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Thursday, 27 Mar 2008
EUR/USD Marching Toward 1.60?
Yesterday, the greenback continued its freefall back into a tough position against most of its currency rivals. US economic data returned unexpectedly poor and took what had been a moderate bearish trend and let it loose, forcing the Dollar back toward lows against the major currencies, most notably the EUR. The EUR/USD pair soared back over the 1.58 key level, at some points peaking close to 1.59. This does not bode well for the Fed, as many will look towards them once again to tweak interest rates to cope with the weakening economy which may force even more negative pressure on the Dollar.
The acceleration of the Dollar's bearish behavior came after a batch of US data came back with sub par results. Durable Goods figures came back over 1% down from already poor expectations at -1.7%, as Core Durable Goods (excluding Autos) dropped to -2.6%. New Home Sales fell for the fourth month running by just under 2% as the figure stood on 590,000, the lowest it has been since 1995. Though the figure returned higher than initially forecasted, the combination of the poor results combined with Durable Goods numbers and a small drop in Crude Oil Inventories sent the USD on a dive. The biggest concern on the return of the housing figures is that new homes are at some of the lowest average prices the American consumer has seen, and still no progress has been shown, which can only further concern investors regarding the spending of the world's biggest consumer base.
Fed fund futures are now leaning toward a 50-50 chance that a rate cut of up to 50bp is to be expected by next month. What is worrisome is the lack of affect these cuts have had on the US economy. With the possibility of a US interest rate under 2%, one wonders if the Fed might be running out of solutions to pulling the US out of the depths of recession.
Today we await a host of important data from the US. Unemployment Claims are due for release, and should see a return of 370,000 jobless claims for last week. This figure is down from the last number of 378,000, but will still provide no help for the greenback. Forecasts also show a 0.6% annual growth over the fourth quarter of 2007 in Gross Domestic Product (GDP). The GDP figures could be the most concerning, as the US economy has seen its slowest growth in almost 5 years. With the halt in consumer spending, rising commodities prices, labor worries, and the unforgettable housing and credit crises a US recession seems imminent.
Speeches from Fed Governor Kroszner, Minneapolis Fed President Stern, and
Cleveland Fed President Pianalto will round out the economic calendar for Thursday, as we should expect more bearish dollar behavior.
The EUR spent another day yesterday, as the top currency in the trading session. If this were a horse race, the EUR would be your "sure bet" as everything seems to be going right once again for the Eurozone economies. As stated in the daily analysis yesterday, the "slight drop" in German Ifo numbers never came as both Climate and Expectations indices came back with positive results pushing bullish EUR pairs higher and higher. This was the highest index for the German Industrial sector in 7 months and there doesn't look to be much that can deter it from becoming 8 months in April. Industrial Orders also came back with a 1.5% increase in forecasted growth, as this helped facilitate the last push in yesterday's EUR/USD rally.
One of the more important news stories of the day was the push by French President Sarkozy to tighten relationships with the UK in both the political and financial sectors. He also touched on the importance of the two nations getting the US to strengthen the Dollar, in hopes that it will ease some of the import/export tensions, concerning a widening in price differences between American and Eurozone suppliers. Also speaking yesterday ECB President Jean-Claude Trichet reiterated his stance in staying out of policy change due to market turmoil. His hawkish stance, though sometimes considered by some to be hard headed has proven to be helpful in keeping the EUR up against its currency rivals Trichet also discussed the needs for nations to be more transparent in regards to both positive and negative aspects of their economies. In a speech to the EU parliament he said "We see that all the situations where you have an absence of transparency; whether it is markets, whether it is instruments or whether it is institutions are conducive to hectic behavior of markets…"
Today the only news event form the Eurozone was the early morning release of German Consumer Confidence which rose by 0.1 points to 4.6. This had little affect on the market, and most of today's movement will likely come from the US related news. Expect the EUR to make gains throughout the market, and make a push toward 1.60 for the EUR/USD pair
Yesterday was a relatively quiet day for the JPY, though it did see steady growth throughout the day. With steady gains primarily against the Dollar, much of the Yen's bullish movement could be contributed to the repatriation of overseas earnings by Japanese companies into the local economy. To be more specific, it meant the selling off of Dollars and Euro to buy back Yen. This had a positive affect on major JPY currency pairings, as the rising turmoil in the market is leading to more investment in the Japanese currency.
Early Wednesday saw the release of the Japanese Trade Balance which was announced at 0.60 Trillion Yen, a sharp drop off from last month's 0.86 Trillion Yen surplus. These numbers should continue as the JPY rises in value versus the major currencies. If the JPY should continue its growth, concern will surface as the export-heavy nation will see a hit in their strongest economic sector.
What is still missing from Japan's economic outlook is a leader who can map out a clear cut strategy for the future. Inflationary pressure has begun to deteriorate but can very easily reappear if investors lose confidence in the interim governing of the Japanese economy.
Today is an especially heavy news day for the Japanese economy, as we can expect a batch of data from the Eastern giant toward the end of the day. Core CPI, Core Tokyo CPI, Overall Household Spending, Japanese Unemployment Rate, Retail Sales and Large Retailers' Sales are all on tap, and are all expected to see positive results. Retail sales should see the biggest jump and could heavily contribute to overnight bullish behavior by the JPY.
The pair is in the middle of a very strong bullish trend and is now traded around 1.5780. The daily slow stochastic is showing that there is still room to run and that 1.5830 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 1.5900 zone. A failure to breach might bring a moderate corrective move.
The cable is still floating around the key Fibonacci level 2.0060 and shows moderate bullish momentum. The daily slow stochastic is still bullish as the 4 hour chart provides mixed signals. Forex traders should wait for a significant bullish break before swinging into the trend.
The momentum which was created after the bearish breach through the flag on the 4 hour chart continues with full steam. The daily chart is still very bearish as the 4 hour chart is starting to show first signals of a moderate bullish momentum. It might be preferable to sell on highs today.
There is a widening bearish channel forming on the 4 hour chart as the pair now floats at the bottom level of it. A bullish cross on the slow stochastic supports the notion that the pair will test the upper level of the channel, probably before the weekend. Going long with tight stops might be a good choice today.
The Wild Card
Gold is in the midst of a very strong bullish corrective move and appears to be heading to a very high price. The bullish channel together with the sharp positive slope of the 4 hour slow stochastic, makes it quite lucrative for forex traders to join the bullish trend and swing in with wide stops. Next target price appears to be 965.00.
|00:00||EUR||German 30-y Bond Auction||1.77|1.2||-||-|
|00:30||AUD||Trimmed Mean CPI||q/q||0.4%||0.5%||-|
|07:00||CHF||UBS Consumption Indicator||1.29||-||-|
|07:00||EUR||GfK German Consumer Climate||9.0||9.2||-|
|07:00||EUR||German Import Prices||m/m||-0.8%||-1.4%||-|
|15:30||USD||Crude Oil Inventories||10.1M||-||-|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|20:00||NZD||Official Cash Rate||3.50%||3.50%||-|
|20:00||NZD||RBNZ Rate Statement||-||-||-|
|23:00||AUD||CB Leading Index||m/m||-0.2%||-||-|