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Monday, 10 Mar 2008
The Greenback Continues To Be Pressured
The greenback started the new week in similar fashion to how it has traded in recent history; at a steady loss. The US currency opened Sunday to night see an almost immediate fall versus a basket of major currency pairs, namely the JPY and EUR. First the dollar came dangerously close to record lows versus the JPY as the pair floated around the 102 key level, whilst the EUR used the opening session to push the USD to the 1.54 key level. Much of the cause for concern comes as investors bet on the Federal Reserve cutting interest rates by up to 1 percentage point. While the credit woes and the failing housing market have become the noticeable thorn in the side of the US economy, it is the retail sector and consumer confidence index which is contributing to this latest round of fears surrounding the dollar.
As salaries are slowly dropping, the usually robust consumer market in the US has faltered as the purchasing power of the everyday American has been limited due to the lack of available credit and rising prices for goods. The trend does not seem to be changing soon, as even positive data has produced nothing more than small rallies by the greenback. Futures on the Chicago Trading Board now show almost a 95% chance that the interest rate in the states will be dropped by roughly 75bp to 2%.
The big news of the week will likely be the worries regarding the Fed, and whether or not they have the financial means to "address liquidity pressures in the funding markets.” say certain board members. As plans call for 200 million dollars of infusion into the failing bank system, many investors believe the US economy is in the unfamiliar territory of insurmountable losses, and that Fed intervention will not suffice in pulling the US out of the mess it is in. Generally, when discussing a nation with a vast economic makeup, it can fall back on several sectors to ease pressures. In this specific case with the dollar, additional economic sectors continue to add to overall disappointment, leaving no leeway for the dollar to post any significant gains.
The week ahead, will provide a host of key economic calendar events for the USD. Core CPI, Consumer Sentiment, Retail Sales, Unemployment Claims, and the Trade Balance, highlight the week's events. While some of the data is expected to come back dollar positive it is very hard to imagine a real big rally by the dollar, as many investors are convinced the recessionary behavior in the US is not temporary and will continue to hurt the overall value of the dollar.
Today, the US is absent from the economic calendar. Look for the dollar to range trade above the 1.5350 level as we await the docket of US news events.
The EUR ended last week with a blast as it hit a record high of 1.5463 on news from non-farm payrolls out of the US. The gains were somewhat short-lived as outside circumstances, namely carry trades came under pressure. The EUR also had to deal with news that the US Federal Reserve planned on extending their lending policies to ease USD weakness.
As global economic data has been anything but promising, news from the Euro-zone has been solid and consistent, helping the 15-nation currency keep one foot in front of the rest. Last week, German industrial numbers helped keep the EUR on the rise against most of the major traded currencies. Some within the ECB warn now, that ECB President Trichet must be wary of inflationary risks as commodity prices are rising all across the board at an alarming rate. This puts the ECB in a precarious position; on the one hand they are the owners of the steadiest, and currently most reliable currency, however the strength of the EUR has taken its toll on local businesses competing at a global level with Asian and American companies. Plainly said, a European exporter selling goods in America is now troubled as the EUR/USD rate makes the goods he sells far more expensive for the average consumer. Investors will likely see some easing of policies by the ECB in order to deal with these issues in the near future.
On the docket for the EUR this week, there is a combination of significant data. Most notably, we will await the German Trade Balance as well as ZEW survey. This should give us a clear indication of the upcoming future of the EUR. As the figures are expected to be EUR positive, look for the 15-Nation currency to make gains on its major rivals throughout the week.
Today we await the 7:45 GMT release of French Industrial Production, however, it should not contribute very much to market volatility.
The JPY begins this new week in prime position to make gains against a basket of its most commonly traded currencies. The JPY has consistently risen over the last week or so against the dollar coming ever so close to that 100 support level. Currently floating in and around the 102 support level, the JPY saw eight-year highs last week as the USD/JPY pair grazed 101.40. As we stated several times last week, the 100 support level for the USD/JPY has a historical background to it. Only once in the last twenty years has the pair breached that level, when it dipped close to 85 in 1995. Immediately following that drop, the pair spring-boarded above the 100 level making significant strides and taking many investors with it. What holds to be different this time around is the assumption that the BoJ will not adjust or tweak any policy regarding currency markets. Japanese Finance Minister Nukaga reiterated that Japan would watch the currency “carefully” but take no outright action to prevent a strengthening in the JPY.
