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Friday, 28 Nov 2008
Markets Expecting Higher Volatility at the Start of the Xmas Shopping Season
The day after Thanksgiving in the US is known as Black Friday, the beginning of the Christmas shopping season, and typically one the busiest day of the year for retail stores. It is on this day that many employees take off work, increasing the number of consumers in the market and therefore boosting sales. As a result, it is likely that markets will see a higher level of volatility and an increase in trading volume today. This may also help boost the global economy in the short-term as consumers begin unloading their savings to buy gifts for their loved ones.
USD - Black Friday Consumer Spending May Boost USD Volatility
The USD was flat against the EUR and JPY yesterday for Thanksgiving, where a complete lack of US economic reports helped hold volatility to a minimum. During early trading hours, the greenback slipped to 94.95 against the JPY, and the EUR climbed to 1.2966, amid signs of worsening economic conditions and deterioration in investor confidence. However, the Dollar recovered this lost terrain and eased back against its rival currencies.
Recently the USD has proven to be the beneficiary of risk aversion in spite of poor economic news since it has been seen as a relatively safe investment during the financial crisis. But the impact of fiscal stimulus is weighing on the nation's balance, and is beginning to raise concerns for the USD. This has begun pushing more investors to find refuge in the Japanese Yen, which is becoming the supplementary safe haven currency.
Looking ahead, there is little news coming from the US market today, which is known as Black Friday in the US, the beginning of the Christmas shopping season. Markets are also following close developments about President-elect Barack Obama's meeting with former Federal Reserve chairman Paul Volcker to form a new council of advisers to guide the US economy back into good condition.
Traders should keep a close look on the news coming from the Euro-Zone and Asia as both will be the deciding factors in the USD's movement today; however, the recent economic environment is suggesting that the appropriate conditions are for the Dollar to interact with heavy volatility throughout the day as a result of increased consumer spending on Black Friday.
EUR - Euro-Zone Economic Sentiment Lowest Since 1993
The EUR was unable to make any profit over its rival pairs after the recent announcement by the European Commission of a stimulus plan for 200 billion EUR ($259 billion) to be injected into the economy. The EUR initially gained ground versus the US Dollar following the rise in European stock markets, but issued a retreat after disappointing economic data put downward pressure on the 15-nation currency.
The economic sentiment index for the region tumbled to 74.9 this month, from an expected 78.0. This marked its lowest reading since August 1993, reflecting growing pessimism in industry and service as weakness in the European economy continues unabated.
The German Unemployment Change indicator registered a significant reduction in November, falling to 10k unemployed from 23k last month; its lowest reading since 1992. As a result, the head of the Federal Labour Office warned that labor markets would soon feel the impact of the economic downturn.
On a different note, European Central Bank (ECB) President Jean-Claude Trichet declined to make any comments about a Euro-Zone Interest Rate cut after stating Wednesday that the bank would cut rates next week unless there was evidence that inflation pressures had eased. Many analysts expect the ECB to cut rates by 50 basis points to 2.75% on Dec.4, while some economists said an even deeper cut might be needed.
News being released from the Euro-Zone today should provide little fluctuation in the market. However, while indicators have had less impact these past weeks due to the financial crisis, they nevertheless still carry weight in the confidence of investors. Any negative economic data will have the potential to cause harm to a currency's value if it has the power to sway speculators.
JPY - Japanese Recession May be Worse than Forecasted
Yesterday, traders did not see much volatility in JPY currency pairs. With no economic news from the US as a result of the Thanksgiving holiday, and very few economic indicators from Europe, the JPY remained flat against both the USD and EUR, sticking near the 95.00 and 123.00 levels respectively.
The recent economic data from Japan shows that the second largest economy is now heading into a deep recession. Recent reports show that industrial production is deteriorating faster than economist had expected, and consumers have been holding back their spending, surprising analysts. Many forecasters are now convinced that Japan's economy is in for a deeper and longer recession than was previously thought.
Oil - Oil Prices Expected to Continue Falling Through December
The price of Crude Oil remained relatively flat on Thursday, hovering near 53.00 dollars a barrel. This came as U.S. stocks and data on Crude Oil demand increased worries over decreased consumption. However, Oil producers are hoping that Crude Oil prices will find support after OPEC's meeting tomorrow. OPEC is set to talk about whether or not they will reduce Oil production further.
Some of OPEC's members, such as Venezuela, are backing the proposal to cut Oil production by about 1 million barrels per day in an effort to stop the price slide. They have also not ruled out the possibility of a further cut in the future. Russia, which is the largest oil producer outside of OPEC, and which produces around 11% of the world's oil, is beginning to look to closer cooperation with OPEC. Russia has presented an agreement on a joint Oil production cut which it hopes will be studied at the OPEC meeting next month in Algeria.
Analysts are expecting Oil prices to continue heading downwards through the end of December despite the recent threat by OPEC and Russia to cut production.
After several failed attempts to breach the1.3000 resistance level on the 4 hour chart, the pair is now consolidating around 1.2650 price level. The hourly studies show mixed signals, and the daily chart's Stochastic Slow is indicating a mild bearish direction. Waiting for a clearer signal on that pair appears to be a good decision today.
The bullish move the pair is going through on the 4 hour level appears to have diminishing momentum, and lacks the ability to make a significant breach above the 1.5600 resistance level. The daily chart is showing flat consolidation around the 1.5430 level with no distinct price direction and the hourlies are dwelling in neutral territory as well. Traders are advised to wait for a clear signal on any direction or keep out of that one today.
The daily chart is showing flat consolidation around the 95.00 level with no distinct price direction. The 4 hour chart is showing mixed signals, and on the hourlies the pair seem to be dwelling in neutral territory as well. Traders are advised to wait for a clear signal on any direction before entering the market today
After a moderate bearish correction, a wide bullish channel on the daily chart continues with no signs of a stop. The 4 hour chart's Slow Stochastic is showing a double top formation with a positive slope, indicating the possible continuation of the upwards trend. Going long appears to be the right move today.
The Wild Card
The daily chart implies on an upcoming bearish trend as the Slow Stochastic has just crossed above the 80 line. On the 4 hour chart the Bollinger Bands channel narrows which implies that a sharp volatile breach might be quite imminent. forex traders are advised to wait until a clear breach will take place and swing.
|23:30||AUD||Westpac Consumer Sentiment||1.9%||*||-|
|23:50||JPY||Core Machinery Orders||m/m||-2.1%||0.9%||-|
|06:30||EUR||French Final Non-Farm Payrolls||q/q||-0.1%||-0.1%||-|
|07:00||EUR||German Final CPI||0.2%||0.2%||-|
|15:30||USD||Crude Oil Inventories||-5.6M||-||-|
|18:06||USD||10-y Bond Auction||2.75|2.7||*||-|
|19:00||USD||Federal Budget Balance||-91.6B||-154.6B||-|
|20:00||NZD||Official Cash Rate||2.50%||2.50%||-|
|20:00||NZD||RBNZ Press Conference||*||*||*|
|20:00||NZD||RBNZ Rate Statement||*||*||*|
|20:00||NZD||RBNZ Monetary Policy Statement||*||*||*|