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Friday, 31 Oct 2008
Dollar Extends Gains on European Stock Slide.
Investors May Look for the USD Price Volatility to Continue as U.S. Economy Shows Signs of Shrinking on Lower Spending.
USD - GDP Figures Spark Gains for the Dollar
Big moves were seen in the Dollar yesterday due to better then expected U.S. GDP numbers. The USD gained more then 370 pips against the EUR as GDP dropped the largest percentage in 7 years. GDP contracted -0.3% in the 3rd quarter. The drop was largely contributed to U.S. consumers who cut back in spending. Consumer spending makes up roughly 70% of GDP.
Traders took the better then expected GDP numbers as a positive sign that the U.S. economy may prove more resilient in the face of the economic slowdown. GDP was forecasted to drop -0.5%, but when the numbers beat the street, traders rushed into the Dollar, sending it higher.
This is the second consecutive day the EUR/USD has seen abnormally large price changes. Two days ago, the Dollar lost over 500 pips when the Fed cut Interest Rates by half a percentage point. The unusual price movements have been in response to new market conditions stemming from the global financial crisis in that began in September with the bankruptcy of Lehman Brothers.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. The large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large gains. Look for the Dollar to increase its gains on the EUR to close the week at the 1.2760 level.
EUR - EUR Erases Gaines at All Fronts
The EUR gave back almost all gains it had made two days ago when a 0.50% U.S. Interest Rate cut sparked a EUR rally. Today was the opposite as stronger then expected U.S. GDP numbers crushed the EUR.
Adding to the downside of the EUR, the Euro-Zone Consumer Confidence survey dropped to a new low. Inflationary pressures also have all but dissipated, with a weakening European economy that will be focused more on stimulating growth. This may be adding pressure for further rate cuts in the Euro-Zone. The ECB is scheduled to vote on Interest Rates on November 6th, and the European Central President, Jean Claude Trichet, has already confirmed that a cut is expected, yet the size of the cut is still unknown. Investors that fear a 0.5% cut are another leading factor for keeping the EUR at its current weak levels.
As for today, a batch of data is expected from the Euro-Zone. Special attention should be given to the Consumer Price Index (CPI) Flash Estimate, which is scheduled at 10:00 GMT. This survey is expected to be released on the last business day of the current month. Previous experience shows that because of its earliness it tends to create waves in the market. Traders should also follow data releases from the U.S, as any price shift of the USD will have a direct impact on the EUR.
JPY - Bank of Japan Cuts Interest Rates to 0.3%
The JPY was hit with a large loss against the Dollar yesterday of 183 pips to close the day down at 98.44. A rise in the U.S. stock market helped moved the Yen lower. As equity markets recoup recent losses, investors move money from the safety of the JPY to riskier and higher yielding assets.
The Bank of Japan cut Interest Rates today for the first time in 7 years to 0.30 % from 0.50 %, joining global efforts to contain the financial crisis despite the estimation that this reduction will probably have a little economic effect. In addition, Japanese Prime Minister Taro announced yesterday a new economic relief package. The latest relief package will come in the way of tax cuts for consumers and businesses as well. The Japanese economy has been hit hard by the recent appreciation of the JPY, sending the nation's heavy economy export into a tailspin.
In fact, economists have their doubts as to the effectiveness of the newest relief package. Rather then spending the extra money received from the government, the Japanese consumer has the propensity to save. As a result, it may have a negative impact on the JPY and push the Yen lower against its crosses.
Oil - Reduced Economic Output Sends Crude Lower
Traders are attempting to balance opposing forces: a global economic slowdown that threatens to lower all commodity prices, or a future OPEC decision to reduce output that may raise the price of Crude.
Crude Oil fell more $5.16 yesterday, erasing the previous day's gains to close at $64.52. Lower demand for Crude amid the world's slowing economies is pushing prices lower. The drop in U.S. GDP reaffirmed the recessionary fears. Look for further declines in global growth to send Crude Oil lower to a level of $55-$65.
It is seems that the pair's bullish correction has ended after peaking at the 1.3300 level, and the bearish momentum has fully resumed. And now, as all oscillators on the 4-hour chart are pointing down, it appears that the bearish move has more room to go, with a potential price target of 1.2600.
The cable dropped close to 400 pips yesterday, and is currently traded around the 1.6250 level. A bearish cross on the 1-hour chart's Slow Stochastic suggests that current direction is still bearish. Going short appears to be the right choice today.
The pair has been range-trading for quite a while now without making a significant breach. Now however, a flag formation on the daily chart indicates that a downtrend is impending. Going short with tight stops might be the right choice today.
Ever since bottoming at the 1.1200 level, the pair is galloping upward with full speed, and is currently traded around the 1.1470 level. The 1-hour chart is giving exclusively bullish signals, implying that another bullish session is forthcoming. Going long seems to be the right strategy today.
The Wild Card
There is a very accurate bearish channel forming on the 4-hour chart, as the pair is now floating in the middle of it. A bearish cross on the 1-hour chart's Slow Stochastic is also suggesting that the bearish move has more steam in it. This might be a good opportunity for forex traders to join a very promising trend.
|00:30||AUD||RBA Gov Stevens Speaks||-||-||-|
|01:00||NZD||ANZ Commodity Prices||m/m||6.9%||-||-|
|02:00||EUR||FOMC Member Kohn Speaks||-||-||-|
|08:00||EUR||German Retail Sales||m/m||-||-||-|
|09:00||EUR||Spanish Unemployment Change||82.3K||-||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.1%||0.2%||-|
|14:10||USD||FOMC Member Lockhart Speaks||-||-||-|
|14:30||USD||Fed Chair Yellen Speaks||-||-||-|
|14:30||USD||Revised Nonfarm Productivity||q/q||1.6%||2.2%||-|
|14:30||USD||Revised Unit Labor Costs||q/q||1.4%||1.1%||-|
|15:15||USD||ADP Non-Farm Employment Change||182K||191K||-|
|16:00||CAD||BoC Rate Statement||-||-||-|
|16:30||USD||Crude Oil Inventories||1.0M||-||-|