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Friday, 26 Sep 2008
New Home Sales Figure Disappoints but Interest Rates Counter
Traders witnessed a minor phenomenon in the market yesterday regarding the USD. Despite predictions by analysts that a lower-than-forecast New Home Sales figure would weaken the USD, it actually did the opposite in spot trading. With the debate raging over the financial rescue plan, and a recent announcement that U.S. interest rates would likely not be lowered again, traders were not paying very close attention to these economic indicators.
USD - Dollar Gains Strength despite 17-Year Low Housing Data
Yesterday the USD stayed relatively flat given the recent market madness. In early trading sessions the USD hit session lows against the other major currencies only to rebound later in the day, but never actually breaking any significant price barriers. Closing out the day, the USD sat nearly unmoved versus the EUR at a price level of 1.4672, only 30 points below the previous day's closing.
Traders witnessed a minor phenomenon in the market yesterday regarding the USD. Despite predictions by analysts that a lower-than-forecast New Home Sales figure would weaken the USD, it actually did the opposite in spot trading. Indicating a weakness in the U.S. housing sector, the New Home Sales figure came out at 460,000, well below the forecasted figure of 510,000, and hitting a record 17-year low! This should have highlighted the obvious fragility of the U.S. economy, yet it generated an appreciation for the value of the USD against all its currency counterparts. While indicating a general, long-term weakness in the American economy, it didn't stop traders from buying up dollars during the hours following this indicator's release. Traders shouldn't get their hopes up, however. Analysts are expecting the effects of this housing crisis to make their mark over the next few days, even weeks, as the impact of this data becomes fully realized throughout the market. Also, with the debate raging over the financial rescue plan, and a recent announcement that U.S. interest rates would likely not be lowered again, traders were not paying very close attention to these economic indicators.
Today traders can expect an even slower pace to the movement of the USD. A small number of figures are expected to be released. Among them we have the release of the final GDP figure from the Second Quarter, which is expected to remain unchanged at a 3.3% annual rate. The core PCE Price index, an inflation indicator, is also expected to remain without changes at 1.2%. These few indicators will only slightly move the American currency and traders should pay closer attention to the proceedings surrounding the bailout plan as this will likely drive the market more than any economic indicator.
EUR - Euro-Zone Currency Flattens Under Market Anxiety
During yesterday's trading session, the EUR saw mixed result versus most of the major currencies. In early trading, the 15-nation currency gained some small momentum versus the dollar, reaching as high as 1.4767, but then lost steam due to the U.S. government's announcement about stabilizing and strengthening its interest rates. As of this morning, the EUR was down slightly against the USD, falling slightly below 1.47, as well as falling against the JPY to 155.37 caused by a decrease in risk appetite.
The GfK Group's Consumer Confidence indicator unexpectedly improved in October, rising to 1.8 from an upwardly revised 1.6 in September. The results from this survey showed that consumers are a little more confident about their situation despite growing fears of a recession. However, the consumption forecast for this year was reduced to 0% from the previously expected 0.5%, plunging the future of the European economy into more doubt.
Looking ahead today, Germany will be releasing bits of data regarding the price of imported goods and preliminary inflation figures. These indicators will not move the EUR very much as their impact is less significant than what is happening elsewhere in the market. Without much change taking place today, the EUR will primarily continue to lose ground to most of its currency rivals. Traders should continue to track the deliberations about the U.S. economic recovery program as this is what is driving the market today more than any other factor.
JPY - High Inflationary Figures Pass Unnoticed by Bank of Japan
Yesterday, the JPY saw bullish trends against most of its currency counterparts after experiencing an early depreciation. The JPY was trading near 104.50 against the dollar during New York trading hours, but later on the USD was came down in value and was then trading at 105.92 against the Yen during a somewhat choppy session, while versus the EUR, the JPY reversed losses and was consolidated at over 155.40.
