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Wednesday, 5 Nov 2008
Obama Victory Brings Close to Marathon Campaign; Will Markets Respond?
A U.S. Presidential victory by Barack Obama was seen as marginally dollar-positive given he could have an easier time passing his agenda through the strengthened Democratic Congress. However, some have said that a surprise win by Republican John McCain would have been just as beneficial. Most are relieved to see this marathon campaign come to an end. But with Democrats expected to increase their majority in Congress, some warned that markets may balk at one party wielding so much power.
USD - Barack Obama's Win Seen as USD-Positive
With a relatively negative news day from United States, which saw US factory orders in September dropping more than three times what was expected, the USD recorded one of its biggest one day slides against the EUR experienced since that currency's launch. The USD witnessed similar behavior against the Pound and Swiss Franc. The USD did see bullishness as well, as it gained around 100 points against the JPY and closed at 99.60.
The recent unusual price movements have been in response to new market conditions stemming from the global financial crisis that began in September with the bankruptcy of Lehman Brothers Inc. As for today's election results, which will also affect the U.S market, a victory by Democrat Barack Obama was seen as marginally dollar-positive given he could have an easier time passing his agenda through a Democratic Congress. However, some have said that a surprise win by Republican John McCain would have been just as beneficial. Most are relieved to see this marathon campaign come to an end. But with Democrats expected to increase their majority in Congress, some warned that markets may balk at one party wielding so much power.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains.
EUR - Could the EUR Rise after a Euro-Zone Interest Rate Cut?
The EUR has strengthened against most of its major counterparts, continuing to prove that, for the time being, this is the solid currency that traders can rely on to provide them with steady profits. The 15-nation currency marked its biggest one day rise against the USD since the EUR launched. Although no significant indicators were published from Euro-Zone, and no valid explanation can throw some light on this phenomenal trend, the EUR appreciated against all the major currencies.
Falling costs of food and oil curbed Euro-Zone production prices more than expected in September, pointing to falling inflationary pressure ahead of an expected ECB rate cut. Industrial production prices in the European Monetary Union (EMU) fell 0.2% month-on-month, for a 7.9% year-on-year rise. Producer prices are an early indication of inflationary pressure because their increases, unless absorbed by retailers via lower profit margins, eventually translate into higher costs for consumers.
The European Central Bank (ECB) is expected to cut its benchmark interest rate on Thursday which would normally be seen as currency negative, but with the global financial crisis, current thinking is that moves by central banks to stimulate economies are positive for currencies. Could the EUR see a rise in value as a result of this rate cut?
Looking ahead to today, the most important financial indicator scheduled from Europe is Retail Sales. Analysts forecast this figure to decrease from its previous reading. Traders are strongly advised to pay attention to today's Retail Sales announcement, as a stronger than expected result may bolster the recent bullish trend for the EUR.
JPY - JPY's Negative Movement Attributed to Global Market Data
Yesterday the JPY saw bearish results against most of its major currency rivals. The JPY was predominantly influenced by the other major currencies' behavior, however, as only one indicator was published from the Japanese economy. It appears lately as if the JPY is being motivated by outside factors more than by the Japanese economy.
Japan's monetary base rose 1.4% in October from last year. Current account deposits at the central bank rose 7.1% after marking the first increase in more than two years in September. The Bank of Japan's (BoJ) injection of large amounts of dollar-funds into money market operations amid the global credit crisis are a primary cause of this increase. It will be interesting to see how the local Japanese data will interact with equity market movement for the rest of the week in relation to the JPY's recent behavior.
The Monetary Policy Meeting will release its minutes later today. This will be the sole news event on tap from the Japanese economy and will likely have little effect on the market. Forex traders invested in JPY related crosses should stay tuned to stock market movement today for an indication of today's behavior.
Oil - Price of Crude Oil Stiffens to Maintain Healthier Price
Crude Oil prices rose $8 yesterday on signs that OPEC members were cutting production to comply with their recent decision. This came after the price of Oil dropped $5 a barrel the day before. If OPEC decides to make a cut in Oil production, prices are expected to firm up and move higher in a short term.
Looking ahead today, one of the more influential pieces of economic data will be U.S. Crude Oil Inventories. 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 rise to 1.1M from last month's 0.5M. Traders can, and should, expect wide market volatility around the 15:35 GMT release of this figure.
Similarly to what is happening all across the board, the USD bullishness did not skip this pair as well. On a 4-hour chart it appears that the local EUR/USD bearish momentum might be taking the pair to 1.2750 level. There are several bullish signals on the daily level as well, yet it seems that pair is overlooking all technical aspects. Going short appears to be the smartest move today.
A bearish formation on the daily chart is still intact; however the momentum is already quite low. The 4-hour chart is maintaining a slightly bearish indication yet with no distinct conclusion. The Bollinger Bands are tightening which indicates that the break might be imminent. Traders are advised to hold for the breach and then swing into it.
The bullish trend is loosing its steam and the pair seems to consolidate around the 100.00 level. It appears that the bullish breach above the range was not validated, and that range trading might be the name of the game. Taking short term selling positions might be the right move today.
The bullish channel continues with strong momentum as the pair now floats around 1.1700. The Slow Stochastic on the hourly chart is floating around 50 indicating that the bearish signal is in place. The RSI is forming back into bullish formation and supports the general notion. Next target price might be 1.150.
The Wild Card
After a moderate bullish correction, this commodity is heading $62 per barrel again. The 4-hour chart is showing growing bearish momentum, while the daily studies also support that notion. This may prove to be a good opportunity for forex traders to join a potentially strong downtrend that might yield high profits.
|04:45||JPY||30-y Bond Auction||1.46|2.7||-||-|
|08:00||EUR||German Factory Orders||m/m||4.2%||-0.8%||-|
|13:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|13:00||GBP||Asset Purchase Facility||375B||375B||-|
|13:30||USD||Challenger Job Cuts||y/y||17.6%||-||-|
|13:45||EUR||Minimum Bid Rate||0.05%||0.05%||-|
|14:30||EUR||ECB Press Conference||-||-||-|
|14:30||USD||Revised Nonfarm Productivity||q/q||-1.8%||-2.2%||-|
|14:30||USD||Revised Unit Labor Costs||2.7%||3.1%||-|
|16:00||USD||FOMC Member Williams Speaks||-||-||-|
|16:30||USD||Natural Gas Storage||-||-||-|
|23:30||AUD||AIG Construction Index||45.9||-||-|