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Thursday, 4 Dec 2008
European and British Interest Rate Cuts Expected Today!
As world economies report negative economic data again and again, central banks are looking at what policy tools can be initiated to stymie the recent downward trends. Today, one such tool is expected to be used. The Bank of England and the European Central Bank are both forecast to slash Interest Rates around 12:00 and 12:45 GMT, respectively. Hopefully this move will be enough to generate consumer confidence throughout Europe in order to revive its struggling economies.
USD - Ongoing Drop in U.S. Employment Condition
The greenback is keeping its relatively high rates against the major currencies despite a sequence of negative data. The EUR/USD is mostly traded around the 1.2700 levels and the USD/JPY is testing the 92.00 level.
Even extremely concerning data regarding the employment situation in the U.S failed to drop the USD. The Automatic Data Processing (ADP) organization published its Non-Farm Employment Change forecast yesterday. The figure released predicts that an additional 250,000 individuals will have filed for unemployment for the first time in the U.S during the month of November. In normal times, such a result would have had a devastating effect on the Dollar; however, now investors seem to be oblivious. It should also be taken under consideration that in October alone 240K people lost their jobs and the continuation of these results is a clear sign that the U.S economy is far from pulling out of this recession. It may even be extending its poor outlook on a daily basis.
Also yesterday, the Institute for Supply Management published that the Purchasing Manager's Index has dropped to 37.3 points, making it the fourth drop in a row since August.
As for today, the leading U.S. data will be Unemployment Claims. The survey is expected to claim that 540K individuals have filed for unemployment insurance for the first time during the past week. Such a result will be a direct continuation of the recent troublesome figures delivered lately from the U.S. economy and is threatening to hurt the USD. Traders should keep notice of the developments in the Euro-zone as well since an interest rate cut is expected. This will probably have the biggest impact on the leading currencies.
EUR - European Markets Calm before the Storm
The EUR had a peaceful trading day yesterday; what may be called the calm before the storm. The EUR is currently still trading near its lowest level in two years against the Dollar. Today's rate cuts may break this trend, however, or push the pair even lower.
Yesterday's data from the Euro-Zone included the European Retail Sales for October which dropped by 0.8%, as opposed to September. Also yesterday, the Final Services Purchasing Manager's Index was published at 45.8 points, failing to reach expectations of 46.9. The recent economic indicators from the Euro-Zone are painting quite a gloomy image, as over and over they prove that their economies are indeed contracting and, therefore, additional rescuing steps will be required from the Euro-Zone leaders.
Looking ahead to today, a real hustle is expected, as a round of interest rates cut is expected to take place. After Australia and New Zealand cut interest rates, the Bank of England and the European Central Bank (ECB) are widely expected to announce the level of cuts in their interest rates. We have reached the point where the question is not whether there will be an interest rate cut, but rather how big it will be. The ECB is expected to cut interest rates from 3.25% to 2.75%, and to try and elevate the economy by every means possible. The immediate reaction for such announcements is usually a large depreciation in the local currency, meaning a drop for the EUR, but the overall impact may in fact strengthen the European currencies in the long run. Traders should focus their attention on trading at 12:45 GMT, as this is expected to be the highlight of the week for forex traders.
JPY - Bullish Breach Expected for the JPY
The JPY continued its volatile behavior yesterday as it mainly fluctuated against the major currencies. Currently it seems that the JPY is well valued as no significant breach has been made for quite some time. However, the series of worldwide interest rates cut expected today and throughout the following week may put an end to the delicate balance of the JPY.
As known, the Bank of Japan is the only central bank in the western world that avoided cutting interest rates in December. This did not happened because Japan is flourishing and does not feel that an interest rates cut is necessary, but merely because its interest rate is too low (0.30%) to engage in such a cut.
As a result, unless unexpected changes will occur, the JPY seems on its way to embark on a bullish voyage any day now. Traders should pay great attention to world wide developments and wait for the bullish signs of the JPY, as this might be an opportunity to make nice profits.
Oil - The Price for a Barrel of Crude Oil Drops beneath $46
Crude Oil prices have continued to fall since the beginning of the week, and have now dropped beneath $46 a barrel. It was recently reported that fuel demand in the U.S. has dropped 7.9% further than this same time period last year, causing the psychological wheels to turn faster and faster. The price of $40 a barrel, which was just recently predicted by ForexYard analysts, seems closer than ever.
U.S. Crude Oil Inventories have dropped by 0.4M barrels in the past week; however, it failed to support Oil prices as the bearish trend seems to be the strongest in the market at the moment. According to expectations that the USD will grow stronger as a result of the Euro-Zone's interest rates cut, Crude Oil prices might finish this week touching the price level of $40 a barrel.
After a few days of mixed results, it seems that the pair has consolidated around the 1.2650 level. However, currently the 1-hour chart is providing exclusive bearish signals, with its Slow Stochastic already pointing down. In the nearest time frame, traders may indeed join this bearish trend.
The bearish trend continues with plenty of steam as the pair now floats around 1.4700 level. Hourly chart's Slow Stochastic is negatively sloped indicating that there is still more room to run for this trend. 1.4650 might indeed be the next target price. Going short with tight stops seems like the right choice today.
This pair is in the middle of a very intensive downtrend that was initiated 3 ago and it still shows great momentum that on a bigger scale appears to have more room to run. In the shorter time frame there might be a minor bullish correction, before the bearish move resumes. Selling on highs appears to be preferable today.
This pair is in the midst of a strong uptrend however it is slowly appearing to be leveling out. The hourlies are showing mixed signals. However, on the 4 hour chart a bearish correction has already taken place, while the dailies are showing that there is still some more room for the uptrend. Traders advised to wait for a clearer signal on the hourlies before entering the market.
The Wild Card
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The Slow Stochastic flows high supporting the notion that there is still room to run for this trend. In the shorter time frame there is a bullish cross forming on the hourleis indicates that 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.
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