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Wednesday, 19 Nov 2008
Economic Indicators Less Meaningful during Financial Crisis
Two factors have joined together recently to strongly support the U.S. Dollar. The first is poor Euro-Zone data, which is continuing to prove that the most sustained global concerns are in fact coming from the European nations. The second factor is what is known as the "herd effect." The current USD bullish trend appears to be so enduring that investors are seeing potential for unlimited profits and are so anxious to join the feast that they are becoming almost oblivious to economic indicators.
USD - U.S. Building Permits on Tap
The USD continues to trade between 1.2500-1.2800 against the EUR, and the pair seems to be moving without direction in anticipation of the next big event to hit the news. As long as the 1.3000 level stays untouched, there is a good chance that the pair may move lower again in the coming days. Risk aversion continues to give the Dollar strength and that is likely to continue until we see signs of stabilization.
The Dollar has rallied recently as global economic outlook has worsened, with investors pulling money out of commodities, stocks and high-yield currencies and parking it in safe-haven assets such as U.S. Treasuries. According to Treasury data released yesterday, foreigners bought $143.4 billion of U.S. securities in September, the largest net inflow since early 2006. Testifying before Congress yesterday, Federal Reserve Chairman Ben Bernanke said massive demand for the USD means it remains unrivaled as the world's reserve currency.
In conclusion, two factors have joined together to strongly support the USD. The first was the poor Euro-Zone data, which is continuing to prove that the most sustained global concerns are now coming from the European nations. The second factor is what is known as the "herd effect." The current USD bullish trend appears to be so enduring that investors are seeing potential for unlimited profits and are so anxious to join the feast that they are becoming almost oblivious to the economic indicators. In this turn of events, only a major combination of unfortunate data from the U.S., along with a series of positive signals from the Euro-Zone, could initiate a long-lasting reversal for the EUR/USD pair.
As for today, a batch of data is expected from the U.S. economy. These figures are expected to set the tone for the USD's pairs and crosses. Special attention should be given to the U.S. Building Permits which is expected to fall to 0.77M. Traders pay close attention to this figure as it has a strong correlation with the value of the U.S. Dollar. Also today, the Core CPI is scheduled which should also have an impact on the market because if it delivers unfavorable figures, it will validate a problematic U.S. market, and the USD is likely to weaken as a result.
EUR - EUR Continues to Fall Under Foreign Influence
The EUR saw very little change in its overall value against the other currencies yesterday. It has managed to remain rather calm in light of recent news from the Euro-Zone market. The only economic event out of the Euro-Zone yesterday was the Italian Trade Balance, which ended up slightly lower than forecasted, helping to keep volatility to a minimum.
Sentiment in the U.S. economy has brightened in the past week following better-than-expected news. However, the EUR is still showing signs of resilience as it traded in a relatively close range yesterday even though there was a little volatility throughout non-EUR crosses. It will be crucial for traders to identify how the preceding economic indicators from the U.S., European and Japanese economies will affect their positions.
There are no economic data releases expected from the Euro-Zone today; however there will be a nice batch of data from the U.S. which will affect the EUR's major counterparts. Traders should pay close attention to the response of equity markets to determine how to continue with EUR positions as well as to pay attention to the news from the United States to place their transaction accordingly with today's developments.
JPY - Japan Enters Recession for the First Time Since 2001
Japan's economy, the world's second largest, slipped into recession for the first time since 2001 as companies cut back spending. Japan's recession could last even longer than feared and reflects an increasing effort by governments to provide a cushion against a global downturn.
What the market is seeing here doesn't represent fundamental data, but a crutch. Worried investors are still moving away from high yielding currencies and risky assets. Investors move out of these riskier positions and are using the JPY as the fall back, fueling demand and appreciating the JPY against its pairs.
Looking ahead to today, there is no significant data scheduled from the Japanese economy, and the JPY isn't giving any signs of halting its recent movement. However, traders should bear in mind that when an abnormal activity is taking place, it is usually an irrational reason which eliminates it. This is why a reversal, or at least a correction, may be expected in the coming days.
OIL - Another Day of Falling Crude Oil Prices
The price of Crude Oil continued to fall during yesterday's trading session and closed under $55.00. Oil suffered a sharp drop in price during the month of November and has almost reached one-third its price from the record high seen in July 2008.
Traders should pay attention to U.S. economic indicators today, including U.S. Crude Oil Inventories, as these figures will indicate the status of Oil supply in the market. Moreover, worries that weakened international economic growth will depress Oil demand remains a key dampening influence on Oil prices. If the global economic condition deteriorates more aggressively, Crude Oil prices may extend their decline and fall towards as low as $50 a barrel. Traders should look to the USD as well as it has historically been a strong indicator for the direction of the price of Crude Oil.
The pair is continuing to provide mixed results, without making a significant breach. Hourly chart's Slow Stochastic is negatively sloped indicating that this pair could face another bearish session. Going short with tight stops might be the right choice today.
The pair has been decelerating its bullish pace during the last 2 days as the daily chart shows and is now floating around the level of 1.4948. Moreover, 4 hour chart's Slow Stochastic it is still negatively sloped implying that a bigger bearish move may take place. Going short with tight stops appears to be preferable.
There is a very distinct bullish channel forming on the daily chart, as the pair is now floating in the middle of it. To strengthen this notion, the Bollinger Bands on the 4 hour chart are tightening, suggesting that traders should expect a violent breach.
The pair extends its bullish momentum, and is now traded around the 1.2050 level. The Bollinger Bands on the daily chart and the hourly chart continue to widen, suggesting that the current bullish momentum is likely to continue. Going long seems to be a preferable strategy today.
The Wild Card
A bearish configuration on the daily chart is indicating that the momentum is still negative. The Slow Stochastic flows low supporting the notion that there is still room to run for this trend. From this point the commodity may descend further or there might be a small bullish correction before the bearish move resumes. forex traders can maximize profits by selling on highs and taking advantage of a currently bearish trend.
|16:00||USD||IBD/TIPP Economic Optimism||42.0||-||-|
|19:00||EUR||ECB President Draghi Speaks||-||-||-|
|23:30||USD||FOMC Member Williams Speaks||-||-||-|
|00:30||AUD||AIG Construction Index||53.8||-||-|
|01:01||GBP||BRC Shop Price Index||y/y||-1.4%||-||-|
|02:00||AUD||HIA New Home Sales||m/m||-1.8%||-||-|
|02:01||JPY||Monetary Policy Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|