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Monday, 19 May 2008
Expect New Hights for the EUR.
The USD saw another week of decline vs. its major currency rivals last week, as Friday capped off what had been a slow weekly trading session. Last week produced mixed results for the US economy as improving manufacturing and retail numbers, along with better CPI figures were offset by Friday's Prelim Michigan Confidence.
The greenback experienced bearish behavior on Friday, most notably against the EUR, due to falling Michigan Confidence numbers and record high Oil prices. Concerns over the slowdown of US economic growth have once again picked up steam, as Michigan Confidence showed lows that haven't been seen since the early 1980's. Remarkably the May numbers were affected little to none by US Tax Rebates, which generally boost Michigan confidence. Crude Oil prices continue to rise and break freshly hit record highs, causing even more damage to the US currency. On last Friday the Oil saw record highs of $127.82 per barrel. The EUR/USD pair dropped 100 pips from the opening of last week's market. It will be intriguing to see how investors enter this weeks trading session in terms of confidence toward the US economic outlook.
Looking ahead to this week, it should be a quiet one for the US economy in regards to scheduled news. The bulk of key economic data for the week is expected from the Euro-Zone, Canada and the UK. US news will be highlighted by PPI, The Federal Open Market Committee (FOMC) Meeting Minutes, Unemployment Claims and Friday's publishing of Existing Home Sales. The overall forecast shows negative results for these figures, as we also expect some less than favorable news from the Fed's monetary policy meeting from April. Due to the scarcity of the news from the US, it is likely that the currency will continue its bearish behavior as it will be manipulated by non-US data and rising Oil prices.
Today, the US has two scheduled news events on the economic calendar. Leading Index figures and the TAF Auction held by the Fed are both on tap. These indices should have little contribution to market movement as the Dollar can be expected to see close range trading for the day.
Amidst rising talks of inflation throughout the Euro-Zone, the EUR was able to make gains before the weekend, most notably against the greenback. The oft traded pair is less than a month removed from all-time highs of 1.6019, and though the pair saw significant losses in early may it is slowing recovering. The major pair spent some of May floating slightly over 1.52 on the back of renewed dollar confidence. However, the last 2 weeks of trading have rejuvenated the EUR as it climbed back before market closing just above 1.55.
The Euro-Zone economies have had to adjust to the lofty value of their currency, as it has put a strain on aspects revolving mostly around consumers. European Central Bank (ECB) officials have expressed some concern over inflation due to the budding EUR, though a sharp change from the regularly hawkish monetary policy is still unlikely. Last week, Euro-Zone data was mixed, as the 15-Nation currency floated tightly within most of its trading pairs. On Friday, data from the Euro-Zone was negative highlighted by a 4 billion swing in Trade Balance from 1.6B to -2.4B. These numbers elevated existing concerns of inflation within the region but didn't affect the actual trading session, largely due to poor US data. The EUR responded almost instantly to pour consumer numbers from the US, as it closed out the week in positive territory.
This week the EUR will be at the forefront of the economic calendar. With a wide range of economic sectors due to be covered, the week will be highlighted by German ZEW Economic Sentiment, German Ifo figures, Industrial New Orders, French Consumer Spending, German Manufacturing PMI and Services PMI. With the absence of data from US markets during the majority of the news week, the magnifying glass will be focused on the Euro-Zone data. Expectations show some negativity, but it is likely that the EUR can still pull off a bullish trading week, mainly against the USD.
The JPY saw bearish behavior for most of last week in response to variety of factors. Carry Trades resumed last week as investors borrowed JPY in what was a low volatility trading session. Another contributing factor to the JPY's small drop was a good week from global stock markets. The Japanese currency has gone through a tumultuous couple of months with the absence of an elected economic leader for several weeks, the week long holiday that left it prone to movement based on outside factors and a slowdown in Japan's economy.
Last Friday, the JPY saw gains vs. the USD which pushed the vital USD/JPY below 104 as Consumer Confidence woes from the US effected all of its currency pairs. Last week, Japanese economic data most notably, Core Machinery Orders, Preliminary GDP and Industrial Production returned with mixed results. While the GDP figures saw a boost in the month of April, Industrial Production and Machinery Production saw falling trends in their indices. Still though, as has been the case for quite some time, the JPY moves mostly due to outside news.
This week the JPY has a basket of news events due for release, headlined by the Trade Balance figures, Tertiary Industry Activity Index and a press conference from the Bank of Japan (BoJ). While the first two events should contribute little to JPY movement, the BoJ conference should add to JPY volatility. The conference is the best way for the BoJ to elaborate on monetary policy and future changes.
The range trading on the hourlies is starting to form into a narrowing bullish channel. The pair if approaching the upper level of it, and with the very tight Bollinger Bands, the possible test of the 1.5600 appears to be quite imminent. Traders must pay attention for a possible breach which could create a great buying point for a strong potential bullish momentum.
The bearish flag pattern still remains intact on the daily chart, as the cable now makes a local correction. If the 1.9620 level is not breached we should expect the bearish trend to continue back to the bottom barrier of the flag. Selling on highs might be a good choice today.
The pair has been showing stable bullish movement since the end of March with very few corrective anomalies. The Slow Stochastic of the 4 hour chart is showing a triple top formation with a positive slope, which indicates that the price movement might still be bullish, but is approaching its final stage. Going long with very tight stops might be a good strategy today.
The daily chart is showing that the pair still does not have a distinct direction, as the chart appears to be quite horizontal for the past two weeks. The Bollinger Bands are very tight, and the 4 hour Slow Stochastic is showing a bullish cross. It appears that the possible next move might be a bullish one. In that case traders are advised to swing in after the break.
The Wild Card
There is a very accurate bullish channel forming on the daily chart, as the break through the upper level of it was just validated. Gold now has enough bullish momentum to be carried into the 908.00 zone. This is a great opportunity for forex traders to use this technical break and swing into a high potential bullish move.
|05:30||JPY||Revised Industrial Production||m/m||-2.3%||-2.3%||-|
|09:00||EUR||Italian Trade Balance||0.37B||1.27B||-|
|09:30||GBP||Claimant Count Change||-34.6K||-30.2K||-|
|09:30||GBP||Average Earnings Index||q/q||1.4%||1.8%||-|
|10:00||CHF||ZEW Economic Expectations||19.0||-||-|
|13:00||USD||FOMC Member Stein Speaks||*||*||*|
|13:30||CAD||Foreign Securities Purchases||1.09B||4.57B||-|
|14:15||USD||Capacity Utilization Rate||78.4%||78.8%||-|
|15:00||CAD||BoC Monetary Policy Report||*||*||*|
|15:00||CAD||BoC Rate Statement||*||*||*|
|15:30||USD||Crude Oil Inventories||4.0M||-||-|
|16:15||CAD||BOC Press Conference||*||*||*|
|17:15||USD||Fed Chair Yellen Speaks||*||*||*|