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Thursday, 3 Apr 2008
ISM Non-Manufacturing On Tap
Yesterday, the USD initially climbed against the EUR after the ADP Employer Services report showed U.S. companies unexpectedly added 8,000 jobs in March. Later in the session, the greenback erased its gains against the EUR after Fed Chairman Ben Bernanke told Congress the U. S. economy could contract in the first half of 2008. Bernanke acknowledged for the first time that the U.S. recession is possible because homebuilding, employment and consumer spending will probably continue to deteriorate.
Although initially the Fed's Chairman's testimony caused some volatility, later his comments were largely taken as positive. Bernanke mentioned that although the U.S. economy could face a mild recession in the first half of 2008, growth should pick up as a result of the recent aggressive Interest Rate cuts.
The positive mood among traders was further boosted by U.S. stocks, which traded higher, recovering from Federal Reserve comments that a U.S. recession was possible. By the end of the day, the USD traded around the 1.56 level once again.
According to futures contracts on the Chicago Board of Trade, the probability of a 50 basis-point reduction by the Fed dropped to 12% from 24% yesterday. The remaining bets are for a quarter of a percentage point reduction to 2%.
High Oil prices are also part of a problem. Crude Oil rose more than $3 a barrel and gasoline surged to a record as investors purchased commodities in response to the plunging U.S. dollar. The primary reason for the rise in prices was the flow of funds by investors looking for a safe haven in the face of the credit crisis. But that was not the only reason. Crude oil is often pulled higher by gasoline in the spring and summer, when Americans take to the highways for vacations. The peak consumption period lasts from April till September.
As for today, the scheduled economic docket is relatively light. Initial Unemployment Claims will offer a last readjustment to payroll expectations. Currently no change is expected from the previous month's printing. Later today, the ISM Non-Manufacturing Composite index is also expected to set another disappointing result.
The USD will probably trade between the 1.55 and 1.57 levels against the EUR. The volatility will continue to stay low ahead of tomorrow's crucial Nonfarm Employment data.
Yesterday was a volatile day for the EUR/USD. The EUR first rallied on the stronger than expected European Inflation Report, then slipped following the release of the dollar positive ADP report, and resumed its rally after Bernanke's comments. By the end of the day, the European currency traded around 1.5650 against the USD.
Euro zone Retail Sales index is due for release today. The market is expecting a much weaker figure than in the month prior. In fact, the recent steep drop in German Retail Sales suggests that we could see a similar decline in Consumer Spending for the entire region.
In other news, Euro zone finance ministers and the ECB are expected to voice their concerns at the G7 meeting on April 11 over the EUR recent sharp gains. A strong EUR continues to mount pressure on the export sector as well as on the European economy in general. The underlying impression remains that the European economy is slowing down and that at some point we could see Interest Rates in the Euro zone decline.
As for today, expect the EUR to continue to remain a solid investment mainly due to a lack of data published today from the Euro zone and the fact that markets remain tense ahead of tomorrow's U.S. Nonfarm Employment figures.
The JPY dropped to a 5 week low against the EUR as Bernanke eased concern that credit market losses will deepen, encouraging investors to buy higher-yielding assets funded by cheap loans in Japan. Volatility on major currencies fell yesterday to the lowest in more than 2 weeks, making carry trades more attractive. As volatility declined, Japan's currency weakened. It dropped to 102.66 against the USD from 101.85 the day prior, reaching the weakest since March 12.
The Japanese economic outlook remains among the weakest of major industrialized countries. Investors are growing increasingly wary ahead of key economic data later this week as well as lingering worries about global credit.
The Japanese economic calendar remains clear for the next following days. We should see the JPY continue on its bearish path. Forex traders should keep an eye on the economic events around the world, as today could prove to be another very volatile day for the Japanese currency. Also, look toward the Dow as well as commodity prices to define the direction of the Asian powerhouse.
After dropping to the 1.5550 levels the pair is now in the middle of a corrective move with strong bullish momentum. The 1 hour chart is showing a strong bullish cross on the slow stochastic as the daily chart is showing mixed signals without a clear direction. Going long with very tight stops might be a good strategy today.
The failure to validate the breach through the key Fibonacci level of 1.9800 stirs up fresh bullish sentiment and the cable is now traded around 1.9870. The daily chart is very bullish and the 4 hour chart is showing positive slope on the slow stochastic. Going long might be the way to go today.
Since the pair bottomed at 96.00 it has been showing strong and consistent bullish momentum. The daily chart is still showing strong bullish momentum as the slow stochastic shows no crosses and the Bollinger bands are still wide. It appears that the bullish momentum will continue and the next target price might be around 103.65.
The pair is floating around 1.0135 with moderate bullish direction. The 4 hour chart is showing growing bullish momentum and the daily chart supports the bullish notion. Next target price might be around 1.0200. Being on the buy side could be a wise choice today.
The Wild Card
WILD - GBP/JPY
There has been a very interesting breach through the upper level of the channel on the 4 hour chart. The Bollinger bands are widening again which indicates that the momentum which was created after the breach is still very strong. This could be a great opportunity of Forex traders to take advantage of a strong technical indicator which holds good profit potential.
|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%||-||-|