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Wednesday, 10 Sep 2008
Dollar Reverses and Euro Strength Anticipates French Figures.
Today, traders await the US Crude Oil Inventories figures. Traders are advised to pay close attention to this indicator, along with Crude Oil prices, as they have proven to have a significant effect on USD pairs.
USD - Investment Bank has Negative Effect on USD.
The dollar fell against the EUR for the first time in almost two weeks pushing the oft traded currency pair to 1.4131. In overnight trading, the USD touched a new 11-month record of $1.4043. Moreover, the greenback traded lower against most other major currencies on Tuesday as rumors about the financial health of investment bank Lehman Brothers Holdings Inc. unnerved traders and created a downward move. The USD did see bullishness as well as it gained over 50 points against the CDN and closed at 1.0722.
Shares in Lehman Brothers Holdings fall down on concerns over its ability to raise capital after reports that talks with a Korean bank on a possible capital infusion had ended. Lehman's more than 40% drop on Tuesday, its biggest one-day decline on record, eroded the market's initial optimism about the U.S. government's weekend takeover of mortgage financiers Freddie Mac and Fannie Mae. Lehman's stock fell to its lowest price in more than 10 years as investors worried about the bank's financial soundness and ability to raise capital. The Dow Jones industrial average was off more than 220 points, or 2%, at 11,280 in late trading. This is caused by a slight drop in the USD against the other major currencies.
Today, the sole indicator for the USD will be the Crude Oil Inventories, which measure the change in the number of barrels of crude oil held in inventory by commercial firms during the past week. Analysts forecast it to descend -4.8M. Traders are advised to pay close attention to this indicator, along with Crude Oil prices, as they have proven to have a significant effect on USD pairs.
EUR - The Euro has Mixed Feelings Preceding Today's Announcements
Yesterday, the EUR saw mixed results versus most of its currency pair counterparts. The EUR underwent a bearish trend against the JPY, declining over 100 pips, and closed at 151.04. Against the GBP and the USD it mainly fluctuated within a small range.
Yesterday, the only financial indicator that was published from the Euro-Zone was the German trade balance. Germany's trade surplus shrank much more than expected in July, as imports rose at the strongest pace in more than six years to a record 72.6 billion. Also, exports fell 1.7 percent on the month in seasonally adjusted terms to 84.4 billion, and the trade surplus narrowed to 11.8 billion from an upwardly revised 18.2 billion in June. Foreign trade has been a key engine of growth for Europe's biggest economy in recent years, but the data yesterday suggested it could be a drag on growth in the third quarter, possibly tipping the economy into recession which might cause deterioration in the 15 nation currency.
A few economic figures are expected to be released today from the Euro-Zone. ECB President Trichet will be giving his testimony to Parliament's Committee on Economic and Monetary Affairs in Brussels. Today will also be an important day for the EUR as France will release their industrial production figures and trade balance. The EUR is still showing signs of resilience as it traded in a relatively close range yesterday even though there was volatility all across the board. So it will be crucial for traders to identify how the preceding economic indicators from Europe will affect their economy.
JPY - JPY Current Account Figures beat Forecast and Give a Boost to the Yen
The JPY underwent a small increase yesterday, as it appreciated against all of its major currency rivals. The JPY rose 1.2% and closed at 107.22 versus the USD in yesterday's trading session. Also, the JPY saw a significant gain against the GBP and CHF.
As the Current Account beat our forecasts, which showed an expected rise of 134T but instead reached 156T, the JPY saw slight bullishness and added to another day of surprising Japanese economic data in support of the yen. This indicator is very important because it is directly linked to currency demand. A rising surplus indicates that foreigners are buying more of the domestic currency to execute transactions in the country. This in turn will support the latest bullish trend for the Japanese yen in the forex market.
Today, the sole indicator for the JPY will be the Core Machinery Orders. This indicator measures the total value of new orders placed with machine manufacturers, excluding orders for items with a volatile sales cycle. A rising trend has a positive effect on the nation's currency. When manufacturers increase their purchasing of machinery it signals that the manufacturing industry is in an expansion phase. Besides the JPY's crosses' trading trends, Crude Oil will be the other major influence. The yen will need the black gold's bearishness to continue in order for the JPY to keep strengthening.
Crude Oil - A Steady Decline in Price despite Call for Production Cuts.
Today could be an important day to keep an eye on the price of Crude Oil. As the OPEC meeting continues to discuss what should be done to curtail, or maintain, current production levels, the price of oil gradually slides closer to the $100 mark. It reached down to $103.42 at the end of yesterday's trading session. OPEC President and Algerian Minister of Energy, Chakib Khelil, called for a cut to production in light of falling prices. The Saudi oil minister, however, stated that his country will maintain producing its present surplus. The debate rages on. A rogue element also emerged in yesterday's meeting in the form of a Russian delegate. Russia, though not a member of OPEC, is one of the world's largest oil producers with the ability to offer a counter to Saudi Arabia's unchecked power if allowed membership into the organization. Another emergency meeting is also being proposed for November to continue discussions on production and quota levels.
Traders should take note; the recent OPEC meeting has not yet produced a decision on production levels. Russia's presence also does not signify an impact to the price of oil in the short term. Nothing suggests that the price of oil will begin to act contrary to its recent falls and will likely continue to slip toward $100. The US is also set to announce its Crude Oil Inventories later in the morning which has implications for inflation as well as growth, therefore producing mixed volatility in the market.
For the past couple of days the pair has consolidated near the 1.4150 level. However, a bearish cross on the 4 hour chart's Slow Stochastic suggests that the pair should resume its bearish trend. Going short with tight stops seems to be preferable.
The 4 hour chart shows that the cable's bearish momentum was temporarily halted. Nevertheless, as all oscillators on the 4 hour chart are pointing down, it appears that going short might be the right choice today.
The pair has been going through choppy sessions with no distinct direction for a few weeks now. However, a bullish cross on the 4 hour chart's Slow Stochastic indicates that the pair is on the verge of a bullish movement. Going long seems to be the right strategy today.
The pair continues to be traded in relatively tight range, and no distinct direction is being observed on the hourly and 4 hour chart's studies. The pair might continue to linger in neutral territory until a clearer signal will be formed. It is advised to stay out of this one until the smoke of uncertainty clears.
The Wild Card
The pair has recently peaked at the 1.7660 level and been dropping ever since. As all oscillators on the 4 hour chart are giving bearish signals, it seems that the pair will extend its bearish move. This might be a great opportunity for forex traders to join a very promising trend.