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Wednesday, 27 Feb 2008
EUR/USD Breaches 1.50
The greenback continued to fall sharply yesterday on the back of more negative U.S economic data which further fuelled speculation of an aggressive Fed rate cut in March. The greenback fell to a new all time low against the EUR after U.S Consumer Confidence released well below expectations at 75.0 for the month of February, which is a 17 year low for this figure. There was some positive U.S data released yesterday as the PPI figure surprised on the upside, releasing at 1.0% which was well above the forecasted figure of 0.4%. However this positive data was negated by comments from
Fed Vice Chairman Donald Kohn saying that risks to U.S. economic growth are of greater concern to the central bank than inflation. The greenback is likely to remain firmly rooted in grizzly bear territory in the near term as given the risks to the U.S economy the Fed will be forced to keep cutting rates and ignore rising inflation. Another key factor that drove the greenback to an all time low against the EUR yesterday was the fact that positive Euro-zone data is continuing to make a rate cut by the ECB highly unlikely, while a Fed rate cut is now almost certain.
Looking ahead, it does not seem as though the greenback will receive any reprieve today as we expect the Durable Goods and New Home Sales figures. These figures are forecasted to come in lower than last month and with the U.S economy in tatters there is a high likelihood that these figures will disappoint beyond market expectations. Also Fed Chairman Bernanke will speak before the House Financial Services Committee and he is likely to reiterate Vice Chairman Kohn's comments that U.S growth is of prime concern to the Fed. However many analysts are now of the opinion that since the greenback has crossed the key 1.5000 level against the EUR, it could consolidate before once again being pulled back by the bears. So traders can expect the bears to remain firmly on top in the near term and the greenback will only manage a sustained recovery once all the Fed rate cuts are firmly behind us and there is a steady stream of positive U.S economic data.
The EUR appreciated sharply against the greenback yesterday, reaching a new all time high and breaching the key 1.5000 level. There was positive news for the Euro-zone yesterday as the German Ifo Business Climate Index, which measures the mood of firms in manufacturing, construction, wholesale and retail, surprised on the upside releasing well above the forecasts at 140.1 up from its previous 103 mark. This news coupled with weak U.S data was the main driver of the EUR's sharp rally against the greenback yesterday. The reason for this is because the stronger-than-expected Ifo survey and high crude oil prices reduce expectations that the European Central Bank will cut rates to deal with a slowdown of growth in the Euro-zone.
Looking ahead to today, we expect the German Consumer Confidence figure, German Import Price Index and the Euro-zone M3 Money Supply. These figures are unlikely to cause any volatility and any sharp EUR movement today will be dollar centric. The EUR will maintain its bullish rampage against the greenback for as long as the interest rate differential between the Euro-zone and the U.S continues to widen. If U.S data once again disappoints today, then the EUR will target another new high against the fragile U.S currency.
The JPY was one of the few currencies that failed to gain ground against the freefalling greenback yesterday. The JPY range traded against the USD yesterday as the euro-dollar pair grabbed center stage on the trading arena as a result of key U.S and Euro-zone data releases. The JPY may find itself losing more ground versus the greenback despite the fact that the USD has been weakening all across the board. The main reason for this is the fact that the continuing rate cuts by the Fed have reduced global liquidity level concerns and therefore investors may now prefer to place their funds in countries where the yield is high. So we may see carry trades back in action in the near term despite the fact that slowing global economic growth is driving risk aversion.
The pair has breached the much anticipated 1.50 key level and is now traded at all time high levels around 1.5040. The bullish move was validated and the momentum is now very strong. It appears that the pair is going towards the 1.5090 on the immediate level, and that going long should be a preferable choice today.
The bullish trend is very strong as the cable is carried up on the back of the USD weakness. There is a bearish cross forming on the 4 hour chart, yet with a strong bullish momentum on the daily chart it might be a good choice to buy on dips, as the local correction move unfolds.
The pair is shaping into a bearish formation within the flat channel. The slow stochastic on the daily chart indicates that the momentum is relatively strong, and the RSI supports the bearish notion. Next target price might be around 106.50, and if breached we should see a stronger bearish move being validated.
The key level of 1.0700 was breached yesterday, after three failed attempts on the daily chart. The bearish move is validated on the 4 hour chart as no reversal cross are seen. All oscillators are pointing to the continuation of the trend, and the next target price is now 1.0650.
The Wild Card
Oil is traded at historical levels of more than 101.00, and shows no room for hesitation. All technical indicators on all time frames are showing that the direction is up and the momentum is extremely high. forex traders should use this momentum to swing into the trend, and join oil on its journey to fresh all time highs.
|01:50||JPY||Prelim Industrial Production||m/m||1.1%||-||-|
|02:30||AUD||MI Inflation Gauge||m/m||0.2%||-||-|
|03:00||AUD||HIA New Home Sales||m/m||0.5%||-||-|
|03:00||NZD||ANZ Business Confidence||-15.3||-||-|
|03:30||AUD||Company Operating Profits||q/q||0.2%||-||-|
|03:30||AUD||Private Sector Credit||m/m||0.4%||-||-|
|09:00||CHF||KOF Economic Barometer||99.8||-||-|
|10:00||EUR||Italian Retail Sales||m/m||-0.1%||-||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.2%||-||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.1%||-||-|