News from the Japanese economy provided traders with the National Core CPI, which stuck at the 10-year high figure of 2.4%, while Tokyo's Core CPI hit a new decade high in September at 1.7%, despite the prediction of a decrease in this figure in light of slightly falling oil prices. These inflation figures passed unnoticed by the Bank of Japan (BoJ), however, on whether or not they would change Interest Rates. Their biggest worry appears to be the downside risk to the economy of such a change in its rates. Logically it seems the BoJ would not raise the rates until next year when the financial crisis has passed and the global economy begins its recovery.
As for today, the JPY will be absent from the economic calendar. Traders should keep an eye on the Yen's counterparts, as well as data from the U.S. regarding the rescue plan, before placing their orders as we could see some volatility before market closing.
Oil - What is Moving the Price of Crude Oil?
Traders saw a slight increase in the price of Crude Oil yesterday. This came surprisingly at the same time as the USD's appreciation following an announcement about stabilizing Interest Rates. Historically, the price of Oil has been inversely related to the value of the USD; meaning, as the USD goes up, the price of Oil typically falls. This did not happen yesterday, however. Analysts explain that the deliberation over the U.S. financial bailout plan has been driving market prices more than other factors. As such, normal correlations are less relevant as anxiety, unpredictability, and volatility are creating atypical results in today's market.
To understand the movement of Oil's price, traders should pay attention to longer-term expectations of the dollar's movement. While the USD appreciated overall yesterday, it is expected to fall in the coming weeks and that has led traders to buy into Crude Oil while selling non-US currencies and driving their prices below the USD's. As of this morning, the price of Crude Oil sits just below $106 and may experience a relatively flat trading day as the U.S. market is in the driver's seat of the coming weekend's prices.
After touching the high of 1.4765 yesterday, the pair now seems to consolidate around 1.46 level again. The price may continue to move downwards and it is expected to float within a range of 1.4600 level to 1.4500. As it seems, this bearish pressure is likely continue gather momentum till the end of the day. Placing short orders with tight stops might be a preferable choice for today
There is a bearish cross on the daily chart's Slow Stochastic and it appears that the bearish price movement might be back in play. The Slow Stochastic and the RSI of the hourly chart are also supporting that bearish notion while an upcoming test of the 1.8300 level is quite imminent. If indeed that level is breached, swinging in the trend would be the best strategy.
According to the 4 hour chart this pair has been range-trading for a while now, with no specific direction. The daily chart's Slow Stochastic flows in neutral territory implying the continuation of the range trading. All oscillators on the 4-hour chart do not provide a clear direction either. Traders are advised to wait for a clearer sign before entering the market.
According to 4 hour chart the pair now floats within the range with no specific direction. If happens, a breach beyond the 1.0830 support level is likely to validate the bearish movement. In that case 1.0800 will be the next target price.
The Wild Card
After failing to breach the 900 resistance level yesterday, Gold prices dropped significantly, and are now seem to consolidate around $870 price level. The Bollinger Bands on the 4-hour charts are tightening indicating the upcoming volatility. This might be a good opportunity for forex traders to join a downward movement
|01:00||AUD||CB Leading Index||0.2%||-||-|
|01:00||GBP||10-y Bond Auction||2.70|1.8||*||-|
|ALL||Jackson Hole Symposium||*||*||*|
|02:35||JPY||Flash Manufacturing PMI||50.5||51.7||-|
|04:00||NZD||Credit Card Spending||y/y||7.0%||*||-|
|08:00||EUR||French Flash Manufacturing PMI||47.8||47.9||-|
|08:00||EUR||French Flash Services PMI||50.4||50.3||-|
|08:30||EUR||German Flash Manufacturing PMI||52.4||51.8||-|
|08:30||EUR||German Flash Services PMI||56.7||55.5||-|
|09:00||EUR||Flash Manufacturing PMI||51.8||51.4||-|
|09:00||EUR||Flash Services PMI||54.2||53.6||-|
|09:30||GBP||Public Sector Net Borrowing||9.5B||10.1B||-|
|14:45||USD||Flash Manufacturing PMI||55.8||55.7||-|
|15:00||USD||Existing Home Sales||5.04M||5.01M||-|
|15:00||USD||Philly Fed Manufacturing Index||23.9||20.3||-|