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Tuesday, 12 Feb 2008
Greenback Not Worried by Poor US Data.
In spite of last week's disappointing US economic calendar, with most of its indicators printing much worse than expected, the greenback is behaving as if there were no fundamental data at all. Through the last week, the USD gained 300 points in a near vertical fashion as market sentiment changed completely from focusing on US economic woes to worrying about the slowdown in the rest of the world.
The string of negative data from the US markets leaves little doubt that the Fed will probably continue to lower its interest rates, perhaps to 2% by the middle of this year.
The U.S. economy has benefited substantially from increased trade and from the rapid growth of exports. Changes in terms of trade associated with recent exchange rate trends made American goods cheaper relative to those of some other countries. But the overall U.S. Economic growth in the fourth quarter of 2007 slowed to a 0.6% annualized pace, and U.S. employers cut jobs in January for the first time in four years, raising concern about a possible recession. Indeed, President George W. Bush's administration predicted U.S. economic growth will weaken in the first half of 2008 and accelerate later this year, buoyed by exports and tax rebates.
Today, for the second consecutive day, there is no economic data expected to come out of the US markets. It's most likely that the greenback will perform solidly today against the majors.
As for the rest of the week, the fundamental data could play a much more critical role as traders will get a look at Retail Sales, Trade Balance and TICS. Federal Reserve Board Chairman Ben S. Bernanke is scheduled to testify Feb. 14th on the condition of the economy and financial markets to the Senate Banking Committee.
Over the weekend, ECB President Jean-Claude Trichet attempted to refocus markets on Euro zone inflation, however market skepticism continued as a string of weak economic data hurt the EUR. Steep declines within the service sector were one of the main catalysts behind the bearish trend of the 15- nation currency.
It was the first time in 2008 that the market saw credible evidence that the EZ economy is not immune to the US slowdown and that an interest rate cut within the near future is unavoidable.
Lately, the Forex market has reflected that leading economies cannot tolerate a weaker greenback, as it is noticeable that in spite of negative figures from the US economy the greenback is strengthening. This behavior is indication that the weakness of the Euro zone economy is legitimate and should continue to reduce EUR value.
Traders should pay attention to the fact that the Euro zone's building price pressures are hurting consumer income and piercing profit margins for businesses, as this is only the beginning of what could be even more detrimental losses. The European Commission's flash estimate for January CPI surprisingly rose to a 14 year high of 3.2%, which puts the European Central Bank into a tight corner and stifles their ability to maneuver regarding monetary policy.
Today, the German ZEW survey is due to be released as well as Euro zone Investor Sentiment, which is anticipated to deteriorate even more, as another fall for the ninth straight month is expected. The figure is forecasted at -45.0, the lowest number in almost 15 years.
Forex traders are expecting the Euro zone GDP on Thursday, which will hold as a good measure of the negative impact being experienced as a result of the US slowdown. GDP data is forecasted at 0.4%, down from the last figure of 0.8%, as the market already expects more lethargic growth. If however, the data comes back with on the upside, some of the major concerns facing the EUR could slowly fade away.
General market unease helped the JPY continue to benefit from heightened global risk aversion, edging higher yesterday against the USD at 106.30.
Last weekends' Group of Seven Industrialized Nations meeting in Tokyo offered little news for foreign exchange markets.
Finance leaders' focus on the crumbling U.S. housing market and its impact on world economic conditions and bank lending added to risk aversion, thus helping the JPY.
Today, will be very light on market moving news from Japanese markets with only CGPI and Current Account due to be released at 23:50 GMT.
The CGPI, Corporate Goods Price Index, measures the rate of inflation experienced by corporations when purchasing goods. The Current Account measures the quarterly difference in value between imported and exported goods, services, income flows and unilateral transfers.
Both of the indices are not considered to be market movers.
Today, the USD/JPY still remains vulnerable to risk aversion sell-offs.
The JPY should continue to range trade at current levels and may even retreat slightly.
The week ahead will feature several key pieces of data from Japan, including January consumer confidence,Q4 GDP, industrial capacity and more importantly, the Bank of Japan monetary policy decision. Also, the BoJ will release its February monthly report.
The pair is in the middle of a corrective move which seems to have some more steam in it. The slow stochastic and RSI are floating around 50 in the 4 hour chart. The break beyond the 1.4500 was validated which indicates that the next target price might be 1.4590.
The daily chart indicates on a strong bullish reversal after a very long and consistent downtrend. The bullish cross on the daily slow stochastic together with positive slope of the 4 hour chart, indicates that the cable might be testing 1.9700 quite shortly.
The pair marked more than a month of a very tight range trading with no significant breaks. The Bollinger bands are tightening on the daily chart which indicates that a break is quite imminent. The positive slope on the daily slow stochastic indicates that the break might very much occur on the bullish side, with a target price of 108.50.
The corrective move which was initiated in 1.0760 is losing momentum. The 4 hour chart is showing that there is little room left for the move, and the daily chart is showing its first signs of a reversal. A preferred strategy might be to wait for a clear bearish signal before entering the market.
The Wild Card
The sharp bullish move that can be seen on the 4 hour chart indicates that the positive momentum is back with regenerated energy. All oscillators are supporting the bullish notion and forex traders can enjoy the regeneration of oil's ongoing journey to the 100$ level.
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|