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Thursday, 22 May 2008
Record High Oil Prices Oppress the Usd.
Yesterday the greenback was bearish against its rival currencies, continuing its decline from the beginning of the week. Throughout the trading day, the EUR\USD was being traded just under 1.5800, the GBP\USD reached 1.9730 and the USD\JPY declined to under 103.00.
Following the previous day highlighted by the lower than forecasted PPI, yesterday the greenback was greatly affected by the announcement of -5.4M Crude Oil Inventories and hawkish comments from the FOMC meeting. Crude Oil has reached an all time high this week and its bullish surge continues to negatively affect the American economy.
As hawkish comments and notes from the FOMC meeting were released, traders became ever more wary of the USD. The main news coming from the FOMC meeting has been the intention of the Federal Reserve to resist any possible Interest Rate cuts in the near future, downgrading estimates for economic growth in 2008. As a result of the weaker USD and the negative American Inventories, Crude Oil reached a new all time record, trading above $134 per barrel.
Looking into the very important FOMC meeting held yesterday, traders should focus on the data that was released by Fed policymakers. In their projections, Fed officials predict the US economy to grow somewhere between 0.3% and 1.2% this year, much slower than the 1.3% to 2.8 % forecast made in January. Last October, the Fed expected US economic growth as high as 2.5% this year. The Fed now expects the US jobless rate to rise to 5.5% - 5.7% this year, higher than the 5.2% rate seen in January.
Looking ahead to today, the very important US Unemployment Claims will be released with forecasts predicting 373K claims, 2K higher than the previous month's claims. Half an hour later, Fed Governor Kroszner will deliver a speech titled "Prospects for Recovery and Repair of Mortgage Markets". Traders should look for further hints regarding the Fed's future intentions. The main news event that will affect the USD's momentum will be Unemployment Claims. As forecasts expect more claims than previously, traders should expect further bearish momentum from the greenback.
Yesterday, the EUR saw bullish trends against rival currencies, especially vs. the weak USD. The EUR's rise in value resulted mostly because of very good German economic news. The German Ifo Business Climate index, measuring the mood of firms in manufacturing, construction, wholesale and retail was releases, beating out forecasts at a value of 103.5. The German Ifo Business Expectations index also beat forecasts, measuring at 97.3. Both indices fueled the continuation of the EUR bullish momentum.
Experts conclude that as inflationary pressures rise, traders appear to prefer currencies where inflation targeting has been upheld better - namely the EUR. In an interview with French regional daily Ouest France, ECB governing council member Christian Noyer, said that he believes the financial crisis is not over. Noyer also mentioned that the Euro zone Gross Domestic Product (GDP) grew over 1% in the last 6 months and that the growth rate is becoming very close to normal. In fact, the economic data that was released yesterday from Germany, further supported Noyer's comments.
On tap today from the Euro-zone, traders should keep a close look at Italian Retail Sales and even more importantly EUR Industrial New Orders. Both data released are expected to be lower than their previous values, which might hurt the EUR's latest rise. Traders should pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and is susceptible to surprises.
Yesterday, the JPY saw mixed movement against its major currency rivals, highlighted by major gains against the weak USD. The Yen gained positive momentum from Japan's All-industries Index, which beat out forecasts, but was affected negatively by a lower than forecasted Trade Balance. Overall, the Yen has seen volatile trends and was mostly affected by the movement of its rivals.
Yesterday's mixed news from Japan was made up of the All Industries Activity Index, which covers a broad range of economic activity including spending in the services sector. This indicator printed at 0.5%, beating the low expectation for -0.2%.
On the other hand, the Trade Balance data surprised, printing at a lower then expected 0.61T. Other interesting news yesterday was released by the Japanese Ministry of Finance, which stated that although foreigners have sold a lot of Japanese bonds, they were the net buyers of Japanese stocks.
Today, traders should expect another mixed trading session in Japan, as most of the Yen's movements will be based on its rivals' momentum. At 23:50 GMT, The Bank of Japan will release its Monetary Policy Meeting Minutes, which will help traders understand the Japanese market's current state. The wild card that might be the deciding factor in the JPY's trading direction might be the Crude Oil, as its rise in price causes future economic slowdown in Japan.
There is a wide opening channel forming on the 4 hour chart as the pair floats near its upper barrier. After breaching the key 1.5720 resistance level yesterday, oscillators now show that the momentum is bullish and a breach through 1.5820 will validate a bigger bullish move into the 1.5900 levels again.
Daily chart shows that the pair is still trading within its wide range with no specific direction. However, a fresh bullish signal can be seen on the 4 hour chart, and together with a positive slope on the daily Slow Stochastic, the bullish momentum is still quite strong. Going long appears to be the preferable strategy for today.
The 4 hour chart shows that the pair continues an aggressive bearish move within the wide flat channel of the daily chart. The Slow Stochastic on the daily chart indicates that the momentum is relatively strong, and the RSI supports the bearish notion. Next target price might be around 102.50, and if breached we should see a stronger bearish move being validated.
According to the hourlies the pair is still in a bearish configuration. However, a positive slope on the Slow Stochastic of the 4 hour chart implies that the reversal of the current bearish trend is possible. The 4 hour chart's Relative Strength Index (RSI) swings low further supporting the possibility of the reversal. Traders should wait for a stronger signal before jumping into the bullish trend.
The Wild Card
The violent bullish surge continues with all oscillators showing the continuation of the trend. Fresh all time highs are being breached on a daily basis and Oil is now floating at 134.20. The RSI is showing that the bullish momentum is still quite bullish. Forex traders have a great chance of enjoying the additional momentum still left for the commodity.
|03:30||JPY||Average Cash Earnings||y/y||-2.4%||2.3%||-|
|08:00||EUR||German Factory Orders||m/m||2.0%||-0.5%||-|
|14:10||USD||FOMC Member Lacker Speaks||-||-||-|
|14:30||USD||Non-Farm Employment Change||215K||220K||-|
|14:30||USD||Average Hourly Earnings||m/m||0.2%||0.2%||-|