficult to answer. Analysts are predicting exact opposites. Some say this downtrend will soon reach the bottom and hit a quick reversal. This comes in light of OPEC's recent threat to decrease production in order to calm the market if the price of Crude Oil drops below $90. Others say that oil is currently overvalued, as it has been since March, and will continue to drop because of decreasing demand, the progress in the development of clean energy sources, and the continuing airline budget turmoil. One thing that is certain, however, is that the price of oil has not stopped falling.
No event seems large enough to impact this downtrend. Hurricanes come and go, production quotas are hacked and slashed, yet still prices drop. This information points to one conclusion: the price of oil may have been overvalued indeed, and the price is now correcting itself through open market forces. In the last year, the price of Crude Oil has found support around the $84 mark and traders should be made aware of this. If indeed the price of oil is near the trough of this downtrend, it will likely happen around that mark. Today, however, Crude Oil sits at $91.96, which means traders may still have the opportunity to join in this bearish session before it reaches its final throes.
There is a distinct bullish channel forming on the hourly chart, as the pair is now floating around the bottom level. The Slow Stochastic on the daily chart suggests the trend will probably continue rising. The breach through the 1.4003 level will validate the next 1.4400 target price.
The cable has resumed its bullish trend and is attempting to breach the 1.8000 level. Should the breach take place, the pair might further extend its bullish run, with a potential price target of 1.8020.
The pair is continuing its bearish movement with full steam as it breached the 104.00 level. The daily chart shows that the current price has dropped beneath the Bollinger Band's lower border, indicating that the bearish move is gathering more steam. Going short seems to be a preferable choice today.
The bearish momentum the pair has shown since the breach of the channel on the daily chart continues. The daily Slow Stochastic is showing the continuation of the trend. It seems that the pair could face another bearish session today. Going short might be the right choice.
The Wild Card
Oil prices are once again dropping, and a barrel of Crude Oil is currently trading around $92. Now, all oscillators on the daily chart are providing bearish signals, indicating that Crude prices will probably continue its downward slide. This might give forex traders a great opportunity to enter a very popular trend.
|12:05||EUR||German 30-y Bond Auction||1.07|1.3||-||1.18|1.1|
|15:00||EUR||Belgian NBB Business Climate||-6.2||-5.7||-|
|16:00||CAD||BoC Rate Statement||-||-||-|
|03:30||AUD||Private Capital Expenditure||q/q||-2.2%||-2.3%||-|
|08:01||EUR||German Import Prices||m/m||1.0%||0.5%||-|
|08:20||USD||FOMC Member Williams Speaks||-||-||-|
|10:30||GBP||BBA Mortgage Approvals||38.8K||39.2K||-|
|10:30||GBP||Second Estimate GDP||q/q||0.3%||0.4%||-|
|10:30||GBP||Prelim Business Investment||q/q||-0.9%||1.1%||-|
|10:30||GBP||Index of Services 3m/3m||0.7%||0.5%||-|
|10:35||EUR||Italian 10-y Bond Auction||-||-||-|