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Monday, 22 Sep 2008
Strings of US Financial Crisis Attached to World Market
The financial news that came out last week got most of the spotlight in terms of its effects on the USD. With the new economic salvage program being implemented in the coming weeks, the USD appears to be having the largest impact on the major currencies. Traders should keep tabs on the direction of the dollar as its movement will be vital to this week's trading.
USD - U.S. Rescue Plan on Deck - Awaiting Further Details
Last week was an exceedingly bearish trading week for the USD against most of its currency counterparts. Although the USD ended the week pretty close to its previous value versus the JPY, the greenback lost a lot of ground to its other major currency rivals. With a lot of news coming throughout the week regarding the American financial crisis, the USD saw very high volatility. Against the EUR, the USD was traded above the 1.45 level; as well as being traded above the 1.83 range versus the GBP. This past week was one which the USD would like to forget.
The financial news that came out last week got most of the spotlight in terms of its effects on the USD. As Lehman Brothers went bankrupt and AIG showed major worries, the American markets saw a lot of negative momentum and value lost. The economic indicators that were released last week were not very supportive of the USD's bearishness either. The Industrial Production, CPI, TIC Net Long-Term Transactions, Building Permits and Unemployment Claims all came out worse than forecasted. In fact, none of the major releases for the USD beat forecasts this week. The only positive economic indicator released was the Federal Funds Rate which was held steady at 2.00%.
Looking ahead to this week, most of the economic releases are expected to be worse than their previous figures. A lot of volatility may occur after Fed Chairman Bernanke makes statements regarding the new economic rescue plan. These will occur daily starting Tuesday and lasting through Thursday this week. He will be testifying about the current financial situation; traders should follow his words and look for a solution to the current crisis with government intervention. The main economic data that will be released and should be followed during this week will be the Existing Home Sales, New Home Sales, Core Durable Goods Orders, and Unemployment Claims. Overall it seems like this will be another volatile week for the greenback while Bernanke is expected be the center of the stage in terms of driving the USD's trading trends in the market this week.
EUR - EUR Gains from Positive Economic Data
The EUR made up ground last week as it took advantage of the USD and JPY's bearishness and also was driven by its own economic data releases. The EUR was bullish against the USD and JPY, but didn't move much versus the neighboring Swiss Franc and Pound Sterling. Most notable was the rebound of the EUR/USD cross that traded above the 1.45 range. As most of the financial news came out of the U.S., with Lehman Brothers' bankruptcy and the AIG bailout, the EUR provided positive data of its own. There weren't many releases this week, but from the data that was released, all beat their forecasts. The three which were the most important were the Core CPI, German ZEW Sentiment, and ZEW Economic Sentiment, as each sparked part of the EUR's bullishness last week. It was also interesting to see how rising Crude Oil prices went hand-in-hand with the bullishness of the EUR.
There will be more major economic data releases this week compared to the previous one, which should drive more self-volatility for the EUR. Today will start with an early speech by ECB President Trichet. The releases that will come in the following days will be showcased by French Consumer Spending, Flash PMIs, German Ifo Business Climate and the European Current Account. Most of these economic releases are expected to come out worse than their previous figures and thus the EUR could see bearishness this week. Traders should not forget about the US financial crisis and the news surrounding these events as they will also cause a lot of volatility for the EUR against the major currencies, especially the USD.
JPY - JPY Fares Poorly, Mimicking the USD's Bearishness
The JPY seemed to shadow the USD's momentum last week as it saw mostly bearishness against its currency counterparts. Besides the USD, which didn't move much versus the JPY, the Yen lost grounds to the other major currencies. Traders saw the EUR/JPY cross fall under 155.00, and the GBP/JPY traded under the 196.00 mark. The JPY was negatively affected by the increase in the price of Crude Oil as traders expected expensive gasoline prices to harm the profitability of exports from Japan. Very little economic data was released throughout the week, with the spotlight going to the drop in Household Confidence in Japan. As expected, the Japanese Interest Rate stayed unchanged at the world's lowest value of 0.50%.
More self-made volatility should be expected for the Yen this week. There is a batch of economic data that will be released in the next few days. The BSI Manufacturing Index, Trade Balance and yearly CSPI are all expected to come out lower than their previous figures. The only non-bearish release is expected to be the Tokyo Core CPI, which is forecasted to stay unchanged compared to its previous rate. Outside of the economic data that will be released from Japan, the JPY's trading trends will also be greatly affected by U.S. Fed Chairman Bernanke's speeches, news that will come from the U.S. regarding the financial crisis, as well as the changes in Crude Oil prices.
Oil - Oil Prices Rise as a Result of Weakened Dollar
Since the opening of the early trading sessions this week, traders have seen the price of Crude Oil continue its rise over the weekend and now float near the $104 mark, up from last week's low of $91. No doubt the U.S. financial crisis has made an impact on the price of Crude Oil. A weakened USD makes dollar-priced Oil and other commodities a more attractive investment for buyers using stronger currencies. Traders also focus on what's happening in the market. Events such as hurricanes and the militant uprising in Nigeria's oil-rich region all have an impact on speculation about the supply, and hence the price, of Crude Oil.
The U.S. strategy for bailing out the major investment banks clearly had little impact on weary investors, who have recently been taking their money out of the shaky stock markets and investing in safe-haven commodities instead, driving their prices higher. As for today, the price of Crude Oil appears to have settled at $103.93, but volatility is just on the horizon as this week's economic indicators will once again create intense fluctuations in the market. Traders should follow the movement of the USD this week as it tends to have an inverse relationship with the price of Light Sweet Crude.
During the weekend, the pair breached through the 1.4550 level, marking an intense bullish run. However, a bearish cross on the 4-hour chart's Slow Stochastic suggests that a bearish reversal might take place. Going short seems to be the right choice today.
After making a significant rally on Friday, the cable has consolidated around the 1.8300 level. And now, all oscillators on the 1-hour chart are pointing down, implying that a bearish correction is imminent. Going short might be the right strategy.
The pair is continuing to fluctuate within a restricted price range, and is now traded around 106.50. Nevertheless, after peaking at the 108.00 level, the pair is experiencing a strong bearish momentum that seems to have more steam in it. Going short with tight stops appears to be preferable.
After dropping over 150 pips and breaching through the 1.1000 level, the bearish momentum seems to be over. As a bullish cross on the 4-hour chart's Slow Stochastic takes place, a bullish movement seems likely. Next price target might be 1.1100.
The Wild Card
After recently peaking at the 2.0350 level, the pair is consistently dropping. Currently, as all indicators are giving bearish signals, it appears that the pair will extend its downtrend. This might be a great opportunity for forex traders to join a very popular trend.
|23:30||USD||FOMC Member Williams Speaks||-||-||-|
|00:30||AUD||AIG Construction Index||53.8||-||-|
|01:01||GBP||BRC Shop Price Index||y/y||-1.4%||-||-|
|02:00||AUD||HIA New Home Sales||m/m||-1.8%||-||-|
|02:01||JPY||Monetary Policy Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|