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Tuesday, 25 Mar 2008
The Greenback Goes Down Again
Yesterday's trading session was characterized by low liquidity as US markets were closed due to the Easter holiday. The greenback was consolidating yesterday against most currencies and showed no distinct trending. The calm status changes later on the overnight trading session as the greenback started to gain all across the board in a quite aggressive manner probably due to speculation that the Fed will continue to ease interest rates in order to try and salvage the ruins of the US economy.
"There are a variety of reasons for the dollar's general weakness. The major ones are the bearish outlook on the economy and expectations of more rate cuts. The Fed may cut rates by half a percentage point next month and another quarter point in June” said the head of economic strategy of Bank of America.
Despite the unexpected rise in existing home sales of 2.9% which was the biggest jump in a year, the greenback continued to linger in bear territory.
As for today, there are two major events expected to come from the US. The first is the Yearly National HPI Composite index which measures the annual change in the average price of a single-family home in 20 metropolitan areas. And is expected at 13:00 GMT The index is expected to be released at -10.5% and has a previous figure of -9.1%. A bit later at 14:00 GMT, the Consumer Confidence is expected to be released with a forecast of 73.5 which is slightly lower than last month's release of 75.00.
The expectations for weak US data will most probably help to push the greenback further down, and it appears that the short breath of fresh air which caused the greenback to gain against most currencies is probably over.
After last Tuesday's Federal Reserve's cut of the US key interest by 0.75%, the EUR began the trading week yesterday in a relatively bearish notion. The 15-nation currency saw no major movement after the day's first half, mainly due the lack of important figures release from both coasts of the Atlantic. However, later, the EUR sharply appreciated against the greenback adding 1.4% to its value in a couple hours.
The EUR pushed back from its bearish stance, which characterized it at the end of last week, mainly as a result of oncoming worries of another Interest Rate cut by the Fed attached with near term US recession speculations. Moreover, the positive economic signals released from the US yesterday, such as the Existing Home Sales report, did not helped the USD weakening move and the EUR/USD ended the trading session with an appreciation of more than 200 pips.
As seen on last week's German reports, the strong EUR keeps damaging the Euro-zone exports. This fact, combined with the high inflation rate seen recently in the Euro-zone, does raise speculations of ECB interruption to try relaxing the volatility of the market.
Today, there is no expected important news release from the Euro-zone. However, for the CHF investors, the Swiss Consumption Indicator for the previous quarter is expected to be released.
The EUR will most probably keep its bullish trend for the short term, especially due to the fact that the US's Consumer Confidence release today is not expected to bring the USD to recovery.
Eight of the 10 most-traded Asian currencies outside Japan climbed as demand for higher-yielding assets increased after sales of existing homes in the U.S. unexpectedly rose last month and after JP Morgan raised its bid for Bear Stearns Cos. It appears that
The consistent cuts in the US interest rate have diminished the carry trade cycles to a non existing status.
The JPY reacted relatively softly in relation to other currencies as the USD/JPY dropped less than 80 pips, whereas most of the other currencies appreciated much more against the USD.
There are two events expected to come from Japan, as both are considered to have moderate importance and effect on price movements. The first one is the Corporate Services Price Index (CSPI) which measures the rate of inflation experienced by corporations when purchasing services, and has a forecast of 0.7%. The second event and the slightly more important one is the Japanese Trade Balance which has a forecast of 0.77T and a previous release of 0.86T.
It appears that the JPY will continue to gain today, especially on the back of the struggling US economy, and the stable Japanese monetary policy.
The pair corrected to the 1.5300 levels which is a key Fibonacci level yet failed to make a bearish breach. There is a bullish cross forming on the daily chart, and together with a sharp bullish spike it appears that there is now more room to run upwards. Next target price might be 1.5660.
The cable is in the middle of a bullish trend which according to the daily chart has positive momentum. The RSI is floating at 50 and the slow stochastic is showing no reversal crosses. It appears that the bullish trend might continue with a target price of 2.0070.
There is a very distinct narrowing bullish channel forming on the 4 hour chart as the pair now floats on the bottom barrier of it. The slow stochastic is showing a triple top formation with a positive slope, which indicates that the continuation of the bullish trend is quite imminent. Going long might be the right way to go today.
The bullish channel which was initiated at 0.9800 continues with full momentum. The Slow Stochastic of the 1 hour chart implies on an additional bullish move, and the RSI is showing that there might be a breach through the upper level of the channel in the next 48 hours. Going long with tight stops might be preferable today.
The Wild Card
Gold has been showing a very strong and violent bearish trend which started at the peak price of 1026.00 and bottomed at 909.00. The 4 hour chart is starting to show fresh bullish momentum, and the cross on the daily slow stochastic directly indicates a bullish corrective move. This could be a great opportunity for forex traders to be on the buy side again, at a very low entry price.
|23:30||JPY||Tokyo Core CPI||y/y||-0.2%||-0.1%||-|
|23:30||JPY||National Core CPI||y/y||-0.1%||-0.1%||-|
|00:05||GBP||GfK Consumer Confidence||2||2||-|
|07:00||EUR||German Import Prices||m/m||-0.7%||-0.1%||-|
|07:45||EUR||French Consumer Spending||m/m||0.0%||0.2%|
|08:00||EUR||Spanish Flash CPI||y/y||-0.7%||-0.5%||-|
|09:30||GBP||Second Estimate GDP||0.5%||0.5%||-|
|09:30||GBP||Prelim Business Investment||q/q||1.6%||1.5%||-|
|09:30||GBP||Index of Services 3m/3m||0.9%||0.8%||-|
|09:31||EUR||Italian 10-y Bond Auction||1.48|1.7||-||-|
|09:31||USD||ECB President Draghi Speaks||-||-||-|