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Wednesday, 2 Jul 2008
Peak Crude Oil Prices Enhances Bearishness in USD
Yesterday the USD saw bearish trends against most of its major currency counterparts. The USD fell 34 points vs. the Euro, setting the EUR\USD rate at 1.5794. The USD also depreciated against the GBP, and underwent a volatile session against the JPY.
A bundle of data was delivered from the U.S economy yesterday. The most influential indicator was the Institute of Supply Management (ISM) Manufacturing Index. This indicator measures the activity level of purchasing managers in the manufacturing sector, while a reading above 50 indicating expansion. The index rose from a 49.6 to 50.2 reading, well above the expectation of 48.6. The ISM Manufacturing Prices, which measures the monthly inflation experienced by manufacturers, also increased, rising from 87.0 to 91.5 in the month of June. Additional indicators that released yesterday were the Monthly Construction Spending that fell by 0.4%, and the Domestic Vehicle Sales that descended to 9.7M, following last month's printing of 10.3M. Yet these indicators had little effect on the USD.
Today is going to be another significant day for the US dollar. The very important Nonfarm Employment Change is expected to depreciate by 20K. Such a result, if it occurs, may definitely result in falling trends for the USD. U.S Factory Orders are forecasted to drop to the 0.4% level in May, following a 1.1% increase in the previous month. Crude Oil Inventories might also reach the -0.1M level, after last week's printing of 0.8M. the last event today will take place at 16:00 GMT as US Federal Reserve Governor Frederic Mishkin will deliver a speech titled "The Global Financial Disruption and the World Economy" at the Caesarea Forum of the Israel Democracy Institute in Eilat. Clues regarding U.S future monetary policy might be scattered.
Traders are advised to follow carefully today's financial news, and keep an eye open on Crude Oil prices, as it seems to have large influence on USD pairs.
Yesterday, the EUR underwent volatile session against most of its major currency rivals. The EUR rose against the USD; however it mainly fluctuated against the GBP and the JPY.
Yesterday, the main news for the Euro came from the German Economy, the strongest economy in the Euro zone. German Retail Sales rose 1.3% from April, up 0.7% year-on-year. The German Unemployment Change has fallen by 38K as opposed to the last month. Other indicators published yesterday were the European Manufacturing Purchasing Manager's Index (PMI) that slightly rose to 49.2 from 49.1 in May. The PMI remained at its lowest level since May 2005, indicating that the sector is still contracting. The European Unemployment Rate has remained at 7.2% in May, unchanged from the rate in April. Even though yesterday's data failed to deliver positive figures for the European economy, the EUR has appreciated against the USD, mainly because the European Central Bank (ECB) is widely expected to raise Interest rates by a quarter percentage point to 4.25% on Thursday, increasing demands for Euro dominated assets and Euros to buy them with.
Today, ECB President Jean-Claude Trichet will deliver a speech at the 15th edition of the Rencontres Finacueres Internationales, in Paris. Traders should follow his speech carefully as any clues regarding future Interest Rate manipulations might generate increased volatility in the market.
Today, the sole indicator that will be published from the Euro zone is the Producer Price Index, which measures the change in the price of finished goods and services sold by producers. The index is forecasted by analysts to rise by 0.9% in May, following the 0.8% growth rate observed in April, and is expected to have increased 6.7% from the previous year at the same month.
Traders should also follow the leading indicators published from the U.S economy, as they should play the main role in today's trading session.
Yesterday, the JPY saw mixed results versus its major currency counterparts. The JPY first broadly rose against the USD, benefiting from growing risk aversion in global stocks as heightened fears regarding further losses in the banking sector motivated investors to buy Yens. The JPY tends to gain support when heightened risk aversion occurs, as investors reverse trades financed by borrowing the JPY at low interest rates. However, the USD\JPY rose back, mainly as a result of the positive U.S ISM reports.
Also yesterday, the Japanese Average Cash Earnings rose by 0.2% from the previous year, lower than the expected 0.7%, yet it was the fifth straight monthly increase and followed a 0.8% rise in April. The average basic salary in Japan has increased by 0.3%, rising for the seventh straight month. Late in the night, the Japanese Monetary Base, which measures the value of all currency and liquid cash assets held by the public, rose by 0.4% in June from the previous year, marking the first increase in four months.
Today, the JPY will be absent from the economic calendar and traders are advised to follow global financial news, especially from the U.S economy.
Oil at peak prices isn't fringe anymore - it's going mainstream. By 2015, developing country's Oil demand will outstrip the rich world's. They're already in the driver's seat: 90% of the demand growth over the next five years will come from Asia, the Middle East, and Latin America, the IEA said.
The Crude Oil prices seem to consolidate around $142 per barrel for a couple of days now. The market appears to be overbought, but the Oil price might become even more overbought during the day, before reversing. Be prepared.
The pair has been range trading with high volatility for a while now, and it appears that the bearish price movement might be back. However on the 4 hour chart local bullish correction is taking place. Going long with tight stops could be a good strategy today.
After quite a long period of a distinct bullish correction, the pair has made its bearish breach, and appears to have established a starting point for a relatively strong downtrend. The Slow Stochastic of the daily chart confirms the bearish momentum, and being on the sell side appears to be the right choice today.
The daily chart is showing flat consolidation around the 106.00 level with no distinct price direction. The 4 hour chart is showing mixed signals, and the daily chart is dwelling in neutral territory. Traders are advised to wait for a clear signal on any direction or keep out of that one today.
After bottoming out at the 1.0130 level, the pair is showing signs of a corrective move on the daily chart. The Slow Stochastic indication on the 4 hour chart is showing no crosses and the RSI suggests the constitution of the correction. It appears that a test of the key Fibonacci level 1.0350 might be quite imminent.
The Wild Card
The very important resistance level of 144.00 is looming and the bullish move might revalidate as can be seen on the daily chart. Forex traders have a great opportunity to join this strong key breach and enjoy the rest of the bullish momentum.
|10:20||AUD||RBA Assist Gov Debelle Speaks||-||-||-|
|12:30||GBP||Autumn Forecast Statement||-||-||-|
|13:30||USD||Core Durable Goods Orders||m/m||-0.3%||0.5%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Durable Goods Orders m/m||-1.2%||1.6%||-|
|14:45||USD||Flash Services PMI||54.8||55.2||-|
|15:00||USD||New Home Sales||468K||500K||-|
|15:00||USD||Revised UoM Consumer Sentiment||93.1||93.2||-|
|15:00||USD||Revised UoM Inflation Expectations||2.5%||-||-|
|15:30||USD||Crude Oil Inventories||0.3M||-||-|
|17:00||USD||Natural Gas Storage||-||-||-|
|00:30||AUD||Private Capital Expenditure||q/q||-4.0%||-2.8%||-|
|09:00||EUR||M3 Money Supply||y/y||4.9%||4.9%||-|