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Thursday, 13 Mar 2008
How Low Will USD/JPY Go?
The greenback slipped across the board yesterday against most of the major currencies. The USD breached new all time lows against the EUR at the rate of 1.5572. The greenback depreciation comes as a result of investor worries of recession in the US economy. Investor wariness has a lot to do with negative indicators from the US economy that have consistently driven the greenback further and further down versus its major competitors. Another undeniable attribute to dollar deprecation comes from positive data from the Euro-Zone.
Yesterday, Crude Oil Inventories was released by the Energy Information Administration. This leading indicator measures the weekly increase in barrels of commercial crude oil held in inventory by US firms. Crude-Oil Inventories rose by 6.2 million barrels (2%) to 311.6 last week after an unexpected drop last week. As a result of this report's release the Crude Oil prices appreciated sharply and breached a new all time record of more than 110 USD per barrel. This was the only scheduled economic news released from the US yesterday.
Today we expect several key figures to be released from the US. Core Retail Sales is forecasted at a 0.2% drop from last month. Unemployment Claims is also on tap today and is expected to show a slight increase. Closing out the scheduled US news day is the 14:00 GMT release of Business Inventories, which is expected to show a 0.5% increase in inventories. The question then becomes, whether or not such an increase is actually positive data? One way to look at it could be that retailers are restocking on the back of the still purchase happy American consumer. On the other hand, inventories could be rising due to a lack of purchases by the same consumer base. Nonetheless, the US economy and its faithful dollar, are still stuck in an epic bearish trend, and currently see no signs of change in the immediate future. Investors will have to come to the new reality that the days of instant dollar recovery from a bad day of news are over. Going long against the dollar is still a lucrative option.
Despite comments from ECB President Jean-Claude Trichet and the French CPI release, the Euro reached a new all time high yesterday against the USD. Trichet stated in a speech to the Gulf Cooperation Council that he is "alarmed by the excessive movement of currencies". Trichet went on to explain the importance of the U.S. stance on a strong dollar, adding that he was not campaigning for international use of the Euro as a replacement for the dollar.
French CPI showed that the month-to-month rise came back below expectations of 0.4% and rose by only 0.2% from January. Investors should continue to see the EUR as a steady investment as we are still in a volatile trend due largely to the sub-prime crises in the US.
Today sees two minor events from the Euro-Zone. First, is the French Nonfarm Employment report that is forecasted to stay on par with last month's figure. It will be followed by the 9:00 GMT release of the ECB Monthly Bulletin; this month's bulletin is expected to provide statistical data for the latest interest rate decision as well as detailed analysis of the prevailing economic situation and the risks to price stability.
Expect the EUR to continue to remain a solid investment for today due to a lack of data published today from the Euro zone, and fears from traders expecting the worst from the greenback.
Yesterday, The JPY hit a 12 year high against the greenback. The JPY appreciated sharply as investors reassessed the effectiveness of the Federal Reserve's 200 billion dollar rescue plan for ailing financial markets as the USD/JPY pair reached 101.10, a level unseen since December 1995. The dollar's fall against the JPY triggered a swift unwinding of Carry Trades. The USD/JPY is now consistently approaching the key 100 support level we have discussed over the last few weeks, as investors are still unsure if the BoJ will try to intervene in the market. Yesterday, the Household Confidence report came in at its lowest level in nearly five years on worries of deteriorating economic condition in the labor market. The consumer confidence index also fell to 36.1 in February, its lowest level since March 2003.
Today, the Industrial Production figures are expected, and are currently forecasting identical results from last month 0.2% drop. No other indicators are expected to be released from Japan today. Investors should look toward global news, to chart JPY movement.
The bullish rally continues at full steam as the pair touched 1.5580 in early European session. There is a local consolidation around 1.5530 and the pair is accumulating momentum ahead of the next move. All oscillators are bullish, and the next target price might 1.5600.
There is a clear bullish channel forming on the daily chart as the cable breached the upper level of it. This is a key level breach as 2.0280 is a strong Fibonacci level which may indicate the bullish momentum is still in its early stages. It appears that a valid target price for this move might be 2.0380/
The pair is in the middle of an extremely violent bearish move, and is approaching the historically important 100.00 level. All oscillators are bearish, and a breaching test of the strong support level should be imminent. If a breach occurs, then we may see the pair reach levels it hasn't seen in more than 10 years. Traders are advised to stay out before any clear signal appears.
Similarly to what is happening all across the board, the USD bearishness did not skip this pair as well. It appears that the local bearish momentum might be taking the pair to the 1 USD per CHF. There are several bullish signals on the hourly level, yet it seems that pair is overlooking all technical aspects. Going short appears to be the smartest move today.
The Wild Card
A breach through the upper level of the bullish channel on the 4 hour chart has occurred. This should cause an additional bullish move that might take oil to levels of above 110.50 quite shortly. This should be a great opportunity for forex traders to jump in on fresh bullish momentum of an already very strong bullish trend.
|23:30||USD||FOMC Member Williams Speaks||-||-||-|
|00:30||AUD||AIG Construction Index||53.8||-||-|
|01:01||GBP||BRC Shop Price Index||y/y||-1.4%||-||-|
|02:00||AUD||HIA New Home Sales||m/m||-1.8%||-||-|
|02:01||JPY||Monetary Policy Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|