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Tuesday, 4 Nov 2008

Markets Await the Next U.S. President; Australia Surprises the Market

With the U.S. Presidential Election underway, the value of the USD has regained a modicum of strength. Also surprising the market was a larger than forecasted cut to Australian interest rates, sending the value of the AUD plummeting.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndowndownupdownup
Weekly Trenddowndownupupnoup
Resistance1.27551.587599.661.18620.67600.8099
1.27301.584099.471.18270.67270.8085
1.26991.580599.101.17980.66890.8059
Support1.25421.563998.501.17470.66360.8012
1.25151.560998.341.17200.66060.7982
1.24921.558598.141.17070.65850.7960

Economic News

USD - USD Rises in Anticipation of Election's Finale

On the eve of the U.S. Presidential election, the Dollar posted large gains of 150 points to close at 1.2580 against the EUR, helping to erase some of its losses from late last week.

The Dollar continued to shrug off poor economic data stemming from the U.S. economy as the Institute for Supply Management released the Manufacturing Purchasing Manager survey. The survey came in below the forecasted value, displaying an overly pessimistic view of the U.S. manufacturing industry. This was one of the worst outlooks in the survey's history, adding more evidence of a recession in the U.S. economy.

U.S. equities were little changed in light trading due to the uncertainty of the U.S. economic situation and the decision of who the next U.S. President will be. Some analysts forecast a rise in the stock market directly following the election as it has historically provided some market confidence and relief for anxious investors.

In early trading this morning, the AUD/USD fell sharply. The Reserve Bank of Australia surprised the market today as the bank cut Interest Rates by 0.75% to 5.25%. This was a greater than forecasted rate cut by another quarter of a point. The move came as a shock to traders as the Australian economy has not shown the same amount of weakness as the U.S. economy.

EUR - Euro-Zone Forecasts Depreciating EUR in Light of Upcoming Rate Cuts

According to the autumn report from the European Commission, the European economy is not in good shape. The EU current account deficit is forecasted to be near 1%. The current account deficit may also be significantly higher in the smaller Eastern European economies.

As exports fall, the European current account deficit will rise. This will in turn lower the value of the EUR against the Dollar. The most effective adjustment to the current account deficit occurs with a devaluation of the currency to reduce the price of exports. This may help close the gap in the current account deficit in a slumping economy. This also may have an effect on the EUR in the long-term, perhaps keeping the EUR at its current trading level near 1.2600 against the USD.

Traders are looking towards Thursday when the European Central Bank (ECB) and Bank of England (BoE) are forecasted to cut Interest Rates further. These rate cuts appear to have already been priced into the currency, but may still move the market if a larger then expected rate cut is executed. The ECB may go this route if it forecasts a prolonged recession in the Euro-Zone economy. Traders should look to see a depreciating EUR in the next few days as these factors are evaluated by investors and factored into the market.

JPY - Japanese Interest Rate Cut Not Enough to Fix Economic Slowdown

Japanese markets were closed yesterday, decreasing the already fragile liquidity in the currency markets. The JPY traded up against the Dollar, gaining a measly 33 points to close at 98.76.

The Japanese government has employed tools from both its fiscal and monetary policy to fight the financial crisis and global economic slowdown, but many critics have their doubts as to the effectiveness of these programs.

As markets wait for Interest Rate cuts in Europe, England, and Australia; Japan lowered Interest Rates last week in order to jump start the economy. A cut in rates of 0.2% was implemented to stimulate lending, but some view this as symbolic move with little chance for a significant economic impact due to the already low Japanese Interest Rate.

The economic stimulus package that was announced last week may also have a limited effect on the Japanese economy. Japanese consumers are prone to save rather than spend, further limiting GDP growth. These programs may fail to stimulate the economy, sending the JPY lower against the Dollar.

Oil - Oil Prices Drop from Negative Economic Outlook

The price of Oil continues to fall, shedding over $5 in trading yesterday to close at $63.24. Oil suffered a sharp drop in price during the month of October and has halved its price from its record peak in July.

Oil has been steadily dropping due to a global economic slowdown. Any hint of negative economic data has sent the price lower. Yesterday saw the release of worse than expected numbers for the U.S. manufacturing industry. This added to the negative pressures on Crude Oil prices, sending it lower late in the day.

The Crude market has also been waiting for signals from Saudi Arabia that it has cut Crude Oil production in line with the recommended cuts from the Organization of Petroleum Exporting Countries (OPEC). OPEC would like to see Crude Oil hold between the ranges of $70-$90 a barrel, but a negative outlook on the global economy may put pressure for Crude to perhaps trade in a range closer to the $40-$60.

Technical News

EUR/USD

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.

GBP/USD

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.

USD/JPY

The pair has been range-trading for a while now with no specific direction. The 4-hour chart's Slow Stochastic is providing us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction either. Waiting for a clearer sign on the hourlies might be a good strategy today.

USD/CHF

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

Gold

This commodity has been trying to massively correct the intensive bearish move, and is now trading around the 10 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.

Current Time: 09/15 08:51 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
09/15
10:00EUR+ Trade Balance13.8B15.9B12.2B1
13:30USD+ Empire State Manufacturing Index14.716.4-3
14:15USD+ Capacity Utilization Rate79.2%79.3%-3
14:15USD+ Industrial Production m/m0.4%0.4%-3
00:01GBP+ BoE Quarterly Bulletin***3
09/16
01:00AUD+ RBA Assist Gov Kent Speaks***3
02:30AUD+ Monetary Policy Meeting Minutes***5
06:30JPY+ BOJ Gov Kuroda Speaks***5
09:30GBP+ CPI y/y1.6%1.5%-5
09:30GBP+ PPI Input m/m-1.6%0.1%-3
09:30GBP+ RPIy/y2.5%2.5%-3
09:30GBP+ Core CPI y/y1.8%1.8%-1
09:30GBP+ HPI y/y10.2%10.6%-1
09:30GBP+ PPI Output-0.1%-0.1%-1
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