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Friday, 18 Jul 2008
Dollar Expectations are Strong as US Stock Markets Produce Big Gains Yesterday
Yesterday the greenback regained much needed points against its major currency rivals, amidst another day of falling Crude Oil prices. During mid-day trading, prices for Light Sweet Crude Oil dropped to 6 week lows below $130 per barrel and sparked a renewal in USD bullishness. USD/JPY which began the day just under 105 grew to as high as 107.05 mid-day before settling just below 160.50. Against the GBP and the EUR, the greenback was hoping to pick up more ground but instead it mostly range traded throughout the day, since the bulk of US news did little to give the dollar an extra push.
Yesterday, news from the US had mixed results. When the Housing Starts and Building Permits indicators saw an unexpected rise in June as they grew 9.1% and 11.6% respectively in response to changes in New York City's housing code changes. The news was offset by a rise in Unemployment Claims as June showed an 18k rise in June. The Philadelphia Fed Manufacturing index failed to meet expectation as manufacturing figures continued to slip. Also adding to market volatility yesterday were words by Federal Open Market Committee (FOMC) Randall Kroszner who hinted that the Fed is looking to harden mortgage rules in the US in addition to Monday's decision to collapse the practices of abusive mortgage lenders who have contributed to the deteriorating housing sector. Kroszner's speech contributed to the more volatile periods of yesterday' trading. The Natural Gas Storage numbers as well released yesterday with a 12B rise since last month, in part this has contributed to an even greater oil prices drop.
Today the US is absent from the economic calendar. As such the dollar will look towards the stock prices and European news for market's movement.
The Euro completed a mixed trading session yesterday. It was forced to succumb to world news and energy prices given that the EUR was basically absent from fundamental news. Following the opening of the European market, Italian Trade Balance was released at -0.06B making up around 1 billion for the month. The event sparked a short and small boost in the EUR/USD shortly following its release. The rest of the day, the 15- Nation currency track was dependent upon the movement of Oil prices and the global stock markets.
The European Central Bank (ECB) has been adamant about its intention to eliminate 2% off of the inflation rate which currently stands at 4%. An a attempt to return some normalcy back to the Euro-Zone economy, President Trichet has been overly cautious, regarding specific steps that could backfire on the inflation rate and in turn will look toward economic data to pave the way for EUR bullishness.
On tap today we can expect German PPI and the EZ Trade Balance to be released. PPI which measures the change in the price of goods sold by manufacturers is expected to rise by 0.7%, as a higher mark could boost the EUR early on in the day and set it on a bullish course. Furthermore today we will receive the EZ Trade balance which is expected to drop 1.3B to 0.9B. This event should have little effect on the market fluctuations. Instead investors could look towards energy price and the stock markets for clues on how and when to invest.
The JPY saw a steady drop against most of its currency rivals. As gains were made throughout the world markets, most notably the Dow and S&P resulted in a heavily bearish Yen. Despite a relatively decent week of fundamental news from Japan, the local currency has been left to the movement of outside factors to determine its trading direction. The Euro and the greenback both made points against the JPY as carry trading once again picked up sparking a sell-off in the JPY.
Today the JPY is absent form the economic calendar, as today's early morning speech by Bank of Japan Governor Shirakawa was unnoticed, at the beginning of the European and American trading day. In his speech the Governor emphasized both upside risks to prices and downside risks to Japan's economy. Thus look for another day of Oil prices and Stock market fluctuation to dictate the JPY's expected success.
Crude oil dropped from 134.28 to 129.45, including a more than a month low of 128.98, during yesterday's trading session. It seems the main reason for this drop was the Natural Gas Storage index. When the index was released yesterday, with a 12B rise since last month, oil prices dropped, even further than many traders expected. However today reports are emerging that Nigerian Oil production levels are diminishing. This disruption occurred as problems in the Nigerian pipelines are discovered. As well many analysts maintain that inventories are extremely low thus the market is vulnerable to supply shocks. Accordingly traders should follow developments from around the world regarding supply concerns before they place their transactions.
The 4 hour chart shows the pair does not have a distinct direction, since the chart appears to be quite horizontal. However, the beginning of a bearish move can be detected on the daily chart, and the Slow Stochastic shows that the bearish momentum still has more room. Going short with tight stops appears to be preferable.
There is a very distinct bearish channel forming on the 4 hour chart. In addition a fresh bearish cross on the daily chart's Slow Stochastic suggests that the bearish correction may continue further. Going short might be a good strategy today.
Since the bearish cross on the 4 hour chart's Slow Stochastic took place, the pair has been showing only bearish signals. The RSI on the hourlies is floating near the 50 line, suggesting the move has more steam in it. Going short may be the right choice today.
The typical range trading on the daily chart continues. Both the Daily RSI and the Slow Stochastic are floating in neutral territory. As well on the hourlies the indicators are providing mixed signals with now specific direction. Good strategy might be to wait for a clearer sign before entering the market on this pair.
The Wild Card
The pair is in the midst of a very strong bearish correction move, and seems to have more steam in it. All oscillators on the daily chart are providing bearish signals. This is a great opportunity for forex traders to join a very promising bearish correction.
|05:00||JPY||BoJ Monthly Report||*||*||*|
|06:30||EUR||French Final Non-Farm Payrolls||q/q||-0.1%||0.1%||-|
|14:30||USD||Crude Oil Inventories||1.4M||-||-|
|17:01||USD||10-y Bond Auction||2.80|2.5||*||-|
|18:00||USD||Federal Budget Balance||-10.4B||-223.2B||-|
|20:00||NZD||Official Cash Rate||2.50%||2.50%||-|
|20:00||NZD||RBNZ Press Conference||*||*||*|
|20:00||NZD||RBNZ Rate Statement||*||*||*|
|20:00||AUD||RBNZ Monetary Policy Statement||*||*||*|
|23:50||JPY||Core Machinery Orders||m/m||-15.7%||7.3%||-|
|00:00||AUD||MI Inflation Expectations||2.3%||*||-|
|00:01||GBP||BoE Quarterly Bulletin||*||*||*|
|00:01||GBP||RICS House Price Balance||53%||52%||-|