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Monday, 1 Dec 2008
Dollar Set for a Bullish Week as U.S. Consumers Start Holiday Spending Season
Many analysts predict that in the coming weeks, as American consumers go out shopping for the holiday season, the value of the USD will follow a steady path of appreciation. While Europe celebrates the same holidays as the U.S., it tends to see such spending on a much smaller scale as Europeans have a stronger history of saving during hardship, whereas Americans tend to spend more.
USD - USD Forecast to Gain Strength despite Upcoming Negative News Week
Starting the week on a positive note, the U.S. Dollar made small gains across the boards during today's early trading hours. Closing last week against the EUR at 1.2691, and 1.5367 against the British Pound, the USD now sits near 1.2650 and 1.5310 respectively.
While not a significant price move, it nonetheless supports the notion of an upcoming bullish run by the USD. Many analysts predict that in the coming weeks, as American consumers go out shopping for the holiday season, the value of the USD will stroll down a steady path of appreciation. This gain in value will not only be brought about by the surge in holiday spending, but also because other economies will not be experiencing the same increase in sales as the United States. While Europe celebrates the same holidays as the U.S., it tends to see such spending on a much smaller scale as Europeans have a stronger history of saving during hardship, whereas Americans tend to spend more.
This week will be an important news week for the greenback. With Federal Reserve Board chairman Ben Bernanke testifying twice this week, as well as data on U.S. Unemployment and Non-Farm Employment Change being released, the USD is scheduled for a volatile trading week. Contrary to the predictions of many analysts that the U.S. Dollar is going to have a week of strengthening, the data this week is forecasted to present a continuing negative slide in employment figures across the world's largest economy, which may in fact trigger a reversal to the Dollar's recent bullish momentum.
EUR - Will Britain Seriously Considering Joining the EUR?
Having mixed results against its counterparts this morning may be viewed as a positive for the EUR compared to its recent trading weeks. While ambiguous valuation against other currencies is typically a sign of having a lack of direction, and hence weakness and uncertainty, for the EUR it may signify a leveling-off in the direction of the 15-nation currency and potential correction.
Aiding the EUR in its recent stabilization is the discussion in Britain about joining the Euro-Zone. A move such as this will eliminate a currency rival and may add a powerful economy into a regional system which needs all the strength and monetary coordination it can get. While this is not likely to produce a newly signed member to the European Monetary Union any time soon, the discussions themselves are groundbreaking in this arena of economics. It signifies that the British economy is weaker and shrinking faster than many analysts were predicting. It also indicates that the GBP is set to have a rough couple of weeks ahead of itself as this will likely decrease confidence in the Pound Sterling.
Therefore, as these talks progress in the coming days and weeks, traders have the potential to follow these developments and open large positions at the start of a major downtrend in the GBP, and possibly a strong positive uptrend in the EUR. In fact, it was a situation not much different than this one which earned economic moguls like George Soros and Warren Buffet their wealth and status back in the 1990s.
Looking ahead this week traders will see the forecasts for the upcoming devaluation of both the EUR and GBP with large interest rate cuts being forecast for later in the week. As the British economy weakens further, the possibility that it may join the Euro-Zone is growing. If such a move happens, investors can expect a vast depreciation in the GBP in the period leading up to the changeover, and a potential destabilization of the EUR in expectation of the merge. Recognize the trends and get in on the large price swings early, and lucrative profits will be made.
JPY - JPY's Strength Limiting Japan's Export Capability
On a powerful bullish run at the start of this week, the JPY is gaining on most of its currency rivals. This is not necessarily viewed as a positive from Japan's perspective, however. A strengthened Yen weakens Japan's ability to export goods; something which it has relied on heavily the past decade.
One of the driving factors, as has been stated numerous times the past few weeks, is the fear of unwinding carry trades. This event results in what many analysts call a repatriation of funds. The JPY, with its low interest rate, has historically been used to buy higher yielding currencies in order to fund carry trades. But as the Yen strengthens, and world interest rates lower, forcing the rollover yield of other currencies to drop, investors cut their JPY-funded trades which thereby floods Japan's market with its own currency and motivates traders to take buy positions on the JPY.
The bad news is that Japan relies on exports to fuel its economy. During these times of economic recession and financial crisis, a strengthening currency in Japan actually pushes its economy into a deeper recession instead of helping to bail it out. As global production and demand slows down, traders can expect to see this repatriation of JPY help to push the value of the Yen to new heights in the coming weeks.
Oil - Non-OPEC Producers asked to Lower Crude Oil Output
As anticipated, the Organization of Petroleum Exporting Countries (OPEC) has asked that non-OPEC Oil producing countries, such as Russia and Mexico, to reduce production in order to contain the downward moving price of Crude Oil.
Prior to the close of trading last Friday, the price of Crude Oil jumped $3.00 a barrel to end the trading session at $55.00. This came in expectation of OPEC's meeting since an announcement to cut production was being forecast. Many traders wanted to open buy positions at the lowest price possible before the market jumped on Monday morning.
Now that OPEC is calling for production cuts from within its member-states, and outside countries, analysts are asking the question of why OPEC did not make these moves sooner as the evidence of a downward spiraling price of Crude Oil were obvious over a month ago. This sit and wait approach may indeed signify a too-little-too-late tactic to control Oil prices which may find themselves bottoming out in the near future below $40 a barrel.
After several failed attempts to breach the1.3000 resistance level on the 4 hour chart, the pair is now consolidating around 1.2680 price level. The hourly studies show mixed signals, and the daily charts support that notion as well. However, the 4 hour charts' Slow Stochastic is showing a bullish cross suggesting that an upwards correction might take place in the nearest time frame. Going long with tight stops appears to be preferable strategy.
The Cable 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.
The daily chart is showing flat consolidation around the 95.00 level with no distinct price direction. The hourly chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. On the 4 hour chart however, the Bolinger bands are getting tighter implying that a violent breach is quite imminent. Traders are advised to wait for a breach and swing.
The daily chart is showing that the pair is still floating within a wide bullish channel. On the 4 hour charts' the Slow Stochastic is also showing a bearish cross, suggesting that a bearish correction might take place in the nearest time frame. Going short with tight stops appears to be preferable strategy.
The Wild Card
Gold prices rose significantly in the last two weeks and peaked at $811 for an ounce. However, daily charts' RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|
|23:50||USD||BSI Manufacturing Index||9.7||11.3||-|
|23:50||JPY||Tertiary Industry Activity||m/m||-0.4%||0.7%||-|
|05:00||JPY||BoJ Monthly Report||*||*||*|