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Wednesday, 18 Jun 2008
Recovering US Economic Outlook Supports the USD.
The USD saw bearish trends against its crosses yesterday. The bad trading day was highlighted by the EUR/USD pair's breach above the 1.55 level. The USD was affected the most by the report released by Goldman Sachs (a leading global investment baking group) on the broader banking industry. The report estimated that credit losses from deterioration in the mortgage and lending markets will not peak until early 2009, and that U.S. banks, having already raised about $120 billion in capital, will need to raise an additional $65 billion to cover the losses. This reminded traders of the past banking crisis that was thought to be overcome. The other major negative economic news coming from the U.S. yesterday was the release by the Commerce Department, which stated that U.S. May Housing Starts fell 3.3% to a 975,000 annual rate, the lowest since March 1991. Not only did this impact the USD because of the low rate it was also worse than forecasted.
Many economic results were released yesterday with mixed results. The monthly PPI beat out forecasts by 0.4% and the Building Permits beat out forecasts by 1 million, but were still lower than the previous rate. However, the negative releases seemed to impact the greenback more as the Housing Starts reached a 15 year low at a rate of 975,000 and Industrial Production was released at -0.2% after there were expectations of a 0.1% rate. The bad day didn't end there, as the Capacity Utilization Rate and Current Account were also worse than expected. Traders saw the USD fall further and further as more negative economic releases were announced during the trading day.
Looking ahead to today, there is only one release expected from the U.S. The Crude Oil Inventories will be announced at 2:35 GMT and traders should pay attention to this figure as Crude Oil has been causing the USD a lot of volatility as of late. On a side note, Iranian President Mahmoud Ahmadinejad said the rising price trend in Crude Oil is "fake and imposed" and traders should watch how volatility in Crude Oil will affect the USD.
Yesterday, the EUR saw slightly bullish trends against most of its currency pairs. The Euro-Zone economic releases started at 8:00 GMT yesterday with the Italian Trade Balance which had the same value as forecasts. On tap was the German ZEW Economic Sentiment and general ZEW Economic Sentiment, which were both measured at slightly under -52, which is about 10 points lower than expected. This value would seem to hurt the EUR; however, the EUR took advantage of bearish trends by other majors, most notably the USD and was also assisted by ECB's Mersch's most egregious comment from the ECB in recent memory, saying that there is "possible certainty" of a rate move at the next ECB meeting. After experts expected a negative Trade Balance value, the release was surprisingly positive, which continued to help the EUR's bullish momentum.
No economic releases are expected today and the EUR's trading trends will be affected by trends in other majors. The main news are expected from the neighbor across the channel, as the MPC Meeting Minutes will be released from the United Kingdom and BOE Governor King will hold a speech during the evening. Traders should also keep an eye on the Crude Oil price as it seems like the EUR has been gaining strength recently every time the Crude Oil price rises and hurts the USD.
Yesterday, the JPY saw a continuation of its month long bearish trend stemming from bullish trends by most of its crosses. Although the JPY rose against the USD, this was just a result of the USD's bearish trend and most of the other pairs gained strength against the Yen. Around the end of the trading day, the Monetary Policy Meeting Minutes from last month were released and they did not help the JPY end its negative momentum. The minutes can be summarized by indecisiveness by the BoJ following the recent rise in commodity prices which had caused both supply and demand shocks to the Japanese economy, making it difficult for the central bank to decide on which policy action to take
Today will once again be a slow news day for Japan. The only economic releases which will come out of Japan today will be the All Industries Activity Index. The forecast is a slight decrease from last month and this could cause a further decline in the JPY's value. Like the EUR and USD, it seems like there will not be much volatility in the Yen's trading because of no expectations of major economic releases in the main economies.
According to the daily chart, the pair has been going through choppy sessions with mixed trends for the past several trading days. However, the Bollinger Bands on the 4 hour chart are tightening indicating that the bullish trend which was initiated at the beginning of the week is now reaching its limit. Accordingly, the local bearish correction we are currently witnessing may have more room to run in the near future. The RSI as well shows that the market is in an overbought condition also supporting the local bearish notion.
Since the beginning of today's trading session the pair went down a slippery slope, depreciating from 1.9683, down to 1.9522. The hourlies show that the Cable is in the middle of a bearish movement. However, on the 4 hour chart there is a formation of a head and shoulders shape suggesting that the current bearish momentum is nearing to its limit. Traders may go short with tight stop orders.
The 4 hour chart is showing that the moderate bearish correction is still intact. There is also a bearish cross on a Slow Stochastic of the daily chart, implying that the bearish momentum may continue for a while. On the Hourlies, the range trading continues without a distinct breaking direction. The Hourly chart's RSI also supports that neutral notion.
After peaking at 1.0520 on Monday, the daily chart is showing a relatively volatile price movement within a wider flat channel. Both the hourlies and the 4 hour charts also provide no specific information, showing that the pair is trading with mixed signals and with no clear direction. Traders are advised to wait for clearer signals on the hourlies before entering the market.
The Wild Card
According to the daily chart, the pair is now in the middle of the very accurate upwards channel, as the break of the upper level of it was recently validated. The pair seems to have enough bullish momentum to carry into the 104 zone. This might be a great opportunity for forex traders to join a very promising bullish trend.
|10:00||EUR||M3 Money Supply||y/y||4.6%||4.9%||5.3%|
|11:00||EUR||Italian Prelim CPI||m/m||0.3%||0.1%||0.2%|
|14:30||USD||Prelim GDP Price Index||q/q||-0.1%||-0.1%||-|
|16:00||USD||Revised UoM Consumer Sentiment||95.9||90.0||-|
|16:00||USD||Revised UoM Inflation Expectations||-||2.5%||-|