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Friday, 11 Apr 2008
The G7 Will Meet Today.
Yesterday, the USD fell to its record low against the EUR, but pared losses after ECB President Jean-Claude Trichet's unchanged inflation views did not give the single currency an upward momentum. As a result EUR/USD sold off sharply, falling to a near low 1.5725, after surging to an all-time peak of 1.5912.
Currency analysts attribute the greenback's return from a historical low of 1.5915, mainly to short USD selling and profit-taking. Fundamentally, the dollar is still weak.
Traders ignored data showing that the U.S. Trade Balance widened unexpectedly to $62.3B in February from $59.0B in January. Analysts previously expected a shortfall of $57.5B.
The import /export situation is not any better. The U.S. exports in February climbed 2.0% to $151.36 billion from $148.38 billion, while the imports rose at a faster pace, up 3.1% to $213.68 billion from $207.34 billion.
Although U.S. trade deficit with China shrank in February, the deficits with other major trading partners climbed. For instance, the deficit with Japan rose to $6.88 billion from $6.59 billion. The trade gap with the Euro zone increased to $6.00 billion from $5.12 billion. The same is with Canada and Mexico.
As for today, the G7 meeting will probably keep traders on their toes. The sentiment is that there is unlikely to be any changes to the G7 statement on currencies, but with the USD looking rather sickly, traders tend to believe that the G7 might seek to support the faltering greenback.
In addition, today, we expect the Import Prices and the University of Michigan Consumer Confidence reports to be dollar positive mainly due to the improvements in the weekly Consumer Confidence reports and the sharp rise in commodity prices.
The EUR pared gains against the USD, falling from a record 1.5913 to 1.5791 before Trichet spoke at 5 p.m. in Frankfurt. The European Central Bank president Jean-Claude Trichet signaled that he's still not ready to cut Interest Rates even as the credit squeeze poses a greater threat to economic growth than policy makers anticipated.
Trichet mentioned that the current level of the ECB Interest Rates will help control Euro zone inflation while tensions in the financial markets may last longer than initially expected.
Until now, the ECB has avoided rate cuts even as concerns deepened that the fallout from the U.S. Sub prime crisis will spread to Europe. The ECB has kept its key benchmark rate unchanged at 4.00% since the credit crisis erupted and it has since then stressed that inflation remains its primary concern. In fact, the European Consumer Prices (index that measures inflation) rose 3.5% in March from a year earlier, the fastest pace in almost 16 years.
The strong EUR dampens exports. Low exports contribute to a growth slowdown which places the ECB under pressure to lower rates. Nevertheless, the Central Bank remains optimistic. So far, economic indicators have not shown any clear signals of a significant slowdown.
Today traders will be concentrated on the G7 Meeting. The G7 represents an important global policy making process at the highest level, and at times their policies can have an impact on the currency markets.
The EUR is expected to remain resilient as traders are expected to exercise caution during the G7 the Group of Seven conference. A bullish movement against the greenback will probably resume after the weekend.
From the 'long range' perspective, as long the Interest Rate differential between the U.S and Europe continues to widen, the EUR will remain the preferred currency amongst traders.
Yesterday, there was a strong intraday reversal in all of the JPY crosses following the rally in US stocks and the USD surge. The low yielding Yen also lost ground vs. the USD as demands for carry trades accelerated. The Yen last traded down 0.1% at 101.67, after earlier trading to a session low of 100.04.
Despite of the partial recovery, there is a possibility that the carry trades crosses including the USD/JPY, might suffer more losses as soon as the beginning of the next week.
The currency markets indicate that risk aversion is returning. Meanwhile, Japanese economic data has been improving with CGPI rising yesterday more than expected in the month of February. The Corporate Goods Price Index (CGPI) measures the rate of inflation experienced by corporations when purchasing goods. This indicator is of a minor importance and as was expected, did not have any major impact on the Japanese currency.
The Japanese currency is likely to remain bearish ahead of today's G7 Meeting. Apart from that, there is no important economic news expected to be released from the Japanese markets. Investors should look toward global news, to chart JPY movement.
The pair is in the middle of a bullish trend as the attempts to breach through the 1.5820 continue. The slow stochastic indicates that the bullish momentum might continue, and that a breach is very likely. Going long appears to be preferable.
The cable has breached the key Fibonacci level of 1.9800, and the break has been validated by a full bar beneath that level on the 4 hour chart. The negative slope on the daily slow stochastic strengthens the notion that the momentum is quite bearish. Going short might be wise today.
There has been a breach through the bottom barrier of the bullish channel on the 4 hour chart, as the pair now floats around 101.80. The momentum is very bearish and it appears that the next target price might be around 100.70. Going short might be preferable today.
The pair continues to float without a distinct trend. No significant breach has been seen on the daily chart, and the 4 hour chart is giving mixed signals. Traders are advised to wait for a clear break before swinging into the trend.
The Wild Card
There is a very accurate bullish channel forming on the 4 hour chart, as oil now floats in the bottom barrier. All oscillators are showing that the bullish direction is back and that oil might be heading 111.50 on this move. Forex traders have a great opportunity to join the bullish move with a high profit potential.
|23:50||JPY||Core Machinery Orders||m/m||-15.7%||7.3%||-|
|00:00||AUD||MI Inflation Expectations||2.3%||*||-|
|00:01||GBP||BoE Quarterly Bulletin||*||*||*|
|00:01||GBP||RICS House Price Balance||53%||52%||-|
|01:10||NZD||RBNZ Gov Wheeler Speaks||*||*||*|
|09:00||EUR||ECB Monthly Bulletin||*||*||*|
|12:30||CAD||Capacity Utilization Rate||81.7%||82.3%||-|
|12:30||USD||NZD Core Retail Sales||m/m||0.0%||0.2%||-|
|14:30||USD||Natural Gas Storage||-152B||-||-|
|17:01||USD||30-y Bond Auction||3.69|2.3||*||-|
|21:30||NZD||Business NZ Manufacturing Index||56.2||-||-|