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Thursday, 2 Oct 2008
Dollar Erases Some of Its Recent Losses
The shifting of risk from the Dollar to the EUR strengthened on the forecasted approval of the US financial bailout by the Senate as markets pushed the Dollar higher against its counterparts. Traders jumped from positions of safety for further potential gains in the Dollar.
USD - Dollar Gains on Bailout Approval
Yesterday the Greenback continued its rally against the major currencies and gained over 200 pips against the EUR to send the pair close to a year record. The USD saw similar gains against the GBP and the CHF.
The market continues to predominantly react to the U.S Senate approval of the market rescue plan, and during most of the trading day the USD gained strength as investors looked forward to see this revised plan being approved. A poor Manufacturing Purchasing Manager's Index made by the Institute for Supply Management, marked at 43.5, reflecting a contracting manufacturing industry in the U.S during September had little effect on the USD. In regular times, such a result would send a bearish ripple upon the USD. However it seems that in times of economic instability, investors couldn't care less about the leading economic indicators, and are all obsessed with the U.S leadership's policy on how to pull the country, and perhaps the entire western world, out of what could be a long-lasting depression.
Close to the voting time, the Dollar extended its appreciation against the EUR, and the pair crossed the 1.3950 level for the first time in 5 weeks. Investors' confidence that the Senate will surely approve this plan, unlike the previous vote, paid off and sent the USD to heights that not many analysts could predict it will reach.
As for today, the US Unemployment Claims is scheduled at 12:30 GMT, and is expected to decrease from 493K to 475K individuals who filled for unemployment insurance for the first time during the past weeks. However, traders are advised to follow the equity markets today, with expectations for rising stocks as a result of the plan's confirmation. Such a scenario is likely to lead to another bullish session for the Greenback; however it is not certain that such reaction will see light at once.
EUR - US Economic News Pushes the EUR Lower
Yesterday the EUR suffered from falling trends vs. most of its major currency counterparts. The EUR was traded near a one-year low against the USD, as the pair breached the 1.3950 level. The EUR experienced a large depreciation against the JPY as well.
Several economic indicators were published from the Euro-Zone yesterday, yet it seems that any data aside from the U.S bailout plan might see an effect in the long term, but not in the current days. A much better than expected German Retail Sales, which rose by 3.1%, reflected the first positive German data in a while, managed to slightly raise the EUR. However it was only a short while after that the EUR lost over 200 pips against the USD, as expectations for the Senate to confirm the market rescue plan grew stronger. The European Central Bank (ECB) President, Jean-Claude Trichet, delivered a speech today, in which he seemed confident that the US lawmakers would pass the package, accelerating the EUR's deterioration pace. And so, as the Senate members voted to pass the rescue plan, the USD rose significantly against the major currencies, extending the EUR's bearishness.
Looking ahead to today, at 11:45 GMT the ECB will announce the Minimum Bid Rate for this month, and is expected to leave it put at 4.25%. Such a result is not likely to have a great impact on the EUR, however should the ECB decide to cut interest rates; the EUR will probably face another bearish session. Traders should also see how equity markets around the globe will respond to the U.S bailout plan, as it may act as the primary catalyst for today's movements in EUR pairs and crosses.
JPY - Economic Weakness Drops the JPY
Yesterday, the JPY underwent a volatile session against most of its currency rivals. The JPY appreciated against the EUR and the GBP, yet it mainly fluctuated against the USD and ultimately kept a steady rate against it.
The Japanese trading day began with rather disturbing data for the JPY as the Tankan Manufacturing Index was marked at -3, indicating worsening conditions in the Japanese manufacturing industry. This dropped the JPY against the major currencies; however the trend had promptly reversed, and the JPY saw rising trends against the EUR and the GBP.
As for today, traders should follow overseas developments, and special attention should be divided between two major financial developments. One is equity markets around the world, as rising stocks should generate a bullish trend for the USD and subsequently raise the JPY. Another major event today will be the European Central Bank's decision whether to cut interest rates. A European interest rates manipulation will largely affect the market, and the JPY is no exception.
OIL - Crude Rises as US Senate Approves the Rescue Package.
The Senate approved the $700 billion financial-rescue package. This news revived the market and caused the price of Crude Oil to rise to $100.37 a barrel in after-hours trading on the New York Mercantile Exchange. A feeling of some stabilization is dominating the market once the bill was passed. This bill is aimed at limiting a slowdown of economic growth in the world's biggest energy-consuming nation, which removed some of the uncertainty and restored some hope that the economy will be improved. As a result, Crude prices went up. However, prices are still highly volatile since there isn't enough demand in the market for Crude and the economic recovery following the passage of the bailout plan is still expected to take place.
Nevertheless, despite the fact that many hopes were associated with the bailout vote, it failed to lift the market significantly so far. The supportive impact of the rescue bill is still quite limited as falling demand for Oil prevails on the market. As a result of the financial turmoil in the markets, investors sell Oil as well as other commodities and move cash into safer investments which may put pressure on Crude prices.
Even though the bill was approved by the Congress, it is still unknown whether it will do anything positive for the market, or for Crude Oil. The measure now goes to the U.S. House of Representatives for a vote that is likely to take place on Friday. Investors are nervous whether the House of Representatives will also approve the sweeping rescue plan after its rejection at the start of the week. While such uncertainty continues to hover over the market, very few investors are willing to take big risks in this volatile environment.
The Slow Stochastic and the RSI on the daily chart are showing a continuation of the current bearish correction. There is also a very accurate bearish channel forming on the 4 hour chart. In addition, all indicators on the hourly chart are pointing down. Going short might be the right choice today.
The Cable is in the middle of a very intensive downtrend that started a week ago and shows great momentum that on a bigger scale appears to have more room to run. In the shorter time frame a bullish cross on the hourly indicates that there might be a minor correction before the bearish move resumes. Selling on highs appears to be preferable today.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
This pair is still in the midst of a steady uptrend which is not yet showing any sign of leveling out. The RSI and Momentum on the daily chart are still positively sloped indicating that there is still plenty of steam left in this bullish move. Once this pair breaches the 1.1400 level it's likely to make another sharp break upwards.
The Wild Card
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The Slow Stochastic flows high supporting the notion that there is still room to run for this trend. In the shorter time frame there is a bullish cross forming on the hourleis indicates that there might be a small bullish correction before the bearish move resumes. Forex traders can maximize profits by selling on highs and taking advantage of a currently bearish 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%||-||-|