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Thursday, 6 Mar 2008
European Interest Rate Announcement on Tap
The greenback continued to experience losses yesterday, as the US currency could not rebound even amidst positive economic data. The release of surprisingly positive ISM service sector data had some investors convinced that the dollar would rise; instead it floated dangerously low versus a basket of major currencies. Most notably, was another record low versus the EUR as the major pair hit the 1.53 key level, spurring investors into even more aggressive bearish behavior regarding the dollar.
ISM Non-Manufacturing Composite and Activity data is a measure of the activity within the service sector of the US. Though yesterday's figures did produce positive results, (composite data rose to 49.3 from 44.6 and activity data from 41.9 to 50.8) traders learned quickly that the harsh truth is that the overall economic outlook in the US is poor and recession is inevitable. The manufacturing and service sectors as a whole have suffered from the credit crisis in the US, experiencing one of the smallest consumption periods for some time. Unemployment is rising and can only hurt the already ailing economy. This should be a sign as to the direction of the dollar ahead of Friday's Non-Farm Payrolls, which is one of the more important figures to be released on the US calendar.
Today, as we prepare for tomorrow's end of week news events, we will have a relatively quiet news day from the US. Unemployment Claims and Pending New Home Sales are the only significant events on the schedule, and will likely not be enough to reverse the bearish trend of the greenback, assuming the figures return on a positive note. The assumption according to historical evidence is that we should expect a big loss in the Non-Farm payroll tomorrow, as it has had similar results to ISM figures released in the past. Investors should look for more drops in the dollar price as there does not seem to be anything that prevents the detrimental fall of the greenback.
The EUR had a fabulous day of trading yesterday, as anyone focused on bullish EUR trends was successful. The 15-Nation currency hit record highs versus the dollar and used that momentum to do so against the GBP as well. Mentioned earlier, the EUR touched the 1.53 level versus the greenback and then climbed to an all-time high against the sterling at just above 0.7685. This activity came mainly as a result of PMI and retail sales figures returning better than initially forecasted. German PMI, which measures the activity level of purchasing managers in the manufacturing sector, came back at 52.2 up from its previous mark of 49.2 as retail sales rose by 0.4%.
Yesterday's events all but solidified the ECB's hawkish monetary policy, as many believe that ECB President Trichet will do nothing regarding the interest rate. The biggest issue facing the Central Bank is controlling the rising inflationary pressures brought on mostly by rising global food and oil prices. As we await words from Trichet tomorrow , expect the market to react positively regarding the EUR.
Apart from the expected interest rate statement and Trichet's speech, we will see French Budget Balance released today, as it should not contribute to any real market movement.
Investors in the EUR should look for another day of gains, as the major currencies competing against the Euro-zone currency are currently involved in a swing of negative data.
In direct response to a boost in stocks on Wall Street, the JPY successfully gained against a basket of its crosses yesterday. The JPY has been the beneficiary of dollar woes lately, however now it is beginning to take its toll on the Japanese business sector. A large group of Japanese businesses are now losing significant profit due to low USD prices against the Yen. A major source of the Japanese income comes from import/export relationships with the US. Low dollar prices have forced Non-US manufacturers to lower prices in order to facilitate the needs of the worlds biggest consumer market.
Yesterday saw no news from the Japanese economy, as the currency moved according to world news events. Amongst, the big currencies, only the EUR has performed with real consistency lately, however the Yen is slowly showing its rejuvenation as investors expect Japanese growth to continue throughout 2008.
Today we are slated to see the release of Leading Index and Machine Tool Orders. The two are not expected to contribute much to the movement of JPY, as most JPY enthusiasts will stay tuned to stock prices and EUR and USD news.
As we await words from BoJ Governor Fukui on Friday regarding the outlook of the Japanese economy, expect the JPY to range trade throughout the day.
The pair breached the 1.5300level which validated the next bullish move, as we now see a consolidation around that Fibonacci level. the pair is moving strongly with the trend although we might see a moderate bearish correction today.
The 4 hour chart indicates that the bearish trend has not yet said its last word. the slow stochastic is showing a classic positive slope structure which indicates upcoming incresing momentum. The daily chart shows an incresing direction, as no clear reversal cross is in sight.
After the familiar tight range we saw the pair trading in, it continues with an uncertain trend. We might see a correction upwards today.
Due to no significant signal, JPY traders may look to the interesting candle formation on the weakly chart which may be signally a reversal.
There is a very interesting cross on the daily slow stochastic chart which might indicate an upcoming move. However we are still in a bullish momentum. It appears that going long would be preferable today.
The Wild Card
After spiking to the very impressive $104 level, it seems that Oil is the center of Forex trader's focus today. The inability to breach that level violenty, together with many bearish indications by various oscillators is strengthening the notion that a sharp correction move is quite imminent. Going short with tight stops and limits might contain high profit potential.
|16:00||GBP||NIESR GDP Estimate||0.5%||-||0.5%|
|16:30||USD||Crude Oil Inventories||4.0M||2.2M||3.1M|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||54%||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||3.3%||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|
|07:00||JPY||BoJ Monthly Report||-||-||-|
|07:00||JPY||Economy Watchers Sentiment||49.3||48.6||-|
|08:00||EUR||German Trade Balance||22.8B||20.2B||-|
|13:00||GBP||MPC Official Bank Rate Votes||1-0-8||1-0-8||-|
|13:00||GBP||Monetary Policy Statement||-||-||-|
|13:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|13:00||GBP||Asset Purchase Facility||375B||375B||-|
|13:00||GBP||MPC Asset Purchase Facility Votes||0-0-9||0-0-9||-|
|13:30||EUR||ECB Monthly Bulletin||-||-||-|