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Friday, 19 Dec 2008

Dollar Volatility Expected as Traders Weigh-In on Rate Cut

As investors continue digesting the dramatic rate cut by the U.S. Federal Reserve earlier this week, the USD has continued to lose ground. For some investors, the Fed's measure has helped to open credits for cash-strapped borrowers. However, for others, the measure has not produced the positive impact that some traders had hoped.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddownnodownnonodown
Weekly Trendupupdowndownupup
Resistance1.43001.519090.001.21500.69300.9500
1.42751.516589.651.21250.69000.9475
1.42501.514089.401.21000.68800.9440
Support1.42001.508588.751.20500.68300.9385
1.41751.505088.501.20250.68000.9350
1.41501.502588.251.20000.67750.9325

Economic News

USD - Dollar Recovers against the Pound and Euro

The U.S. currency experienced heavy volatility throughout yesterday's trading session, and recovered some ground against the EUR after the U.S. markets opened. This was after a sharp decline in the Dollar since the start of the week, which saw a reduction in value of the greenback to as low as the 1.4716 mark reached yesterday. Against the JPY, the greenback also showed some recovery after the Japanese currency reached a 13-year high against the USD on Wednesday. The USD also recovered against the GBP yesterday, as the greenback increased nearly 500 pips against the cable to close at 1.5120.

The U.S. Stock market plunged at the end of the trading day, as the Dow Jones registered a fall of more than 200 points. This was largely due to investors continuing to digest the dramatic rate cut by the U.S. Federal Reserve from earlier this week. For some investors, the Fed's measure that sent its Interest Rate to a record low range of 0-0.25% has helped to open credits for cash-strapped borrowers. However, for others, the measure has not produced the positive impact that some traders had hoped.

Important economic releases yesterday showed that Unemployment Claims eased, showing a decline of 21,000 from the previous week's 26-year high of a revised 575,000 claims. This data reasserts that the economy is going through one of the worst economic crises since the Great Depression. The Philadelphia Fed Index, which is an indicator for regional manufacturing, and is seen as one of the first monthly indicators of the health of the U.S. manufacturing sector, was better than expected, which improved to -32.9 this month, from -39.3 in November.

Today, traders should pay close attention to the equity markets to determine how to continue with USD positions, as well as to the news coming out other global markets in order to place their transactions accordingly with today's developments.

EUR - EUR Slides against Dollar and Spikes versus the GBP

After continuing a bullish course during most of the week against the USD, the EUR retreated yesterday. Analysts believe that this is due to financial pressure that the Euro-Zone will have to follow the Fed and cut Interest Rates further. EUR/JPY level continued to trade flat, with little fluctuation over the $127.00 level. The EUR did however rise dramatically against the GBP to close at 0.9426, a 1 day rise of 140 pips.

The economic events that came out of the Euro-Zone yesterday were the German Ifo Business Climate, which weakened for the seventh month running in December, after falling to 82.6 in December from 85.8 in November. The weaker Ifo reading, which has not been seen since German reunification in 1990, added more signs that the Euro-Zone economy is continuing its deterioration, and may require more cuts in Interest Rates.

Looking ahead to today, we see that there is some important economic news that is likely to affect the EUR's volatility. The German PPI figures, which measure the change in the price of goods sold by manufacturers, will be published at 7:00am GMT. This indicator is forecasted to be lower than the previous month's figures. Traders are advised to follow the development of the other currencies, the GBP and JPY primarily, as news coming from these regions is likely to have an impact on the EUR's volatility today.

JPY - Bank of Japan Lowers Interest Rates to 0.10%

The JPY began losing its momentum yesterday after a long week of steady gains. The Japanese currency experienced its first daily drop against the U.S. Dollar as the Japanese Finance Minister stated that currency intervention in the shape of an Interest Rate cut by the Bank of Japan (BoJ) may be used to keep the Yen from excessive appreciation.

