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Friday, 29 Feb 2008
The Greenback Bears Are Now In Grizzly Mode
On the basis of the last consecutive three trading days we can strongly confirm that the U.S. economic condition has definitely become less favorable and it is about to face a severe dollar crisis. During those last three days, the dollar dropped several times to new records low versus the 15-nation currency. The EUR touched $1.5150 in early European trading -- up from $1.5120 in New York the previous night and above a record $1.5143 reached earlier Wednesday. The EUR gave up a little ground and was trading at $1.5122, still above Wednesday's close.
An additional element which assisted the greenback was the unchanged level of GDP, which was published yesterday. The Gross Domestic Product rose at a 0.6 percent annualized rate, unchanged from the initial estimate last month.
Not only the economic growth slowed and does not imply any signals of improvement for the short tem, but also U.S. citizens continue to deal with intense inflation increase which is above the Fed's comfort zone - a warning mix that predict further trouble for the U.S. economy. The main fear now is that the U.S economy may be heading towards a situation of “stagflation”, which means slowing growth and rising inflation. If stagflation occurs then it will take the U.S economy far longer to repair itself.
In addition to rising inflation and unchanged growth, the U.S. government reported yesterday that jobless claims rose by 19,000, to 373,000, which was worse than anticipated providing more evidence that the general economic sluggishness is spilling over into the job market.
As it seems for the moment we strongly believe that a notable shift in the Fed's sentiment is required in order to see any real recovery, which the U.S. economy desperately needs.
The EUR continued to surge ahead yesterday and it reached a multi-year high versus the USD by rising up to the 1.5201 per dollar level. The EUR has been surging strongly against the dollar since Tuesday, breaking through the $1.5 mark for the first time since it started trading in 1999, as concerns about the U.S. economy were fueled by discouraging GDP from key retailers and homebuilders.
The higher EUR makes goods from the 15-nation currency zone more expensive for customers abroad, or cuts into manufacturers' profits if they try to keep the U.S. dollar price of products constant. However, European Central Bank downplayed those concerns earlier this week. The ECB noted that more than 50 percent of Euro-zone countries' exports go to other Euro-zone members and so are not vulnerable to currency fluctuations. The Euro-zone exports have strongly contributed to growth of the 15-nation currency but on the other hand a weaker dollar boosts exports from the US to Europe.
The EUR is being pushed forward by speculation of aggressive ECB policy of gradual rate increases, and on the basis of this fact in combination with ongoing weaker dollar forecasts we may soon see the EUR/USD traded at 1.55.
Yesterday the Japanese yen gained against the 16 most traded currencies. The yen rose against its major counterparts as falling stocks led investors to cut holdings of higher-yielding assets. Yesterday the JPY advanced 2.8 percent to 13.92 per rand and gained 1.2 percent versus the New Zealand dollar as investors reduced carry trades. The U.S. currency also approached a 2 1/2-year low versus the JPY by breaching below the 105.00 per dollar mark. The prime sentiment is that the U.S. currency will continue to be battered as the economy suffers and the JPY will continue to gain momentum as “anti-risk” sentiment applies a strangle hold on carry trades. In addition, on the basis of Japanese data which was released today, there was a surprising jump in consumer spending and rising consumer prices which will also likely assist to push the JPY higher today and the Japanese currency is likely to remain in the bull ring over the near term.
The Bollinger Bands are widened indicating increased volatility. This pair has been on a sharp upward trend over this week, but now indicators on the 4 H chart are beginning to give a bearish signal. However the daily chart is flat so there is a possibility of further bullish momentum today.
On the 4 H chart we can see that this pair is near the top of horizontal channel. The Stochastic Slow is crossing above 80 and is a strong indication that we are in deep overbought territory and that a reversal may be imminent. Also RSI and Momentum are negatively, indicating further bearish movement.
This pair fell sharply yesterday breaching the key 105.00 resistance level. The hourlies and daily charts are still giving a strong bearish signal. The next target price will be to breach 104.00 mark.
This pair has been in a steady downward channel over the last few weeks. However this pair has made a sharp downward breakout this week, indicating that it will now target new lows. Going short will still be the preferred strategy today.
The Wild Card
This commodity has been in a solid upward channel over the last few months and it is now targeting the $1000 an ounce level. This is a key resistance point and if it is breached we may see this commodity trade in a new lofty price range for a sustained period. Forex traders can maximize profits today by going long and taking advantage of a steady uptrend.
|14:30||EUR||ECB Press Conference||-||-||-|
|14:30||USD||Revised Nonfarm Productivity||q/q||-1.8%||-2.2%||-2.2%|
|14:30||USD||Revised Unit Labor Costs||2.7%||3.1%||4.1%|
|16:00||USD||FOMC Member Williams Speaks||-||-||-|
|16:30||USD||Natural Gas Storage||-219B||-224B||-228B|
|23:30||AUD||AIG Construction Index||45.9||-||-|
|08:00||EUR||German Industrial Production||m/m||0.1%||0.6%||-|
|08:45||EUR||French Gov Budget Balance||-85.6B||-||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.0B||-|
|09:00||CHF||Foreign Currency Reserves||498.4B||-||-|
|10:30||GBP||Consumer Inflation Expectations||2.5%||-|