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Tuesday, 28 Oct 2008
JPY Swings for Huge Price Changes Today
The JPY today is seeing extreme volatility in today's trading. Potential Japanese government intervention in the Forex market may be influencing the sharp price movements. Traders are advised to can take advantage today of the vast market swings.
USD - Dollar Continues to Break Records against the EUR
The USD continues to strengthen on all fronts as investors are viewing the U.S. economy on much stronger footing with the ability to better handle the impending global recession then most economies of the western world.
The Dollar continues to break new record highs against the EUR on a daily basis, and yesterday the EUR/USD pair reached as low as the 1.2330 level. Similar activity was observed against the GBP as well, mainly because the European nations are currently considered to be the most vulnerable countries to a prolonged recession, and investors around the globe have less confidence in the region's ability to handle a global slowdown.
In addition to the strong bullish trend the USD is experiencing lately, another support came in yesterday as the U.S. New Home Sales data was released, providing better-than-expected figures. The indicator showed 464K new single-family homes were sold during September. The importance of this result is that it was the first time in four months more houses were sold as opposed to the previous month. Previously, the deteriorating condition of the U.S. housing sector was the first trigger many analysts used in order to prove that the U.S economy is headed towards recession. Yesterday's figures came as a positive surprise that the U.S economy might be stabilizing and further strengthened the greenback.
As for future trading, today the U.S. Consumer Confidence survey is scheduled for 14:00 GMT, and is expected to provide mediocre results. Tomorrow the Federal Reserve is widely expected to cut interest rates by 0.5%. What this means is that although in the long term the USD is expected to appreciate, the next few days it might embark on a moderate bearish correction for the USD against its major pairs and crosses. Traders are advised to keep a close eye on the following couple of days as fantastic opportunities for short-term profits might be observed.
EUR - Another Rate Cut in Store for the EUR?
The EUR seems to be stabilizing against most of the major currencies except for the USD. The strong downtrend of the EUR vs. the JPY and CHF has halted since the beginning of the trading week, yet against the USD the EUR saw another bearish session.
After wide spread rumors claiming that the European Central Bank (ECB) is planning to cut interest rates, the ECB President, Jean Claude Trichet, delivered a speech yesterday in Madrid, reinforcing the suspicions by saying that the ECB will possibly cut Euro-Zone interest rates at its next meeting, scheduled for November 6th. However, he avoided revealing the size of the planned cut.
Most people will probably tell you that this is another milestone in the EUR's bearish journey, but might you consider a different point of view? Until now, investors around the world were quite united on the assumption that an interest rate cut is just a matter of time in the Euro-Zone, and therefore avoided investing in this region and caused the latest downtrend for the EUR. But how will they act now that it has been partially confirmed that the cut will indeed take place? Some investors might see it as an excellent opportunity to make profits from the weak currency, so don't be surprised if a bullish correction will take place in the next couple of weeks.
Meanwhile, today's leading indicator will be the German Consumer Climate survey, which is expected to describe a rather gloomy picture for the Euro-Zone's strongest economy. Traders should expect another session of high volatility with still a slight potential for bearish movements.
JPY - JPY Post Sharp Drops from Unwinding Carry Trades
After a week of tremendous bullish trends, the Japanese leadership is giving worrying signals to the JPY's overvaluation. Yesterday French Finance Minister, Christine Lagarde, said that the Japanese administration is considering getting actively involved in the foreign exchange market for the first time in four years, and that the Bank of Japan may begin selling Yen on the open market in the near future.
The unwinding of carry trades that have traditionally used large amounts of leverage have pushed the JPY higher to levels not seen before. As investors buy back JPY that they originally borrowed in, the JPY has seen abnormal gains. The Japanese government faces the difficult task of estimating how much more deleveraging exists in the market and when to begin selling the JPY in order to lower the exchange rate.
There are real concerns in Japan that the exporting sector will be sharply damaged by a stronger JPY, and considering the already poor outlook of the Japanese economy, such reaction could be lethal. It seems that Japan won't accept the current value of the JPY, and will act to bring it back to a more comfortable level. Traders should take very seriously any statement on that issue and follow these developments very carefully, as they could generate a new trend in the market.
OIL - Crude Prices Keep Dropping
Crude Oil is retaining it low price, and yesterday it made an almost 17-month low falling to $61.30 a barrel.
Speculations that fuel demand is on the verge of a deep cut continue pushing the price of Crude Oil down, much below analysts' expectations. Who now remembers that only six month ago Crude Oil prices were forecasted to rise to the $200 level?
Even the OPEC announcement that it will reduce the production of Oil by 15% failed to create any divergence in the current bearish trend. It currently seems that as long as equity markets are dropping on a daily basis, the price of Crude Oil will be consistently damaged.
This pair is still in the midst of a steady downtrend, however the 4 hour and the daily chart's RSI has peaked at the over-sold zone, suggesting that a bullish correction move might be quite imminent. As for the short term, a sharp bullish move has already taken place on the hourly chart and seems to have more steam in it. Going long with tight stops might be the right strategy for the nearest timeframe.
After the recent intensive downtrend, the cable appears to be consolidating at the 1.5650 level. In the shorter time frame a bullish cross on the 4 hour indicates that there might be a small correction before the larger bearish move resumes. Selling on highs appears to be preferable today.
On the hourlies, the pair is in the beginning of an uptrend correction initiated at 92.70. The RSI and Momentum are still positively sloped indicating that there is still steam left in this bullish move. The daily chart's oscillators show that a negative breach is quite unlikely, and the 4 hour charts are also showing a beginning of a mild bullish momentum. Going long might be a preferable strategy.
The volatile trading continues without a distinct breaking direction. The hourly chart is giving mixed signals and is mostly floating in neutral territory. The dailies however, are showing a slight bullish momentum. The daily chart's Slow Stochastic is positively sloped and the RSI also confirms that the direction is indeed up.
The Wild Card
This commodity has been trying to massively correct the intensive bearish move, and is now trading around the 750 level. The sharp bullish channel is in a high spot at the moment and together with a positive slope of the hourly chart's Slow Stochastic it provides forex investors quite a good potential for long positions.
|01:50||JPY||Tankan Manufacturing Index||12||14||-|
|01:50||JPY||Tankan Non-Manufacturing Index||16||17||-|
|03:35||JPY||Final Manufacturing PMI||50.4||50.4||-|
|09:15||EUR||Spanish Manufacturing PMI||54.2||54.0||-|
|09:45||EUR||Italian Manufacturing PMI||51.9||52.3||-|
|10:00||EUR||Final Manufacturing PMI||51.9||51.9||-|
|14:15||GBP||ADP Non-Farm Employment Change||212K||231K||-|
|15:00||USD||FOMC Member Williams Speaks||-||-||-|
|15:45||USD||Final Manufacturing PMI||55.3||55.3||-|
|16:00||USD||ISM Manufacturing PMI||52.9||52.5||-|
|16:00||USD||ISM Manufacturing Prices||35.0||38.1||-|
|16:30||USD||Crude Oil Inventories||8.2M||-||-|
|16:30||USD||FOMC Member Lockhart Speaks||-||-||-|
|01:00||EUR||French 10-y Bond Auction||-||-||-|
|01:30||AUD||MI Inflation Gauge||0.0%||-||-|