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Monday, 17 Nov 2008
G20 Summit Strengthens USD; Ensures Free-Market Capitalism
The Group of 20 leaders from major developed and emerging economies had pledged on their meeting on Saturday short-term measures such as fiscal stimulus in order to try to keep the global economy from falling into a deep slump and promised to look at ways to tighten regulations to prevent future crises.
USD - Watch For Release of the Empire State Manufacturing Index Today
Opening this week's trading session with relatively positive news, the USD appears to be regaining its strength after last week's negative economic data. Climbing over 100 points against the EUR in today's early trading session, as well as continuing its steady rise against the Swiss Franc, the Dollar has gained some surprising momentum given recent economic news from the United States. The USD in fact sits just below 1.2600 against the EUR, steadily increasing its momentum.
Over the weekend, G20 leaders met in Washington D.C. to discuss the recent economic crisis. The event may well be the last of its kind for the Bush administration before stepping down to the incoming administration of Barack Obama.
Many of the smaller members of the G20 left the summit with feelings of doubt, however, as an agreement to continue free-market capitalism was the only agreed upon conclusion stemming from this meeting. Brazilian President Luiz Inácio Lula da Silva called on the larger members not just to lend money as a band-aid to financial troubles, but to continue with policies which bolster growth and increase trade as a healthier solution to the recent economic crisis.
Looking ahead, traders will see the release of important manufacturing and production data from the US later today, beginning with the Empire State Manufacturing Index. Throughout the week investors will also see the release of many primary economic indicators such as PPI, CPI, Building Permits, TIC Long-Term Purchases, and Unemployment Claims. The USD is set for a volatile week as most of this data is forecasted to be worse than their previous releases meaning traders may see a reversal to the USD's strength starting early this week.
EUR - EUR Weakness Could Result in Further Interest Rate Cuts
Slow getting out of the gate today, the EUR continues to struggle with the recent financial crisis. Opening today's trading with downward trends against most of its currency counterparts means that the Euro-Zone has yet to find solid ground. The EUR lost over 100 points to the US Dollar, 20 points to the Pound, and 80 points to the Franc, all of which highlights the growing weakness of the 15-nation currency. The EUR now floats near the 1.2600 level against the USD and doesn't appear to be changing direction anytime soon.
With the G20 summit's conclusion this weekend, the Euro-Zone looks to its largest economies, France and Germany, for an indication of future growth policy. However, both countries appear to be heading deeper into recession. With a suggestion to lower interest rates further and provide other financial stimulus to the global economy, the G20 summit put the spotlight on those countries which have been poisoning the international economy from the top-down throughout this crisis. The negative production data and recent economic contraction in the Euro-Zone's largest economies has indeed been felt throughout Europe.
The situation does not appear to be improving this week either. The Euro-Zone is set for one of its quietest news weeks in some time as only a small handful of non-influential data is scheduled to be released throughout this week. Investors should, however, pay attention to two speeches to be delivered by ECB President Jean-Claude Trichet on Tuesday and Friday as they tend to generate market volatility. It appears the US Dollar will be the influential currency this week; traders would be wise to follow its movement.
JPY - Japan Enters Recession; JPY Beginning to Lose Strength
Despite a small rise in the value of the JPY during early trading, Japan's economy appears to be under immense pressure lately and the JPY has now descended to 97.50 against the USD. The declaration that Japan is indeed entering its first recession since 2001 came as a surprise to economic analysts as many were forecasting a small expansion this past quarter. When growth was not forthcoming, it became apparent to the Bank of Japan (BoJ) that further financial stimulus, and possibly another interest rate cut, could be in the works.
Because of a decrease in exports and the global economic deceleration, analysts are forecasting Japan's economy to continue its contraction to dangerous limits. Lower demand for Japanese goods will further weaken the Japanese economy and the JPY could suffer as a result. Traders, however, should pay closer attention to the movement of the USD as it is positioned to be the primary market mover this week, especially since there is very little news emanating from the Japanese economy in the next few days.
Oil - Crude Oil Price Maintains Downward Momentum
With the economic slowdown in full swing, the price of Crude Oil has seen its lowest price in almost 2 years! The decrease in demand for energy has the price of this valuable commodity on a steady downward slope. Currently sitting near the price of $56 per barrel, Crude Oil prices are appearing to potentially level off this week, especially if the value of the USD receives negative news powerful enough to send its value lower.
The US Crude Oil inventories figure is set to be released later this week, but this indicator will not tell investors too much about the state of Oil supply as this factor plays less of a role lately than the value of the USD. As the International Energy Agency (IEA) cut its prediction for global Oil consumption recently, hedge fund managers began going short on their Crude Oil positions. This negative price speculation will likely result in a continuation of Oil's bearish movement throughout the week, given the value of the USD remains strong.
The pair is continuing to provide mixed results, and is now trading around the 1.25 level. The hourly chart demonstrates a flat line ever since yesterday. The daily Slow Stochastic is showing no crosses, which indicate that the bearish trend may continue. Going short appears to be preferable today.
The typical range trading on the 4 hour chart continues. Both the hourly RSI and Slow Stochastic are floating in neutral territory. However, the daily chart's RSI is already floating in the oversold territory. It appears that the possible next move might be a bullish one. In that case traders are advised to swing in after the breach.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The daily chart is showing that the pair is still in the bullish configuration; however, the RSI is already floating in the overbought territory. On the contrary, there is a bearish cross on the hourly chart's Slow Stochastic. It appears that the possible next move might be a bearish one. In that case traders are advised to swing in after the breach takes place.
The Wild Card
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The RSI flows high supporting the notion that there is still room to run for this trend. However, the 4 hour chart's Slow Stochastic is about to enter an oversold territory, indicating that there might be a minor bullish correction before a broader bearish move resumes. Forex traders can maximize profits by selling on highs and taking advantage of a general bearish trend.
|22:30||AUD||AIG Construction Index||54.4||*||-|
|07:45||EUR||French Gov Budget Balance||-80.8B||-||-|
|07:45||EUR||French Trade Balance||-5.8B||-5.1B||-|
|08:00||CHF||Foreign Currency Reserves||434.7B||*||-|
|09:30||GBP||Consumer Inflation Expectations||3.2%||-||-|
|11:00||EUR||German Factory Orders||m/m||3.3%||-0.4%||-|
|13:30||USD||Non-Farm Employment Change||204K||180K||-|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:55||USD||Prelim UoM Consumer Sentiment||75.1||76.2||-|
|14:55||USD||Prelim UoM Inflation Expectations||2.9%||-||-|
|20:00||USD||FOMC Member Evans Speaks||*||*||*|