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Thursday, 11 Sep 2008
Euro-Zone Not Growing as Expected
The recent revision of the Euro-Zone economic growth forecast has cast a longer shadow on an already weakened global economy. This economic slow-down is not only affecting currency pairs, but also dampening the speed at which economies across the globe can rebuild themselves.
USD - The Dollar's Upward Momentum Proves Difficult to Squash
Yesterday, after a small setback the day before, the greenback bounced back to continue its appreciation against all major currency rivals. The dollar extended gains as it was also favored by the declining price of Crude Oil, climbing to a fresh one-year high versus a basket of rival currencies. Also helping the USD was the announcement of a reduction in the growth forecast (GDP) for the Euro-Zone, which was downgraded from 1.7% to 1.3% for this year. As a result, the EUR fell as low as 0.4% to 1.3951 reaching an 11-month low versus the USD. Against the JPY the greenback went up 0.6% at 107.44.
The dollar is also gaining support from the belief that the U.S. economy may be more resilient than most economies whose countries were further behind in terms of economic readjustment in the wake of the global credit crisis. This is precisely today's case. Despite disappointing results on the third quarter as a consequence of the Lehman Brothers investment bank downturn, the greenback largely ignored the results and rose against the majors.
Looking ahead today, the most important financial indicator scheduled from the U.S economy is the Trade Balance. Analysts forecast that the U.S. deficit will grow from -56.8B in June to -58.0B in July. Another indicator for today is the Import Price Index, a measure of the change in inflation for imported goods; it is expected to come in -1.6%. On top of those two indicators, the Unemployment Claims report, one of the most influential USD indicators, is also forecasted to show a slight improvement in jobless Americans from last week's mark of 444K to 440K, meaning a drop of four thousand fewer jobless Americans. We are also expecting a hawkish speech from the Fed's Vice-Chairman Donald Kohn which will add volatility to the market. As most indicators are expected to have a positive impact, this should make the greenback continue its momentum during today's trading session. Traders should anticipate high volatility around the time of each announcement.
EUR - Euro-Zone Growth Expectations Decreased
Yesterday the EUR underwent a bearish trading session against most of its major currency rivals. The Euro plummeted to an eleven-month low against the dollar after the announcement by the European Commission that the Euro-Zone economy is currently suffering a trough in growth and reducing its growth expectations to1.3 % from 1.7 %. Analysts predict that as the Euro-Zone growth forecasts are being reduced, the ECB will hold interest rates steady. This is primarily because of the European Commission forecast for 2008 which is showing that Euro-Zone inflation is expected to increase more than previously estimated. The ECB pushed its key rate up by 0.25% (from 4.00% to 4.25%) in July in an effort to anchor rising inflation expectations to stay below, or near, 2%.
As for yesterday, the French industrial output rebounded stronger than expected in July reaching 1.2% instead of the expected 0.1%, suggesting the economy might avoid falling into a recession. The French Trade Balance improved to -4.8B from -5.4B in the last reading. Also, in Trichet's anticipated speech in Brussels, he remarked that there is a need for the ECB to play a bigger role in supervising Euro-Zone commercial banks and supporting monetary policies.
Looking ahead today, we expect a few economic events coming from the Euro-Zone. Among them is the German Wholesale Price Index, which measures the rate of inflation experienced at the wholesale level. This figure is expected to trim down to -0.3%, from the previous value of 1.4% in July. We also await the French Preliminary Non-Farm Payrolls. These are forecasted to hit -0.1%, which is same as the previous reading. Also expected to be released is the ECB Bulletin as well as another speech to be given by ECB President Jean-Claude Trichet. These will no doubt provide a higher volatility to the market later in the day.
JPY - Japan Not Exempt from Global Economic Woes
The JPY finished yesterday's trading session with mixed results versus the other major currencies. The JPY slid down to 107.80 against the USD, while against the EUR it gained more than 100 pips after the announcement of a revision for the Euro-Zone economic growth forecast.
Coming from Japan we have the leading indicators improving slightly from 91.0% to 91.6%. However, the results are below the expected 91.8% which led the Cabinet Office to express their worries about a possible recession for Japan. Also, the Core Machinery Orders fell slightly less than expected in July to -3.9%. Economists say that these new results prove that machinery orders are now weakening in line with slowing production, which stems from emerging economic problems across the globe, combined with falling profits.
As for today, we have only two economic data releases coming from Japan. The most vital is the Japanese Final Quarterly GDP mark, which measures the change in the value of all goods and services produced by the economy. Analysts forecast it to decrease to -0.9%. The other figure to be announced today is the Final GDP Price Index which should have less influence over the JPY. Traders should follow today's news with extra caution as well as keep an eye on the economic events from around the world. As with the other major currencies, traders should expect high volatility in the market across the boards throughout the day.
Oil - Hurricane Ike and OPEC Team-Up on Oil Supply
Today for the price of Crude Oil it is important to consider two factors. The first is the impact of Hurricane Ike on speculation, and the second is OPEC's surprise decision yesterday to cut back oil supply. Ike was upgraded to a Category 2 storm yesterday right around the time that it was being predicted by meteorologists to slam into the Texas coast this weekend. The impact on speculators is that they are predicting a drop in supply as oil companies shut down and evacuate their refineries in the Gulf of Mexico once more, which has the potential to increase prices.
Added to this potential cut in supply is the unexpected decision by the world's largest oil cartel, OPEC, to cut their oil production by 520,000 barrels a day. This comes as a shock because it has been argued by analysts that the price of oil was not dropping due to an oversupply in the market, but rather a decrease in demand and a strengthening USD. This was precisely the stance of Saudi Arabia, OPEC's most influential member, regarding their resistance to such a cutback right before the winter season when demand for heating oil reaches its natural peak. As it stands today, the price of oil saw a significant drop last night prior to the end of yesterday's trading session, but so far this morning it has leveled off around the price of $103.30. Traders should be wary of the predicted target of $100 as oil suppliers, and Mother Nature, are apparently bent on keeping the price above such a position.
The bearish momentum continues with full steam, and yesterday this pair breached the 1.4000 level. The 4 hour chart shows that the pair is still floating beneath the Bollinger Bands, indicating the continuation of the bearish move. Going short may be a good strategy.
The bearish price movement continues full steam ahead within the bearish channel which still has yet to be breached. The daily chart is showing a strong bearish cross, and the 4 hour chart is also joining to that notion with the Slow Stochastic pointing to the continuation of the bearish movement. Next testing point should be around 1.7400. Going short appears to be preferable today.
Narrow range trading continues as the pair did not make any significant move in either direction. The daily chart is showing signs of a bearish momentum. The Bollinger Bands are tightening and a breach might be imminent to any side. A good strategy might be to wait for the signal and ride the momentum.
The sharp bullish channel on the 4 hour chart continues with no signs of a stop. The Slow Stochastic is showing a triple top formation with a positive slope, which indicates the possible continuation of the trend. Going long appears to be the right move today.
The Wild Card
The bearish move which was initiated last week seems to be galloping full speed ahead. The Slow Stochastic of the hourlies is showing that this commodity still has plenty of steam in this move. Forex traders have a great opportunity to join and enjoy the rest of the bearish momentum.
|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||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|