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Tuesday, 2 Sep 2008
ISM Manufacturing PMI on Tap.
One of the main sparks for the USD volatility yesterday was the larger than $4 drop in Crude Oil prices, which occurred as Hurricane Gustav hit the United States weaker than expected. The US currency has stabilized around 1.45 now, however the upcoming ISM Manufacturing PMI figures may cause another very volatile day for the USD.
USD - USD Looks to Pick Up Steam Following the Labor Day.
The USD saw a bullish trading session versus all of its major currency crosses yesterday. The USD took advantage of the falling Crude Oil Prices that reached a four month low and some bearishness by its counterpart currencies. Against the EUR, the USD reached its highest value in more than half a year as the pair traded under 1.46. The biggest gains for the USD were seen against the weak GBP as the two were traded in the low 1.79's.
There were no economic data releases for the USD yesterday because of the Labor Day holiday and the closed markets, however much volatility was seen from the greenback. In Federal Reserve Governor Randall Kroszner's speech yesterday, he noted that the influence of U.S. housing and financial problems on economic weakness elsewhere demonstrates how intertwined the world's economies are and explained that the theory that the USD had become independent from the world's economies is incorrect. The other main spark for the USD volatility was the larger than $4 drop in Crude Oil prices, which occurred as Hurricane Gustav hit the United States weaker than expected. Louisiana Governer Bobby Jindal estimated that roughly one fifth of the oil and natural-gas output that was shut prior to Gustav could be back on line by the weekend and no major damages have been reported by the oil companies thus far.
In terms of economic data, today will be a lot more interesting for the USD. There are 3 economic releases expected to be released at 2:00 GMT with the ISM Manufacturing PMI being the main release. As it measures the level of diffusion based on surveyed purchasing managers in the manufacturing industry, this index is expected to slight fall along with the ISM Manufacturing Prices. The other economic indicator, the Construction Spending, is expected to slightly rise compared to last month. Overall, it seems like trades should keep track of Hurricane Gustav's developments and the three releases which are expected to add volatility to the USD trends with their mixed expected results.
EUR - EUR/GBP Reaches Record High.
Following yesterday morning's paramount release of the weak German Retails Sales and its bearish effect on the EUR, the rest of the day was a little more solid for the EUR. The Euro-Zone economy saw two economic data releases yesterday with a much lower figure in German Retail Sales compared to the forecast, which hurt the EUR, but it seemed like there were even weaker currency counterparts in the market. The GBP and CHF were very bearish yesterday which resulted in bullishness for the EUR against the two currencies. The EUR/GBP cross was traded at a record high of the mid 0.81. Against the USD, the EUR lost strength as its economic releases were bearish and the USD gained a lot of strength from the better than expected situation with hurricane Gustav. Again, it seemed like the EUR has been trading on the same trend as the Crude Oil prices against the USD, and as the Oil dropped yesterday, so did the EUR by falling under 1.46.
Today should be a fairly quiet trading session for the EUR, as only one economic release is expected from the Euro-Zone. The monthly PPI, which measures the change in the price of finished goods and services sold by producers, is expected to rise by a larger rate than last month, which should put the EUR back on a bullish trend. It seems like the market in the world won't be too volatility as there are few major economic releases expected today and look for the EUR to be strong on the map.
JPY - JPY Future Uncertain after Surprise Resignation of PM Fukuda.
Mixed trends were seen from the JPY in yesterday's trading session. Although the USD/JPY combo did rise and show JPY bearishness, the JPY had some good momentum against other currency counterparts. It seemed like no currency could stand against the USD yesterday and it also seemed like every currency took apart the bearish GBP, and so did the Yen. The volatile GBP/JPY cross traded under 194 yesterday. In late New York trading, there was an economic release from Japan yearly Monetary Base rate staying negative, but measuring at a better rate than last year. As the JPY sharing similar behavior as the USD, the drop in Crude Oil prices helped the export-focused Japanese economy gain further momentum.
In today's trading session, look for the JPY trends to be mostly based on its currency counterparts' trading trends as no economic data is expected from Japan. However BOJ Governor Masaaki Shirakawa is due to deliver a speech at the Nagoya University in Nagoya. Besides Shirakawa's speech no other self made volatility should be seen from the JPY as its behavior should be mixed based on the other major currencies economic news.
Oil - A Threat from the Sea.
The hurricane highlighted the fact that threats to U.S. energy security need not come from abroad. With a quarter of the nation's crude oil production coming from the Gulf's waters, the United States has drilled offshore to sustain domestic output but made itself more vulnerable to the vagaries of the weather.
Crude oil prices tumbled yesterday as Gustav weakened more than expected and appeared to have caused little damage in New Orleans and surrounding areas. Oil prices hovered around $111 a barrel by the end of yesterday's trading session and are trading near 108 today!
There was some disruption to oil supplies as oil companies shut down production and evacuated facilities ahead of the storm. Altogether, about 2.4M barrels of refining capacity had been halted, roughly 15% of the U.S. total. The Gulf Coast is home to nearly half of U.S. refining capacity.
While a weaker-than-expected Gustav, which was downgraded to a tropical storm, is loosing its power, traders turn their attention to other storms brewing in the region.
Yesterday the pair has fully resumed its downtrend, as it breached through the 1.4560 level. Currently, all oscillators on the 4 hour chart are floating within bearish territories, another bearish session seems imminent. It appears that going short would be preferable.
The cable is continuing to deliver coherent bearish signals, and is now traded around the 1.7930 level. On the daily chart, the current price has dropped beneath the Bollinger Bands lower boarder, suggesting that the pair should drop once more. Going short might be the right choice today.
After a few days of falling prices, it seems that the pair has reached its bearish peak at 107.61. As all oscillators on the 4 hour chart are pointing up, a bullish correction might be impending. Going long with tight stops could be a good strategy.
The pair is continuing to fluctuate within a restricted price zone, and failed to mark a significant breach. However, the Bollinger Bands on the daily chart are tightening, indicating that a sharp price movement should take place. Traders should wait for the breach and swing.
The Wild Card
It seems that Gold has limited its bullish correction, and a bearish cross on the daily chart's Slow stochastic suggests that Gold prices are once again looking towards falling prices. This might give forex traders an excellent opportunity to join the trend at a very early stage.
|03:00||CHF||Daylight Saving Time Shift||-||-||-|
|03:00||EUR||Daylight Saving Time Shift||-||-||-|
|03:00||GBP||Daylight Saving Time Shift||-||-||-|
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|