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Wednesday, 3 Dec 2008
New Zealand to Kick Off Series of International Interest Rate Cuts
With one of the highest interest rates around the globe, New Zealand is set to slash its rates by a massive 150 basis points later this evening. With the international credit crunch and economic crisis, countries are finding themselves enacting monetary measures such as this to help regain control of the financial market. This rate cut is coming one day before the Euro-Zone and Great Britain are being forecast to enact similar cuts.
USD - ADP Non-Farm Employment Change on Tap
The USD saw bearish trends against most of its major currency counterparts yesterday as a stock market rebound reduced demand for safe havens. Traders witnessed the USD falling against the EUR, closing around 1.2720. It also took a small dive against the Pound Sterling. The sporadic trading session seen yesterday was the result of the various reports emanating from the U.S. government which lowered dollar confidence.
Philadelphia Federal Bank Reserve President Charles Plosser, a noted inflation hawk who has voted against rate cuts twice this year, noted that tumbling energy prices had dragged down the U.S. consumer price index. While the U.S. economy is not facing a serious threat of deflation, the Federal Reserve could help ward off any risk by credibly committing to the prevention of a broad drop in prices.
Charles Plosser added that an inflation target, which he has argued for in the past, would be just as valuable in preventing expectations of deflation from materializing as it would expectations of inflation. The current monetary policy is adding large amounts of liquidity to boost the U.S. economy. When the market begins to stabilize, they should withdraw that liquidity.
As for today, a batch of data is 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 ADP Non-Farm Employment Change which is expected to be lower than forecast considering all of the negative economic data preceding it. Also today, ISM Non-Manufacturing PMI is scheduled which should also have an impact on the market because if it delivers unfavorable figures it will validate a problematic U.S. market, and the USD is likely to weaken further as a result.
EUR - Euro-Zone Deflationary Trends Increase Chances of Interest Rate Cut
The EUR underwent a bullish trading session yesterday, as it appreciated against most of its major currency rivals. The EUR rose 0.7% and closed near the 1.2700 level versus the USD in yesterday's trading session. Also, the EUR saw steady gains against the GBP and JPY. The only major economic event that came out of the Euro-Zone yesterday was the Producer Price Index, however, which was slightly lower than analysts had forecasted, helping to keep volatility to a minimum.
Euro-Zone producer prices slightly fell further than expected in October, underlining deflationary trends in the recession-hit economy and the potential for a deep interest rate cut. Moreover, a drop in the cost of Crude Oil pulled down factory prices in the 15-nations of the Euro-Zone by 0.8% for an annual rise of 6.3%. Producer prices are an indication of inflationary pressure because rises, unless absorbed by retailers via lower profit margins, are eventually passed on to consumers.
Looking ahead to today, the most important financial indicator scheduled to be released from Europe is retail sales. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's retail sales announcement, as a stronger than expected result may continue to bolster the EUR.
JPY - BOJ Increases Lending to Ease Year-End Credit Crunch
The JPY has strengthened against most of its major counterparts. Japan's announcement that it would hold its interest rates steady came as no surprise as it has held one of the lowest interest rates worldwide for some time now. In the Bank of Japan's (BoJ) press conference yesterday it was announced that they would expand lending by about $32 billion to help companies ride out a year-end credit squeeze and accept lower rated corporate bonds as collateral for loans. These indicators, coupled with the recent financial crisis, actually point to a continuation of the JPY's bullish trading as it has historically done well during times of economic downturns.
Traders today have very little fundamental news emerging from Japan as the only indicator being released is the Capital Spending 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 its future direction as it usually carries a heavy impact on the other currencies.
Oil - OPEC May Cut Production in December
The price of Crude Oil fell a small amount during yesterday's trading session and closed just under $48.00 a barrel. Oil suffered a sharp drop in price during the last several months. It went down almost $100 from the record high seen in mid-July as the growing global economic crisis lowered demand in the United States and other large consuming nations.
OPEC is concerned about over-supply and may decide to cut output further at its Dec. 17 meeting in Algeria. If OPEC decides to lower production, it may restore equilibrium in the markets and the balance of prices. The last time OPEC lowered its production was in December 2006. The cuts were reversed later in 2007 as Oil prices rose.
The hourly chart shows that the pair has been range-trading for a while now, as it now has consolidated around the 1.2660 level. However, a negative slope of the daily chart's Slow Stochastic suggests that a wider bearish trend is still intact. Selling on highs might be a smart decision for today.
The bearish trend continues with plenty of steam as the pair now floats around 1.4850 level. The 4-hour chart's Slow Stochastic is negatively sloped indicating that there is still more room to run for this trend. 1.4780 might indeed be the next target price. Going short with tight stops seems like the right choice today.
The hourly chart is showing that the pair is floating within a tight range of 92.80 - 93.80 following yesterday's violent downward breach. However, the daily chart is still showing a moderate negative momentum, and traders should wait for a stronger signal on the hourlies before jumping into the renewed bearish trend.
This pair is in the midst of a strong uptrend; however, it is slowly appearing to be leveling out. The hourlies are showing mixed signals. The 4-hour chart is showing that a bearish correction is imminent, while the dailies are showing that there is still some more room for the uptrend. Traders are advised to wait for a clearer signal on the hourlies before entering the market.
The Wild Card
Yesterday, Gold broke the 770.00 resistance level, it seems that the bullish momentum is back in play. The hourly chart's Bollinger Bands are tightening indicating that a volatile breach is quite imminent. If that indeed would be the case, $784.00 might be the new target price for this commodity today. This provides forex traders with a fair opportunity to go long on a healthy uptrend.
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