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Monday, 25 Feb 2008
Existing Home Sales On Tap
The last few weeks have been characterized by Dollar negativity and even despite small gains last week look forward for future downwards pressure on the USD.
A major concern has become the severity of the problems in the US economy and how the Fed can solve such issues to bring some stability to the failing dollar. Last week's data from virtually every economic sector in the US reflected the growing instability in what once was the benchmark of global economies.
The Fed's main intervention has been its monumental cuts in US interest rates, as they have been sliced 225bp over the last 7 months. Today's Existing Home Sales index should give us a good measure of how well it has worked. With lower interest rates, the housing market should expect to see a boost; however expectations have the index down 1.8% to 4.8M. Some felt the rate cuts would spur on new buyers in the market, specifically low income buyers who wouldn't necessarily be looking as hard if it weren't for the combination of low prices and low interest rates.
With the dollar already at dangerously low levels versus the major currencies to start the week, any more negative data will likely drive the dollar to record lows versus the EUR and a handful of others. Remarkably, the greenback has pulled itself out of such holes in the recent past, climbing from record setting lows to the EUR to storm back under 1.45. With the week set to see forecasted drops in Durable goods, GDP, Chicago PMI, personal income and spending as well as what will likely be negative comments from several Fed Governors, the dollar looks set to make a slight bearish push before Fed Chairman Ben Bernanke's Wednesday remarks. Generally Bernanke does enough to reassure dollar investors to push the legendary currency back up to more respectable levels, regardless of the overall negative outlook on today's US economy. Look for a falling dollar before pressure from Commodities prices drives the greenback up before weeks end.
The EUR finds itself in excellent position this week to make historic gains versus all of its major currency rivals, namely the US dollar. EUR/USD begins the week well over 1.48, as we wait what is being forecasted as a strong Euro-zone economic news week. Amidst the deceleration of global economies, the Euro-zone has managed to string together a set of positive data, allowing it to make extra strides versus its most competitive rivals. Last Friday's early release of growing Manufacturing and Service PMI should be enough to push the European currency into bullish trends throughout the week.
Today at 18:50 GMT, we expect a speech by European Central Bank (ECB) President Jean-Claude Trichet, at the New Year's Reception for Asia-Pacific, in Frankfurt. He will more likely than not, map out what we already assume to be a strong week for the EUR. Trichet's hawkish monetary policy has not changed and has allowed a continuation of EUR strength in the currency market. Investors should expect consistent bullish movement from the EUR across the board this week, as no change in policy and or interest rate should be expected in the near future.
This week we will continue to see what is forecasted already as positive data from the retail sector, namely sales and PMI. Unemployment and CPI numbers, followed by the German IFO report will shape the list of significant economic events from the Euro-zone this week. With slowing markets and under achieving US economic data, the bullish EUR will be a force to be reckoned with.
The trading week opened today, with a decrease in the JPY against 15 of the 16 most actively traded currencies. A large part of this is due to the resumption of carry trading due to rising stock prices around the world. Investor returns to higher-yielding assets funded with loans from the Japan restarted itself on Friday of last week. As commodities and stock prices charge upwards, the JPY will should see acceleration in the bearish trend.
The week ahead we expect a set of key Japanese data, a rarity in the often dominating European/American relevance of economic data. Retail Sales, Industrial CPI and Overall Housing spending highlight a busy week for the JPY. Still though, with the rising volatility seen toward the end of last week, expect the JPY to make most of its movement in response to US economic data, as has been the case over the last several weeks.
Today we can expect annual CSPI numbers at roughly 23:50 GMT, though it should contribute significantly to JPY movement, expect the JPY to recover from its bearish opening to the week.
The bullish channel continues with strong momentum as the pair now floats around 1.4828. The slow stochastic on the 4 hour chart is floating around 50 which indicates that the bearish signal is in place. The RSI is forming back into bullish formation and supports the general notion. Next target price might be 1.4883.
The cable is going through choppy sessions within a wide range with no distinct direction in the past two weeks. A fresh bearish signal can be seen on the 4 hour chart, and together with a bearish cross on the daily slow stochastic, the bearish momentum is quite strong. Going short appears to be favorable today.
After a short period of time that the pair peaked at the 108.40 zone, we see that a consolidation in a tight range is the name of the game again. The local momentum within the channel appears to be bearish, and it appears that a touch in the 106.50 zone might be close. Selling on highs might be a good choice today.
The pair is entering a bearish formation on the daily chart as the RSI floats near 50 with a bearish slope. The 4 hour slow stochastic supports the bearish notion and points at an upcoming test of 1.0800, possibly by Wednesday. If that level will be breached we will see a stronger bearish move that might take the pair to the 1.0720 zone.
The Wild Card
Gold is floating at record highs with diminishing momentum as clearly indicated by the daily chart. The 4 hour chart is showing on an upcoming bearish cross which strengthens the notion that a corrective move is quite imminent. This could be a great opportunity for Forex traders to get into a bearish move at record highs.