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Tuesday, 8 Apr 2008
FOMC Meeting Minutes - on Tap
The USD rose against the EUR yesterday on speculation the Fed is close to ending the biggest series of Interest Rate reductions since 1984. Stability in equity and credit markets raised optimism that the worst of the financial crisis might be over, encouraging investors to buy riskier assets. Yesterday, the U.S. currency advanced 0.3% to 1.5693 vs. the EUR, however later deteriorated and closed trading at 1.5718.
The greenback has been receiving support after the recent stabilization of the financial markets, as seen by Lehman Brothers, UBS and now Washington Mutual having the ability to raise cash, will allow the Fed to refrain from further rate cuts.
While sentiment toward the dollar had improved, worries about the overall health of the U.S. economy continued to cast a shadow over the market, restricting the greenback's gains. The U.S. central bank has reduced the federal funds rate by 3% since September, pumped $628 billion through the financial system, and allowed securities firms to borrow directly from it for the first time since its creation in 1913.
Rate futures are pricing in a roughly 36% chance of a 50 basis points rate cut at the end of this month.
Traders await this Friday's G7 meeting in Washington, D.C. to see if policymakers will agree on a plan to support the dollar because rising exports may be the only blessing of a weak currency in a slowing economy.
As for today's calendar, we expect Pending Home sales to have improved slightly in February to a level of 86.3 from 85.9 in the previous month. We also expect the FOMC Meeting Minutes which will contain detailed record of the committee's interest rate meeting held about two weeks earlier and might shed some light on future monetary policy.
The USD, and US equity markets will most probably sail quiet waters until the release of the FOMC March meeting minutes at 14:00 EDT, which will than might push the greenback further up.
Traders supported the 15-nations currency on possible grounds that the ECB is widely expected to leave its key interest rate on hold without any reduction at 4 %. If the ECB does not reduce the key interest rate as widely forecasted, it will be an additional indicator for the wealth of the EUR-zone economy compared to the US, insuring again that the Euro-zone economy was not that badly affected by the financial crisis in the US markets. However, it seems that the UK economy was badly affected by the US's financial crisis. The Bank of England, which also meets on Thursday, is expected to cut the country's key interest rate by 25 basis points to 5%, trying to avoid a local rescission and to stop the effect of the financial crisis over the Atlantic.
There is no expected important economic Data release in the Euro-zone today. Traders should follow the US's Pending Home Sales report release at 14:00 GMT and the FOMC Meeting Minutes at 18:00 to adopt a wide direction of the EUR/USD today.
The yen decreased against all of the major currencies as a rally in stock markets worldwide encouraged investors to buy higher-yielding assets funded by loans in Japan.
The yen fell 1.2% to 102.67 against the dollar at 12:30 p.m. in New York, from 101.47 on April 4. Japan's currency declined 1% against the euro to 161.30, from 159.69.
Data released in Japan overnight saw the February leading index of economic indicators rise to 50.0 from a revised 36.4 in January while the Coincidence Index improved to 44.4 from 20.0 in January.
The Bank of Japan Rate decision on April 9 will most probably keep its target lending rate unchanged at 0.5%, the lowest among industrialized countries, as economic expansion cools, according to all 41 economists surveyed by Bloomberg News. Traders see a 59% chance the bank will cut the benchmark rate by year-end, according to JPMorgan Chase calculations.
The tight expected monetary policy and few optimistic opinions on the future status of the US equity market will probably take the USD/JPY to a moderate bullish trend as the Japanese economy continues to weaken steadily.
The daily chart is still very bullish as both the slow stochastic and the RSI are floating in mid level of 50. The 4 hour chart is showing a moderate bearish reversal signal, and the 1 hour chart is indicating an imminent bearish trend. Buying on dips with a very tight stop might be a smart strategy.
The cable is testing the key Fibonacci level of 1.9810 and is the middle of a very strong bearish trend. A breach through that level will validate a much stronger bearish trend that might take the pair to the 1.9730 zone. Going short might be the right path today.
The bullish channel continues at full steam, as the 4 hour chart is showing that there is still much steam in the trend. The daily chart is showing a double doji formation with a bearish cross on the slow stochastic which might indicate a moderate corrective move before the bullish trend resumes. Buying on dips might be a great strategy for that pair.
The daily chart is showing that the pair has been range trading with no distinct direction for a while now. The 4 hour chart is showing no clear signals as the RSI and the slow stochastic are floating on neutral territory. Traders are advised to wait for a clear signal before entering the market.
The Wild Card
There is a very distinct bullish channel forming on the 4 hour chart as gold now floats on the bottom barrier of it. It appears that if a significant breach through the 919.00 will not occur, the bullish channel will resume at full steam. This is a great opportunity for forex traders to swing into the bullish trend at a great entry price.
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|