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Monday, 30 Mar 2009
Greenback Rallies on Speculation the ECB will cut Rates to Its Lowest.
The Dollar rose 0.2% against the EUR as weaker than expected Euro-Zone industrial orders and German inflation data undermined recent investor confidence and favored the safe haven greenback. The ECB is pressured to follow the Federal Reserve in buying bonds to lower Interest Rates, a policy known as quantitative easing. Along expectations that it will cut its main policy Rate by half a percentage point to a new record low of 1%, the market is keen to see how far it might follow other central banks such as the Fed in taking unconventional steps to shore up the economy
USD - Could the Dollar Continue Its Bullish Trend?
Last week gave some extraordinary opportunities for Forex traders to make profits from going long on the U.S Dollar. The two leading fronts on which the USD marked unique gains are against the EUR and the GBP.
It appears that the USD saw this bullish trend as a result of some unexpected positive news, especially regarding the housing sector. Last week, both the Existing Home Sales, and the New Home Sales, delivered better than expected figures, reflecting in 4.72M residential buildings that were sold during February, and in 337K new single-family homes that were sold during February as well. This data came as a big surprise, as analysts had quite gloomy predictions for the two reports, and therefore turned a very strong uptrend for the Dollar. In addition, as you all must remember, this entire recession began as a result of a deep crisis in the U.S home sector, and now a series of positive result from that sector has managed to elevate the USD so rapidly. Another positive data which came last week were the Durable Goods Orders indices which delivered both much better than expected figures. Whilst analysts anticipated negative growth in the total value of new purchased orders for durable goods during February, the real figures showed almost 4.0% growths.
As for the week ahead, two major events will most likely determine the Dollar's direction for the upcoming week. The first will be the Pending Home Sales which is currently expected to continue to positive line of the housing sector; however a surprising negative result could create some worries among investors regarding the U.S economy. The second major news event will of course be the Non-Farm Employment Change, expected on Friday, 12:30 GMT. as proven many times before, investors are putting a lot of faith in the credibility of this survey, and as such react immediately to its results.
Traders are advised to follow those two leading economic indicators as they are likely to set the tone for the USD trading this week.
EUR - Would the ECB Cut Interest Rates to 1.00% Later On This Week?
An extremely volatile week, which included many ups and downs, concluded with a deep drop for the EUR. The EUR/USD dropped to almost 1.32, and the EUR/JPY fell below 129.50.
The first reason for the EUR drop was the strengthening Dollar, which rose against the EUR as well. The second and even greater reason was the unwillingness of the European Central Bank (ECB) to create a rescue plan for the European Nation, which could somehow imitate the American plan. Investors are now seeing the U.S economy as a dynamic, flexible economy, in which its leaders are doing all they can in order to salvage the situation while they can. On the other hand, the European monetary system is beginning to be seen as a conservative organization, which is reluctant to react to the rapidly changing conditions of the global economy. Investors are thirsty for a European rescue plan, and if one shall arrive, it will probably signal an uptrend for the European currency.
As for this week, the ECB will announce the new Minimum Bid Rate on Thursday, and is widely expected to cut Interest Rates by 0.5% to merely 1.00%. Some might say that this move is too little, too late, as the U.S, Japan and Great Britain have all lowered their Rates below 1.00%, without succeeding in making a real change in their economies. Nevertheless, if indeed the ECB will decide to cut Interest Rates, an immediate reaction of a drop in EUR value is expected.
Forex traders are also advised to follow Jean-Claude Trichet's speech on Monday, as he may discuss the possibility of cutting Interest Rates. Such comments could have massive influence on the market.
JPY - The JPY Looks to Halt Its Bullish Momentum
Over the last trading week the JPY saw rising trends against the EUR and the GBP, and experienced mixed results vs. the USD. The JPY underwent it most remarkable bullish trend against the EUR, as the EUR/JPY dropped to the 129.40 level.
Last week the Japanese Trade Balance showed a difference of -0.04T between exported to imported goods during February. Although this is a negative figure, it was much better than the -0.29T which was expected. This indicator has an immense impact on the Japanese economy as it relies greatly on its export activity. Also last week, the Tokyo Core Consumer Price Index, which measures the change in price of goods and services, rose by 0.4% in March, also indicating that the Japanese economy is on the phase of expanding, and not contracting.
As for the week ahead, most of the impacting data will be delivered from the Euro-Zone and the U.S economy. Nevertheless, traders should follow the Tankan Indices, which are expected on Tuesday night. These surveys cover a wide range of the local manufacturers, and thus have a large impact on the Yen. Analysts forecast extremely negative figures for the indices, and such result might generate a bearish trend for the JPY.
OIL - Will Crude Oil Reaches Below $50 a barrel?
Crude Oil prices has dropped dramatically just before the weekend. After peaking at over $54 a barrel, Crude Oil is currently traded for $51.50 a barrel. Crude Oil prices fell predominantly as a result of the surging Dollar. Crude Oil is priced in Dollars, and as such, a rising trend for the USD tends to have to opposite affect on Crude Oil.
Another data that helped to lower Oil prices was the U.S Crude Oil Inventories indicator from Wednesday, which came higher-than-expected, reflecting 3.3M additional barrels of Crude Oil held in inventory by commercial firms from the previous week. The combination of high supply and strong Dollar are a simple formula for dropping Crude Oil prices.
As for this week, traders should follow global economic news, especially from the U.S, as they are likely to determine Oil prices. Traders are advised to keep notice that for as long as the USD continues to appreciate, Crude Oil prices might continue to decline, as low as $50 a barrel!
The 4 hour chart is showing that the pair is still floating within its bearish channel. However, the RSI on the daily has crossed the 30 line, indicating that the market is oversold. The Slow Stochastic on the 4 hour chart is also showing a fresh bullish cross, suggesting that a bullish trend might take place. Going long with tight stops appears to be preferable.
The bearish trend continues with plenty of steam as the pair now floats around 1.4210. The RSI of the hourly charts indicates that there is still more room to run. The next target price might be 1.4143. Going short with tight stops seems like the right choice today.
The 4 hour chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, the Daily Chart's RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. Going short with tight stops appears to be preferable strategy.
There is a very distinct bullish formation continues on the hourly level, as the pair is now floating in its lower section. In addition, all oscillators on the daily chart are pointing up, suggesting that the bullish move might extend. Going long might be the right strategy today.
The Wild Card
This commodity has been on a sharp sinking movement over the weekend and this bearish correction is likely to stick around in the near future. All charts are still providing a mild bearish signal; however, there may be short-term corrections during this downtrend. Therefore, forex traders can maximize profits by selling on highs and taking advantage of this bearish trend.
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