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Thursday, 16 Oct 2008
Not Enough Volume to Generate Trend Reversals
Right now there is too much uncertainty for investors to confidently choose a position to take in the market. The various bailout plans, bank failures, and the presidential election in the U.S. have all produced the recent "wait and see" attitude in spot trading. On top of that, we have negative figures such as yesterday's U.S. Retail Sales and Europe's CPI indicator, which adversely affect the market. There is simply not enough volume right now to generate the typically high volatility seen during times like these.
USD - Dollar Appreciates Despite Negative Figures
After a relatively negative news day, the USD still managed to appreciate against most of its currency counterparts. How can this be? Analysts have declared a decreased risk appetite and market uncertainty as the culprits. People simply are not trading. The loss of risk appetite means that most traders are waiting for more steady market conditions before taking a strong position. There is too much uncertainty right now with the various bailout plans, bank failures, and the presidential election in the U.S. These factors have produced the recent "wait and see" attitude in the forex market. On top of that, we have negative figures such as yesterday's Retail Sales figure, which also adversely affect the market.
Following yesterday's cautionary speech from Fed Chairman Ben Bernanke, many market analysts are now expecting further interest rate cuts. An important warning given by Bernanke was that economic recovery would not come quickly. It would be a process which takes a long time and starts with the stabilization of the banking system followed by a bolstering of the housing markets. He also said it will take some time to restore normal credit flows and pledged the U.S. Federal Reserve would continue to act aggressively to fight the crisis. Adding to this speech was the fact that U.S. stocks went down sharply yesterday after an unexpectedly big drop in September retail sales. Government reports showed that Retail Sales fell -1.2% in September, below the -0.6% expected by analysts. Negative data coupled with an explanation of uncertainty and a call for patience has lent more weight to the argument that traders are, and will continue to be, waiting for a sign as to which direction the market will move before re-investing their money.
USD trading will be interesting today as another a batch of important economic data is expected to be released. Similar to yesterday, the news will start at 12:30 GMT with a series of economic indicators being released starting with CPI figures, unemployment claims and the TIC Long-Term Purchases report. Surprisingly, almost all of these releases are expected to be higher than their previous figures meaning the USD could continue to show further bullishness today. The Core CPI release is expected to stay unchanged at 0.2% and will likely not affect the USD unless it comes out at an unforeseeably low mark. Traders should stay close to the market today, as there is a strong chance to capitalize on the fluctuations which will likely follow these releases.
EUR - European Central Bank to Aid Neighboring Hungary through Financial Turmoil
Yesterday the EUR saw very little change in its value against the other currencies. While continuing with its recent downward trend, it has managed to remain rather calm in light of recent news from the market. With a batch of important data releases from the Euro-Zone, Great Britain and the U.S., the market witnessed surprisingly low volatility across the board. Word of a 5 billion EUR loan from the ECB to Hungary to help stave off another country's financial collapse has spread recently as the ECB attempts to find more solutions to the current crisis. This operation has helped stabilize the Euro-Zone economies through an easing of fears of a more panic-stricken market. It will also help increase market liquidity by infusing the market with more cash.
The most significant economic data released from the Euro-Zone yesterday was the Consumer Price Index (CPI). This figure stayed unchanged from the previous month's mark of 3.6%. A stable figure is not enough to cause the EUR to be bullish against most of its counterparts; worry of very slow economic growth in the Euro-Zone is becoming stronger and has taken its toll on the value of the 15-nation currency. Similar to the U.S. economy, recent economic indicators seem to carry less weight as news surrounding the bailout plans and money market operations are the primary motivators in trading recently. The appetite for investment risk is lower than ever. Until there is more certainty in how the market is going to respond, trading volume will continue to be low.
Today will also be a very quiet news day for the EUR as only one economic figure will be released. The Italian Trade Balance is expected to drop even more, compared to last month, which should do some harm to the value of the EUR; however, the other currencies will drive the market's momentum today. The other 3 currencies: the GBP, JPY and USD, all have major economic releases that should affect the EUR's volatility more than anything else.