The rate cut did in fact happen during this morning's early trading hours. The Japanese Interest Rate now sits at 0.10%, the lowest in the world. Some officials believed that the intervention was necessary considering the recent currency gains and the ongoing global recession which has driven global Interest Rates to new lows. Lowered international rates have consequently pushed the value of the Yen to levels which have damaged Japan's ability to export. Traders may expect a somewhat steady depreciation in the Yen during the coming trading hours in response to this rate cut.

Oil - Oil Prices Resume Sliding despite OPEC's Production Cut

Oil prices have been on the fritz lately; inexplicably dropping in value after the Organization of Petroleum Exporting Countries (OPEC) announced its supply cut and then quickly rebounding during early trading hours the next day. More recently, the price of Crude Oil has resumed falling back towards $40 a barrel, dipping as low as $41.54 yesterday. Apparently, expectations are low for OPEC to actually follow through with its production cut.

If the price of Crude Oil fails to stabilize, the Oil cartel has left the door open for future cuts as they are trying to maintain a price level of $70-80 a barrel; their next policy meeting is scheduled for March 15, 2009, in Vienna. However, OPEC has stated that another emergency session could be called earlier if prices fall below $30 a barrel before March.

Technical News

EUR/USD

The pair is in the middle of a very strong bullish trend and is now traded around 1.4250. The daily slow stochastic is showing that there is still room to run and that 1.4670 is a very strong resistance. If the pair breaches the resistance level, we might see a stronger bullish move that might take the pair into the 1.4900 zone. A failure to breach might bring a moderate corrective move.

GBP/USD

The cable is still floating around the 1.5120 level and shows moderate bullish momentum. The daily chart it appears that the pair has made a slight bearish correction, however on the 4 hour chart the RSI and the Slow Stochastic oscillators are starting to show first signals of a moderate bullish momentum. It might be preferable to sell on highs today.

USD/JPY

After bottoming at 87.70 two days ago, the pair now shows local signs of a correction. The 4 hour chart is showing that the bullish move might not have enough steam in it, and that the bearish trend will probably resume before the weekend. Selling on highs might be a good strategy today.

USD/CHF

The pair has been quite choppy in the past two days yet no clear direction was seen. The daily chart is showing bullish signals as the 4 hour chart is still quite bearish.
Traders advised to wait for a clearer signal on the hourlies before entering the market.

The Wild Card

EUR/GBP

The pair is in the midst of a very strong bullish correction move, and seems to have more steam in it. The Slow Stochastic oscillator on the 1 hour chart is also providing bullish signal. This is a great opportunity for forex traders to join a very promising bullish correction.

Current Time: 09/17 04:54 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
09/17
09:30GBP+ Average Earnings Indexq/q-0.2%0.5%-5
09:30GBP+ Claimant Count Change-33.6K-29.7K-5
09:30GBP+ MPC Asset Purchase Facility Votes0-0-90-0-9-5
09:30GBP+ MPC Official Bank Rate Votes2-0-72-0-7-5
09:30GBP+ Unemployment Rate6.4%6.3%-3
10:00CHF+ ZEW Economic Expectations2.5--1
13:30USD+ Core CPI m/m0.1%0.2%-5
13:30USD+ CPI m/m0.1%0.1%-3
13:30USD+ Current Account-111B-114B-3
15:00USD+ NAHB Housing Market Index5556-3
15:30USD+ Crude Oil Inventories-1.0M-0.9M-3
19:00USD+ FOMC Economic Projections***5
19:00USD+ FOMC Statement***5
19:00USD+ Federal Funds Rate<0.25%<0.25%-5
19:30USD+ FOMC Press Conference***5
23:45NZD+ GDPq/q1.0%0.6%-5
00:50JPY+ Trade Balance-1.02T-0.99T-3
09/18
ALL+ G20 Meetings***3
02:30AUD+ RBA Bulletin***1
06:00AUD+ RBA Annual Report***1
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