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Thursday, 22 Jan 2009
Obama Begins Work; Britain Considers Nationalization
Yesterday marked the first day of work for U.S. President Barack Obama, who wasted no time in presenting his $825 billion economic stimulus package, or in meeting with officials about reversing some of the policies held by George W. Bush. While Americans get comfortable with the idea of a new president, Britons may be forced to familiarize themselves with something new as well: bank nationalization. U.K. banks have been failing sporadically and it has become a real possibility that Britain will nationalize some of the larger ones in the near future.
USD - USD Remains a Safe-Haven from European Economic Woes
The U.S currency rose against the EUR and the GBP on Wednesday as the failing British banking sector continues to weigh on the Pound. The greenback gained 5.3% versus the GBP in the past three days after the U.K. government's plan for a second bank bailout in three months raised concern the financial crisis is deepening.
However, against the JPY, the Dollar decreased as much as 2.9% yesterday to 87.13, the lowest level since July 1995.
According to analysts, this was a result of traders abandoning the Dollar when option contracts betting on its staying above 90 Yen expired at 10 a.m. New York time yesterday, causing the USD to collapse versus the Yen. The USD posted some gains versus the European and the British currencies due to the fact that the market is concerned over losses in the U.K. banking sector and a deepening recession in the Euro-Zone, firmly limiting the rebound of the Pound and the EUR.
Market participants had said that they see little reason to predict that the worst is over for the GBP and the EUR. It appears that the longer-term trend still points towards major currencies being sold against the Dollar, with the trend only temporarily offset by occasional bounces in equities. For the moment, the currency market's focus is on whether U.S. stocks will continue retreating after dropping sharply the day U.S. President Barack Obama was sworn in, keeping risk aversion intact. It reflected a view that it will take time before effects from the new administration's economic stimulus package are felt.
EUR - The Euro-Zone Currency Falls versus the Greenback on Economic Concerns
The EUR is expected to come under further pressure against the USD, and other major currencies, as the Euro-Zone is likely to face significant economic stress, according to economists. In today's trading, the currency rose as little as 0.5% to $1.2973, after touching a low of $1.2826, its lowest since December 9.
The EUR may fall even further, to as low as 15% against the Dollar by mid-year as European banks restrict lending as sovereign bond spreads widen due to the deepening global economic slowdown.
On Wednesday, the EUR fell versus the Dollar to trade at session lows after Portugal became the most recent Euro-Zone economy this year to be hit by a rating downgrade by Standard & Poor's economists who say that the EUR losses stem from investors who believe that while the U.S. economy is obviously in a bad state, the Euro-Zone economy is in a much worst-case scenario than the U.S.
Bond yield spreads between the strongest and weakest Euro-Zone economies have ballooned as the global financial crisis pressures budgets, making the ECB's one-size-fits-all monetary policy less effective. ECB President Jean-Claude Trichet has recently said that all 16 countries using the EUR are experiencing difficulties and renewed his call for governments to pursue sustainable fiscal policies.
JPY - The JPY Posts New Record Highs against Major Currencies
The Japanese currency rallied broadly on Thursday toward a 13-year peak against the Dollar and a near 7-year high versus the EUR amid growing investor anxiety about global banking woes. The JPY rose to 88.80 against the USD after rebounding from Wednesday's low of 87.09. Against the EUR, the Yen climbed 1% to 115.27. Traders said that expectations for further shrinking interest rate gaps between Japan, Britain and Europe added to the Yen's strength versus the Sterling and the EUR.
The JPY was traded near a record high against the Sterling as speculation that the deepening financial crisis will force Britain to nationalize its banks boosted the haven appeal of Japan's currency. The Yen was traded at 124.75 against the Pound after rising 0.1% yesterday and reaching an all-time low of 119.42. Japan's currency also advanced against the GBP before a U.K. report that may show unemployment climbed at the fastest pace since 1991. Analysts say that the market is reflecting the downside risk of the global economy and an increase in risk aversion by investors. As a result, the Yen carry-trade is being unwound with the Yen as the beneficiary, and this move might likely continue for some time.
Oil - Oil Extends Gains from Speculation on Obama's Rescue Plan
The price of Crude Oil jumped to above $43 a barrel on Wednesday as the Organization of the Petroleum Exporting Countries' (OPEC's) supply cuts outweighed additional evidence that a deepening global slowdown is crushing demand for fuel. In fact, the cartel has actually been enforcing its deepest oil supply cut, which should be enough to boost the price of Crude.
Wednesday's gains in Crude Oil were tempered by mounting worries about shrinking oil demand as an economic slowdown takes hold, analysts have said. Oil has also extended its gains after U.S. equities surged on speculation a bank-rescue plan from President Barack Obama will boost financial companies. The prices rallied on the new U.S. president's plans to complete an assistance program that can be paired with the $825 billion stimulus package. And since there's been a positive correlation between energy and equities, this appears to be giving the oil market some support.
After receiving some strong support yesterday at the 1.2850 price level, the pair has begun making an upward correction. With the daily chart's RSI showing that the pair remains in the over-sold territory, and the weekly chart's Momentum oscillator indicating upward mobility. This upward correction may still have some more room to run. Going long with tight stops might be the right choice today.
This pair has been range-trading since Tuesday with no clear indication of direction. The 4-hour chart's RSI shows the pair just leaving the over-sold territory, but the daily chart's RSI shows the pair just entering the over-sold territory. Waiting for a clearer signal might be the right choice today.
After yesterday's dramatic, mid-day spike, the pair has settled back into a range-trading pattern. The daily chart's RSI shows the price floating in the over-sold territory indicating an upward correction may occur later today. Supporting this notion is the weekly chart's Momentum oscillator which shows that there is sharp upward pressure on the price of this pair. Going long with tight stops might be the right choice today.
The price of this pair currently floats in the over-bought territory on the 4-hour and daily charts' RSI, indicating a downward correction may occur in the near future. The price of this pair also appears to be moving along the upper border of the daily chart's Bollinger Bands, signaling downward pressure may be applied later on. Going short might be a good strategy today.
The Wild Card
The price of this commodity currently floats in the over-bought territory on the hourly chart's RSI, signaling a downward correction will likely occur in the near future. The imminent bearish cross on the 4-hour chart's Slow Stochastic supports this notion. Forex traders can capture profits by entering sell positions with tight stops on this commodity today.
|09:45||EUR||Italian Manufacturing PMI||55.3||56.2||53.8|
|09:55||EUR||German Unemployment Change||9K||-5K||-7K|
|10:00||EUR||Final Manufacturing PMI||52.4||52.4||52.3|
|10:00||EUR||Italian Monthly Unemployment Rate||12.7%||12.7%||12.0%|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.4%||12.5%||12.4%|
|10:30||GBP||Net Lending to Individuals m/m||m/m||3.8B||3.9B||3.9B|
|10:30||GBP||M4 Money Supply||m/m||-0.5%||0.2%||1.0%|
|15:45||USD||Final Manufacturing PMI||52.9||52.9||-|
|16:00||USD||ISM Manufacturing PMI||52.7||39.7||-|
|16:00||USD||IBD/TIPP Economic Optimism||46.9||- 47.3||-|
|16:00||USD||ISM Manufacturing Prices||44.0||52.6||-|
|03:00||NZD||ANZ Commodity Prices||m/m||-11.2%||-||-|