JPY - JPY Reaches Remarkably High Value in Spot Trading
The JPY rose toward a 7-month high versus the dollar after the biggest decline in U.S. retail sales in three years. It closed at 99.60 at the end of yesterday's trading session. The yen also approached the strongest level in three years versus the EUR closing at 134.55. Analysts claim that the reason for this appreciation can be found in the fundamental news from the Asian giant. As the export-based Japanese economy took advantage of the drop in Crude Oil prices, lowering the transportation costs of Japanese exported goods across the world, the JPY has found strengthening value as a result. As also explained in past analyses, the JPY tends to gain value when the other major currencies falter. Since the global economies are finding more uncertainty and losing ground, the yen is gaining momentum.
For traders today, there is only one data release from Japan that is significant: the Tertiary Industry Activity, which will be released at 23:50 GMT, the end of the day's trading session. The official forecast for this figure is lower from the previous reading. A rising trend will have a positive effect on the nation's currency because it generates more jobs and investment. Today, however, investors should pay closer attention to the JPY's counterparts before placing their transactions. Mapping the movement of the Stock markets worldwide could also provide much needed clues as to the direction of the heavily traded currency.
Oil - U.S. Crude Oil Inventories on Tap
Crude Oil prices experienced another day of depreciation as the oft-traded commodity dropped below $72 in this morning's early trading session. Oil prices traded down for the third straight day, continuing a nearly 2-month long drop in overall energy prices. Much of the bearish movement in Crude Oil can be attributed to fears of a drop in fuel consumption due to poor economic outlook in the major world economies. With economic growth slowing in the U.S. and Europe, and another month of falling service industry numbers, Crude Oil may continue to see a depreciating value.
Looking ahead today, one of the more influential pieces of economic data will be Crude Oil Inventories for the U.S. The inventories index has become more and more relevant over the last few months as the movement the price of Oil has become a major market mover. Expectations show a drop to 1.9M from last month's of 8.1M. Traders can, and should, expect wide market volatility around the 15:00 GMT release of these inventories figures because of Crude Oil's recent importance to today's market.
The Slow Stochastic and the RSI on the daily chart are showing a continuation of the current bearish correction. There is also a very accurate bearish channel forming on the 4-hour chart. In addition, all indicators on the hourly chart are pointing down. Going short might be the right choice today.
The Cable is in the middle of a very intensive downtrend that started a week ago and shows great momentum that on a larger scale appears to have more room to run. In a shorter time frame, a bullish cross on the hourly indicates that there might be a minor correction before the bearish move resumes. Selling on highs appears to be preferable today.
The pair has been range-trading for a while now with no specific direction. The daily 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.
This pair is still in the midst of a steady uptrend which is not yet showing any sign of leveling out. The RSI and Momentum on the daily chart are still positively sloped indicating that there is still plenty of steam left in this bullish move. Once this pair breaches the 1.150 level it's likely to make another sharp break upwards.
The Wild Card
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The Slow Stochastic flows high supporting the notion that there is still room to run for this trend. In the shorter time frame, there is a bullish cross forming on the hourlies indicating that there might be a small bullish correction before the bearish move resumes. Forex traders can maximize profits by selling on highs and taking advantage of a currently bearish trend.
|13:30||USD||Challenger Job Cuts||y/y||-22.5%||-||42.7%|
|14:15||USD||ADP Non-Farm Employment Change||201K||212K||-|
|15:45||USD||Final Manufacturing PMI||53.4||53.4||-|
|16:00||USD||ISM Manufacturing PMI||52.8||53.2||-|
|16:00||USD||ISM Manufacturing Prices||49.5||52.1||-|
|16:30||USD||Crude Oil Inventories||-4.9M||-1.9M||-|
|01:00||EUR||French 10-y Bond Auction||-||-||-|
|01:00||EUR||Spanish 10-y Bond Auction||-||-||-|
|03:00||NZD||ANZ Commodity Prices||m/m||-4.7%||-||-|
|05:45||JPY||10-y Bond Auction||0.45|2.7||-||-|
|09:00||EUR||Spanish Unemployment Change||-118.0K||-||-|