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Wednesday, 21 May 2008
FOMC Meeting Minutes On Tap.
Yesterday the greenback underwent coherent bearish trends against most of its major counterparts. The EUR\USD went up to 1.5674, the GBP\USD rose to 1.9717, and the USD\JPY fell down to 103.61.
The day began with some concerning news for the USD, after the Producer Price Index was published. The index came at 0.2% mark, lower than the expected 0.4%, and increased the worries from the rising inflation in the U.S. such a result suggests that local producers might pass through some of these increases to the retail level, especially considering the rising Oil prices. The Crude Oil reached another all time record, getting close to $130 per barrel. The Light Crude was trade at $129.46 in New York markets for delivers in June despite promises from Saudi Arabia to pump 300K barrels extra per day.
Also yesterday, Fed Vice Chairman Kohn gave a speech. In his speech Kohn pointed out that low Interest Rates are not the main reason behind the rising commodities prices in the U.S. markets. He also mentioned that he expects the U.S. economy to begin a slow recovery in the second half of the year, followed by a descending inflation threat.
Today, Fed Governor Warsh will deliver a speech in Washington D.C, in which he's expected to discuss Fed's role in manipulating Interest Rates. An hour later, the Federal Open Market Committee Meeting Minutes (FOMC) is scheduled. The Minutes provide detailed insights regarding the FOMC stance on monetary policy.
Trader's main focus for today should be the FOMC meeting which is expected to determine today's USD trend. Traders should pay attention for clues regarding future Interest Rate shifts. Traders should also closely follow the Crude Oil prices, which also have a broad impact over the U.S. currency.
Yesterday, the Euro recovered from losses it suffered on Monday against the Dollar, as the oft traded pair once again topped above 1.56. The EUR saw gains, amidst a mixed day of news events from the Euro-Zone. At the beginning of the trading day the EUR was helped by German PPI for April which grew 0.5% since last quarter. The rally however didn't last very long as the publishing of German ZEW Economic Sentiment fell to -41.4% from -40.7% due in large part to rising food prices and the prices of Crude Oil. After the release of the ZEW results for May the Euro fell from $1.5607 to 1.5563, but hawkish comments from the ZEW President Wolfgang Franz, that the European Central Bank (ECB) will increase interest rates in the coming months to combat inflation, helped revive bullish EUR trends as the EUR/USD jumped to 1.5652. Also contributing to the second bump in EUR were positive ZEW numbers for the whole of the Euro-Zone.
The ECB has kept with its hawkish monetary policy, even as it deals with rising inflationary scares. After yesterday's economic data, most notably PPI figures, and the ZEW Presidents comments, a EUR interest rate cut is unlikely to happen soon.
On tap today from the Euro-Zone, we will see German IFO Business Conditions figures. These numbers could prove to be crucial in determining both the overall outlook of the Euro-Zone economy, as well as the direction of EUR pairs. As the biggest EZ economy, German numbers normally serve as a precursor to news from the whole of Europe. If the results are within expectations this will could likely trigger the Euro to continue its rally against the USD.
Yesterday the JPY continued its volatile movement against the USD and the EUR, showing little response to the fundamental data from the local markets. Record Oil prices served as a drag on Asian stock markets, further supporting the JPY. USD/JPY drifted lower throughout the morning trading session finally consolidating around the 103.50 level. The JPY upside momentum accelerated after USD/JPY stops were triggered below 103.50, sending the pair all the way down to 103.20.
In a speech yesterday, Bank of Japan Governor Shirakawa, elaborated that he based his rate decision on the alarming rise in global inflation and the downside risk to the world economy. The BoJ's Governor warned also about a possible economic slowdown in Japan, as result of the increase in Crude Oil prices and raw material costs. These issues are hurting Japanese consumers, and squeezing the profit growth of most of corporate Japan.
Even within the current state of the world market the BoJ has made it clear that they are aware of inflation and downside risk and that they are prepared to deal with it, and shift policy appropriately if needed.
On tap today, we expect another volatile day for the JPY, due mostly to outside news events. From Japan, the only scheduled news will be the Industry Activity Index, and the Trade balance.
The pair is still trading within its wide range with no specific direction.
However, after a short bullish correction the pair now seems to resumes the bearish move, according to a 4h. chart. The attempt to breach the 1.5700 level has failed yesterday and now all oscillators are showing fresh bearish momentum. Going short with very tight stops might be the right thing to do today.
After a recent bullish correction, the Slow Stochastic of the 4 hour chart is showing a negative slope which indicates that the pair might resume another bearish move. The hourlies are showing mixed signals, and the daily chart is dwelling in neutral territory with the RSI floating on the 50 level. Traders are advised to wait for a clear signal before entering short positions.
According to the hourlies, the downtrend the pair is going through seems to be very strong and the daily chart validates that there is still room to run. The daily chart is confirming that the momentum down is still quite strong and that 108.80 is the next valid target. Selling on highs might be preferable today.
The hourlies show that the pair is in a bearish configuration as volatility is increasing. However according to the daily chart, the USD/CHF moves without a clear trend and swings around Relative Strength Index (RSI) 50 implying the continuation of the larger bearish trend. The target is expected to touch in and around the 1.0200 level.
The Wild Card
Oil has been showing a very impressive bullish trend in the past two week, breaking all times on a daily basis. All oscillators are showing the continuation of the strong bullish trend. Forex traders have a great opportunity to join the bullish ride in its peak momentum, and entering a long position with high profit potential.
|22:45||NZD||Overseas Trade Index||q/q||1.3%||-2.5%||-|
|23:30||AUD||AIG Manufacturing Index||50.2||-||-|
|USD||Total Vehicle Sales||18.2M||18.0M||-|
|02:35||JPY||Final Manufacturing PMI||52.8||52.8||-|
|04:30||AUD||RBA Rate Statement||-||-||-|
|04:45||JPY||10-y Bond Auction||0.32|2.8||-||-|
|08:00||GBP||Bank Stress Test Results||-||-||-|
|08:00||GBP||BoE Financial Stability Report||-||-||-|
|09:15||EUR||Spanish Manufacturing PMI||51.3||51.9||-|
|09:45||EUR||Italian Manufacturing PMI||54.1||54.3||-|