It has been the stance of the BoJ in recent history to create an identity for itself, and not to be so dependent on news from around the globe to move its currency. The main focus is on Asian growth to limit the effects of the current economic movement in the US. Projections see a rise in a host of economic sectors in Japan, coupled with the financial boost China should see from the Olympics, and the mending relationships between North and South Korea; Asian growth is imminent if not already here. Yesterday proved how much potential the Asian giant has, as the release of Core Machinery Orders came back almost 15% higher than expectations. The index which measures the total value of new orders placed with machine manufacturers, excluding orders for items with volatile sales rose 19.6% in January, as a rising figure in this index has a positive affect on the nation's currency
With investors predicting close to a 1.5% increase in the Japanese economy in 2008, the likelihood of state intervention causing the JPY to weaken, is not likely. Countries intervene in the buying and selling of foreign currency to affect exchange rates, however it should be noted that this is done in only dire circumstances.
Looking ahead to the economic calendar for Japan, this week should provide several indicators as to the rate at which the Japanese economy is growing. GDP, CGPI, Household Confidence, Current Account and Industrial Production are all expected to be released. If these figures return with similar positive results to that of the Machine Orders, expect a breach of the 100 USD/JPY level to come sooner than later. With rising confidence in independent growth and the weakening state of the dollar, investing long term on JPY growth would be wise.
After a local drop on Friday, the pair is now regaining bullish momentum and the breach through the 1.5400 might be quite imminent. The daily chart is very bullish, and the hourlies support the bullish notion. Going long might still be a preferable direction.
There has been a key level breach through the 2.1010 which is the 50% Fibonacci level of the November bearish move. It appears that the cable might have more bullish momentum until reaches 2.2060 which is the next Fibonacci level and a key resistance at the moment. Longs with tight stops should be the weapon of choice today.
It has been nothing but bearish momentum for the pair in the past two weeks, and the situation appears to be continuing at full throttle. The pair is breaking one support level after another and no halt appears to be in sight. The next target price should be around 101.50.
The pair is in consolidation around 1.0200 after a very strong bearish trend and extremely violent session on Friday release of the Nonfarm Payrolls. The daily chart is giving mixed signals with moderate bullish momentum, as the hourlies are still quite bearish. Buying on dips might be a good solution today.
The Wild Card
Oil is still traded within the upwards channel of the 4 hour chart with local bearish momentum. There is a double cross with negative slope on the 4 hour slow stochastic which indicates that an escalation of the bearish momentum might be quite imminent. This is a great opportunity for Forex traders to take advantage of this strong technical indication, and increase profit potential on that position.
Forex Oil is still traded within the upwards channel of the 4 hour chart with local bearish momentum. There is a double cross with negative slope on the 4 hour slow stochastic which indicates that an escalation of the bearish momentum might be quite imminent. This is a great opportunity for Forex traders to take advantage of this strong technical indication, and increase profit potential on that position.
|23:30||JPY||Tokyo Core CPI||y/y||2.3%||2.2%||-|
|23:30||JPY||National Core CPI||y/y||2.7%||2.6%||-|
|23:50||JPY||Prelim Industrial Production||m/m||-0.5%||1.3%||-|
|00:05||GBP||GfK Consumer Confidence||-4||-2||-|
|00:30||AUD||Private Sector Credit||m/m||0.5%||0.5%||-|
|07:00||EUR||German Retail Sales||m/m||1.0%||0.4%||-|
|07:45||EUR||French Consumer Spending||m/m||0.4%||0.4%||-|
|08:00||CHF||KOF Economic Barometer||98.7||94.8||-|
|08:00||EUR||Spanish Flash CPI||y/y||-1.1%||-1.5%||-|
|08:00||EUR||Spanish Flash GDP||q/q||0.5%||0.5%||-|
|09:00||EUR||Italian Monthly Unemployment Rate||13.4%||13.4%||-|
|09:30||GBP||Net Lending to Individuals m/m||3.3B||3.2B||-|
|09:30||GBP||M4 Money Supply||m/m||0.0%||0.5%||-|