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Wednesday, 28 Jan 2009
Majors Stabilize prior to US Interest Rate Decision
Glancing through recent price levels for the previous week would have one believe that most currency pairs are beginning to level off. Investor speculation increases prior to a major market event as deciding on the direction of the major currency pairs becomes a challenge just before the breaking news. Today's market moving event is going to be the U.S. Federal Reserve Board's decision on short-term interest rates which may be the first global economy to place its rates at 0%. Today may be a highly volatile day for most USD crosses.
USD - Will U.S. Interest Rates Hit Zero Today?
The Dollar was little changed against most of its major counterparts during yesterday's trading session. As traders awaited the end of a Federal Reserve meeting in which the central bank may announce new efforts to thaw frozen credit markets, the USD began to stabilize, ending yesterday at 1.3262 against the EUR and 1.4255 against the Pound.
The most influential economic data coming from the U.S. yesterday was the consumer confidence report. The impact of the financial crisis over the last several months has clearly taken a toll on consumers' confidence. In assessing current conditions, consumers rated the labor market and business conditions much less favorably. President Barack Obama is trying to drum up support for quick passage of a stimulus plan that aims to create jobs, cut taxes and boost infrastructure spending.
Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening. Investors put aside any fears they may have of a deep worldwide recession even after U.S. consumer confidence fell to an all-time low in January.
As for today, a few indicators are expected from the U.S. economy. These figures are expected to set the tone for the USD's pairs and crosses. Special attention should be given to the U.S. Federal Reserve's meeting on short-term interest rates. Traders pay close attention to this figure as it has a strong correlation with the value of the U.S. Dollar. If rates are cut, an increase in the amount of USD in circulation will weaken the Dollar. If rates are increased, the exact opposite happens. Dollars are taken out of the economy to help contain inflation and strengthen the value of the USD.
EUR - EUR Leveling-Off from Unexpected Confidence Boost
The EUR saw very little change in its overall value against the other currencies yesterday, as it continues with its recent downward trend. Overall there seemed to be a lack of impactful data releases coming out of the Euro-Zone compared to the average week. Despite the fact that most important economic indicators came out slightly better than forecasted, especially the German Ifo Business Climate report, the EUR continued to fall from the economic weakness and recession. The EUR ended up around the 1.3260 price level against the USD yesterday, and lost ground to the GBP to close at 0.9302.
German corporate sentiment unexpectedly rose for the first time in eight months in January, suggesting interest rate cuts and billions of EUR in fiscal stimulus are boosting recovery hopes in Europe's largest economy. Moreover, an improved business climate in Europe's biggest economy is a very important factor for the EUR.
Today, the most important economic news event coming out of the Euro-Zone is the GfK German Consumer Climate release at 7:00 GMT. If the release is higher than the 2.0% forecast, a bullish correction in the EUR may occur. On the other hand, if the results are the same, or less than forecasted, this is likely to lead to an even more bearish EUR versus its major currency rivals. Traders are also advised to pay close attention to the U.S. Federal Reserve, which is due to release its decision on short-term interest rates at 19:15 GMT.
JPY - JPY Value Relatively Flat Recently
The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR and USD yesterday and closed its trading session at around 118.30 and 89.30 respectively. The JPY also saw bearishness against the GBP as the pair jumped around 100 pips and closed at 126.80.
The low Japanese interest rate helped hold the value of the JPY lower than other currencies as traders used the JPY to fund the purchase of higher yielding assets. However, with global interest rates being slashed, the value of these carry trades have declined and traders have been unfolding them in exchange for more safe-haven investments.
As for today, the only indicator being released is the Japanese Retail Sales report. Analysts forecast the figure to decrease from its previous reading. This indicator typically generates small amounts of volatility. However, the USD appears to be clutching the reins of today's market. Traders would be wise to note the Dollar's future direction as it usually carries a heavy impact on the other currencies.
Oil - Another Day of Falling Crude Oil Prices
Crude Oil prices fell more than $4 a barrel, the most drop in three weeks, as U.S. consumer confidence and home prices tumbled; signs that the recession in the biggest oil consuming country may be deepening. Oil declined around 9.5% today after reports showed that consumer confidence sank to the lowest level on record in January as home values dropped and unemployment appears to be climbing.
Traders should be eyeing news of key U.S. economic indicators, including a government report on Crude Oil Inventories due today. Moreover, worries that weakened international economic growth will depress Oil demand remains a key dampening influence on Oil prices. If the global economic condition deteriorates more aggressively, Crude Oil prices may extend their decline.
After last week's volatility, this week appears to be mild by comparison. This week's gentle uptrend for this pair has the price floating in the over-bought territory on the 4-hour chart's RSI, indicates that a downward correction may occur soon. The imminent bearish cross on the hourly chart's Slow Stochastic supports this notion as well. Going short with tight stops might be a wise choice today.
There appears to be a bearish cross forming on the hourly chart's Slow Stochastic, signaling downward pressure on this pair. The 4-hour chart's RSI also shows the price floating in the over-bought territory, and the weekly chart's Momentum oscillator is pointing down. Going short might be the right choice for today.
The pair continues to trade in a rather stable wide range without giving any indication of direction. The RSI on every chart shows the price floating in neutral territory and this pair appears to be floating near the midline of the Bollinger Bands on all charts as well. However, the weekly chart's Momentum oscillator still shows steep downward pressure. Traders are advised to wait for clearer indications on the hourly level before joining the trade.
The price of this pair appears to be floating in the over-sold territory on the 4-hour chart's RSI indicating an upward correction may be imminent. The upward direction on the weekly chart's Momentum oscillator also supports this notion. Going long with tight stops might be the right choice today.
The Wild Card
The price of this commodity appears to be floating in the over-sold territory on the hourly chart's RSI, signaling an imminent upward correction. The recent bullish cross on the 4-hour chart's Slow Stochastic adds weight to this notion, while the weekly chart's Momentum oscillator continues to show upward pressure. After yesterday's price drop, this commodity appears poised for an upward correction. Forex traders can benefit from this imminent upward movement by setting buy positions at the current price.
|23:30||AUD||AIG Construction Index||45.9||-||-|
|08:00||EUR||German Industrial Production||m/m||0.1%||0.6%||-|
|08:45||EUR||French Gov Budget Balance||-85.6B||-||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.0B||-|
|09:00||CHF||Foreign Currency Reserves||498.4B||-||-|
|10:30||GBP||Consumer Inflation Expectations||2.5%||-|
|14:30||CAD||Labor Productivity q/q||q/q||0.1%||0.2%||-|
|14:30||USD||Non-Farm Employment Change||257K||241K||-|
|14:30||USD||Average Hourly Earnings||0.5%||0.2%||-|