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Thursday, 5 Feb 2009
European and British Rate Cuts Expected Today!
Most currencies, with the exception of a few, have been leveling off lately in anticipation of today's interest rate decisions in Europe and Britain. The European Central Bank (ECB) has been forecast to maintain its current rate of 2.00%, but recent data might prove this forecast inaccurate. Britain, on the other hand, is expected to slash its official bank rate from 1.50% to 1.00% at 12:00 GMT today. These rate cuts will no doubt push the value of their respective currencies to new price levels. Forex traders should be in the market today, building their positions early before the announcement of these decisions, and earning lucrative profits from the aftermath.
USD - The Dollar Spikes Higher Against the Euro-Zone Currency
The U.S currency held gains versus the EUR as it rose1.4% to 1.2848 on Wednesday after a report showed U.S. private sector employment in January fell in line with expectations. Against other major currencies, the USD remained steady, as investors were reluctant to tilt positions too far ahead of key events tomorrow; employment data in the United States and interest rate decisions by central banks in Europe.
However, analysts have said that traders should remain cautious about whether the USD would be able to sustain its gains as the fate of the stimulus plans still remains unclear. The greenback also got a lift against the EUR after news of a downgrade in Russian sovereign debt, which added pressure on the EUR on expectations Russia will be forced to sell EUR to rebalance its currency basket.
The Dollar was also higher against the Yen after a report showed the U.S. service sector in January shrank less severely than expected. The U.S currency gained 0.2% versus the JPY, rising to 89.41. The ISM data followed another report on Wednesday showing U.S. private sector job losses slowed slightly in January, which helped fuel gains in the USD. Economists say that despite the fact that the U.S. service sector has contracted for the 4th consecutive month, the pace of contraction is slowing down. Combined with the slightly positive employment report on Friday, this helps to improve risk appetite, driving the Dollar higher versus the Japanese Yen.
In today's trading, forex traders should focus on a number of important fundamental data coming from both the U.S and the Euro-Zone. We expect that these pairs may become highly volatile as the market awaits the U.S. labor market figures and Interest Rate decisions from the European Central Bank (ECB) and the Bank of England (BoE).
EUR - EUR Falls Broadly on Russian Downgrade
The EUR is trading near a two-month low against the Dollar on speculation the economic slump in Eastern Europe will cause the Euro-Zone's recession to deepen, and markets are worried that Eastern Europe's situation will get worse before it gets better. The EUR was traded at 1.2852, up from 1.2849 late yesterday. It reached 1.2706 on February 2, the lowest level since December 5. The EUR also tumbled against the Dollar and the Yen after Fitch downgraded Russia's long-term foreign and local currency ratings, sparking fears of a steep downturn in Eastern Europe. Against the JPY the European currency may decline further as traders increase bets that the European Central Bank (ECB) will cut Interest Rates further today.
The EUR also weakened yesterday as the European Union's (EU) statistics office in Luxembourg said retail sales fell 1.6% in December from a year earlier. Analysts say that in the Euro-Zone there is still a drip-feed of bad economic news, which is weighing on the EUR and keeping risk sentiment on the back burner. Data released earlier showed deterioration in Europe's dominant services sector, and separate numbers showed Euro-Zone retail sales falling more than expected year-on-year in December. The EUR has also declined 1.6% to 88.76 against the British Pound after a report showed the U.K. services industry contracted less than forecast in January, and U.S. companies cut fewer jobs than previously expected.
Many economists expect, looking at the state of the Euro-Zone economy, another Interest Rate cut by the ECB this week. But even with low inflation expectations, Governing Council members have indicated that the ECB would not follow the U.S. Federal Reserve and the Bank of Japan (BoJ) in cutting rates to zero. With little room to cut Interest Rates, analysts are starting to look what else central banks have in store, especially whether the ECB would start to directly buy corporate debt.
JPY - JPY May Rise to 80 against the Dollar by Mid-Year
The Japanese currency picked up steam again on Wednesday, prompted by a government stimulus package that has provided a boost to market and risk sentiment. The Yen's strength took the EUR down 0.7% to 115.52 Yen, while the Dollar eased 0.2% to 89.05 Yen. It strengthened to 87.13 on Jan. 21, the strongest level since July 1995, after gaining 23% last year as the global financial turmoil spurred investors to buy back into Japan's currency as they unwound carry trades.
Additional Yen appreciation is likely to shrink profits of exporters even further, weigh on share prices, and induce an increase in the repatriation of funds to Japan. According to analysts, this can become the worst-case scenario facing the Japanese government since a strong Yen is the most critical problem for exporters. As exports fall, economies shrink, deepening the recession and pushing the value of the Yen even higher, causing more damage and creating a downward cycle of harmful data for the Japanese economy.
Oil - Crude Oil Declines on U.S. Fuel Inventory Gain
Crude Oil prices settled near $40 a barrel on Wednesday, down slightly after the U.S. stock market fell and a government report showed U.S. oil inventories jumped more than twice the amount previously forecast. Fuel demand during the past four weeks averaged 19.5 million barrels a day, down 2.8% from a year earlier, the Department of Energy report showed. Crude prices dropped after U.S. equities retreated as disappointing earnings at Kraft Foods Inc. and Walt Disney Co. triggered a sell off in consumer shares.
Recently, Crude Oil prices have been firming up because of output constraint by the Organization of Petroleum Exporting Countries (OPEC), and perhaps a further cut by the cartel may not be necessary. Crude Oil has plummeted by more than $100 since hitting a record near $150 a barrel in July last year as the global recession has weighed on demand for fuel. OPEC, worried that the global economic downturn is reducing oil demand and pressuring prices, has promised to reduce oil production by a total of 4.2 million barrels per day from levels seen in September. OPEC's president said on Tuesday the cartel could remove more oil from the market if needed in order to boost prices.
There appears to be a bullish cross forming on the 4-hour chart's Slow Stochastic, indicating an upward correction is expected in the near future. However, almost all other oscillators are stuck in neutral signaling that this pair may be less volatile than expected. Going long with tight stops might be the right strategy today.
Most oscillators are still displaying this pair floating in neutral territory, indicating a lack of direction. The RSI on the 4-hour chart indicates that the price is currently floating in the over-sold territory, however, indicating downward pressure on this pair. Going short with tight stops might be the right choice today.
The pair continues to hold its range-trading pattern with no clear sign of direction. The price sits evenly between the Bollinger Bands on all charts, and continues to float in neutral territory on all oscillators. Waiting for a clearer signal might be the right choice today.
There appears to be a bearish cross forming on the 4-hour chart's Slow Stochastic, signaling an imminent downward correction. The Bollinger Bands on the hourly chart also appear to be tightening, indicating some volatility could take place in the near future. Going short might be the right strategy today.
The Wild Card
The price of this commodity appears to be floating in the over-bought territory on the daily chart's RSI, indicating that a downward correction may take place in the near future. The price is also trading near the upper border of the daily chart's Bollinger Bands, signaling downward pressure. Also, the Bollinger Bands on the 4-hour chart appear to be tightening; forex traders may see some volatility in this commodity later today. Going short might be the wise choice today.
|10:00||EUR||M3 Money Supply||y/y||4.6%||4.9%||5.3%|
|11:00||EUR||Italian Prelim CPI||m/m||0.3%||0.1%||0.2%|
|14:30||USD||Prelim GDP Price Index||q/q||-0.1%||-0.1%||-|
|16:00||USD||Revised UoM Consumer Sentiment||95.9||90.0||-|
|16:00||USD||Revised UoM Inflation Expectations||-||2.5%||-|