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Monday, 31 Mar 2008
The Chicago PMI - On Tap
The Greenback heads into the last day of March prime for what could be one of the more defining points of 2008. After last week's mixed batch of economic data out of the US, the Dollar plunged against a majority of its most traded currency rivals, most notably the EUR. It was not to long ago; following the last 75bp cut, that investors thought the greenback was pulling itself out of the mud to finally ride a significant bullish trend. Instead, we enter April prime for what could be a period of record lows for the Dollar and the US economy. The US has seen its fair share of bad data, but what is so alarming lately, is the harmony at which data is failing. The housing market continues its freefall, taking with it any progress the credit sector might have made in recent future due to rates cuts, to bring the dollar to its current state. Add to that the drop in Consumer Confidence and a hefty unemployment figure from the US and suddenly talks of Recession become far more realistic.
This week will see a wide range of key economic events from the US economy. ISM Manufacturing and Non-Manufacturing numbers, Factory Orders, Unemployment figures, and the ADP Employment Report highlight a busy economic week in the US. Also we await the testimony of Fed Chairman Ben Bernanke before the Joint Economic Committee of Congress on Wednesday. Bernanke will look to explain the currently grim outlook of the US economy, as Fed intervention has not provided enough to turn around the recessionary trends. Bernanke is also expected to hear questions regarding new strategies to tackle the shift in consumer behavior in the US, as we have seen an uncharacteristic fall in US consumer spending. The Fed boss will be faced with the dilemma of whether or not to sacrifice long-term strategy to cope with short-term turmoil in the market. Whatever the outcome may be from his testimony, Bernanke's comments and the figures due for release will pave the way for Friday's important Non Farm Payroll data, easily one of the most volatile events on the economic docket.
Non-Farm data is expected to show that lat month another 50,000 jobs were lost, marking the third consecutive month of such behavior. Not since the onset of the Iraq War on 2003 have we seen such results. The importance of Non-Farm payrolls has been proven over and over again, as it is the most accurate employment report available, and without fails contributes radical volatility to the market each time it is released.
Today we are expecting two economic events from the US. First we see the release of Chicago Purchasing Managers Index (PMI) followed by a speech by Treasury Secretary Henry Paulson. The PMI figure, which measures the health of the Chicago business environment, is expected to see a 1.5-point bump, but still fall short of showing any expansion, an accurate representation for most of the US these days. Paulson will discuss his proposed regulatory plan for the US economy; it should not contribute to market movement. It will be expected that until any surprisingly positive US data is released we will see bearish greenback trends throughout the Forex market. Commodity prices can also be expected to see a hike, as they are all still dollar dependant.
The EUR responded well last week as a combination of positive Euro-Zone (EZ) data and poor US numbers, saw the EUR/US pair rise back toward record highs. As we enter the new month, there is a substantial chance that we will see the popular pair touch 1.60. Last week, the EUR showed its force as it made gains with only a small amount of economic data on the calendar. Drawing from momentum from early German Ifo numbers, the 15 Nation currency closed to within 100 pip of its record high versus the greenback and pushed rates versus a majority of the currencies traded in Forex.
This week looks to be the same as we can expect a host of economic events from the Euro-zone, of which only a few should force any market movement. Manufacturing PMI, Retail Sales, PPI and Unemployment data, look to be the relevant factors from the EZ for this week's market. The figures are expected to come back within range of their previous marks.
One point of interest to many investors is the lack of any big push by European consumers to spend more. With their currency valued at a high mark, and the liquidity and prosperity of their home economies growing, spending has stayed stable. It could be a result of many factors, nonetheless a rise in Consumer spending could be a good sign for the already flourishing Euro-zone.
The only major concern filtering out of the Euro-zone is the possible write-down by German banking giant Bayern Landesbank. Landesbank is expected by some European analysts to write-down Close To 4 Billion Euros, almost double initial expectations. This could be seen as a stepping-stone to future behavior by bigger European banks. Still though it is doubtful that this could offset the current bearish trend by the dollar, as we should expect the EUR to make consistent gains throughout the week.
Today, we can expect the release of Euro CPI and Consumer Confidence figures. These should not contribute much to the movement of the EUR.
The JPY spent most of last week range trading with most of its crosses, as the week's dominant news came from outside of Japan. Early week concerns regarding the Dollar, sent most currencies on a bullish trend versus the greenback, the JPY stayed put, even dropping off a bit. Largely due to a turn in carry trading, the pair peaked above 100 for a short while before correcting back to the key 99 support level. Toward the end of the week, a set of Japanese data mapped out what could be an important week for the JPY. Friday, Unemployment figures were the highest in over 4 months and retail sales dropped enough to erase gains the JPY made before the weekend.
This week the JPY has a busy week, as we will see a full batch of Japanese economic data. Manufacturing PMI, and Labor Earnings are expected later this week along with the all important Tankan Manufacturing Index. The index, which measures the general business conditions of large manufacturers, is one of the more volatile Japanese events on its calendar. The figure is scheduled for release today at 23:50 GMT and is forecasted to see a 6 point drop off from last month's number.
Earlier today, Industrial Production numbers were released. Though production dropped by -1.2% the figure was up from its forecasted 2.2% drop and added little to market volatility.
As we still await the appointment of a new Bank of Japan Governor, it is safe to say that the JPY will stay focused and keep within a range similar to that of last week.
The pair is still consolidating around the 1.5780 level, and it appears that the momentum on the 4 hour chart is moderately bullish. The daily chart is showing that there might be an attempt to breach through the 1.5850, and if a breach will occur we might see a stronger bullish move. Going long appears to preferable today.
The cable is in the middle of a bearish corrective move ad is now floating around 1.9870. The momentum on the 4 hour chart is very bearish and it appears that there might be a testing of the Fibonacci level of 1.9805. going short might be the way to go today.
The daily chart is very bullish as the slow stochastic shows no crosses and is floating at the 50 level. The 4 hour chart has been giving mixed signals with no distinct market direction for the past 4 trading days. Forex traders are advised to wait for a clearer bullish sign on the hourlies before entering the market.
The pair is in a flat consolidation mode around the 0.9960 with no clear direction on the daily chart. The 4 hour chart is moderately bullish as the slow stochastic shows a positive slope. It appears that waiting for a significant bullish breach might be a wise choice before entering the market.
The Wild Card
There is a very strong reversal cross forming on the slow stochastic of the 4 hour chart which indicates that the bullish trend might be back with full steam. This could be a great opportunity for forex traders to enter the market with a long position at a great entry price.