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Monday, 17 Mar 2008
The Greenback Hits Fresh Low
The greenback continued its downward slide on Friday on the back of weaker than expected CPI figures. The core and headline CPI figures released at 0.0%, indicating that consumer inflation is on the decline despite the recent spate of Fed interest rate cuts. This is very problematic for the U.S economy as the Fed rate cuts are supposed to stimulate the economy and raise inflation. Now although Consumer Sentiment released slightly better than expected it was still not enough to noticeably bolster consumer spending, as indicated by falling CPI figures. However the main devastating news for the greenback on Friday was the announcement that the U.S investment bank Bear Sterns was forced to secure emergency financing from J.P Morgan and the Fed. The dollar fell to below 100 against the JPY and it hit another record low versus the EUR on the back of this news, since the collapse of Bear Sterns indicated more credit upheaval in the future and it raised recession concerns. However the dollar woes did not end on Friday as yesterday the Federal Reserve lowered the Discount Rate to 3.25%, from 3.50%. The Discount Rate is the interest rate charged to banks for borrowing short-term funds directly from the central bank. The outlook for the greenback is expected to get bleaker as the FOMC is expected to meet on Tuesday and will almost certainly cut the Federal Funds Rate by between 0.50% and 1.00%. All eyes will now shift towards the FOMC meeting on Tuesday and if the Fed lowers rates by more than 0.50% than the greenback will go on another record breaking freefall.
In the meantime, there will be a host of key U.S data releases today. The most significant news release will be the TIC Report, which measures the monthly difference in cross-border foreign and domestic purchases of long-term securities. This figure is expected to release better than last months figure of 56.5B, at 60.0B. The other key data today will be the Empire State Business Conditions and the U.S Current Account, both figures are expected to disappoint. The Greenback should stay in grizzly bear mode until after the FOMC meeting on Tuesday and in the highly unlikely situation that today's data surprises on the upside, the USD may find some consolidation.
The EUR continued to hit record highs against the greenback on Friday on the back of negative U.S data coupled with Bear Stern's woes. In stark contrast to the U.S, the Euro-zone yearly CPI figure released at 3.3% which was slightly better than the forecasted 3.2%. Also German monthly CPI came in at an unchanged 0.5%, reaffirming the solidity of the German economy despite the strong EUR. The interest rate differential between the U.S and Europe has been continuously widening over the last few months and it is expected to widen further at the FOMC meeting on Tuesday. Therefore this is currently making the EUR the most favorable currency amongst investors, as it offers a higher yield and lower risk.
Earlier today during the Asian trading session the EUR struck another peak against the greenback, touching the 1.5902 mark. This is still mainly due to the aftershock of the emergency rate cut by the Fed which only added to market jitters of the near-collapse of US investment bank Bear Sterns. Looking ahead to today, the only news from the Euro-zone will be the Employment Change figure which is not considered significant and it will not have any impact on the EUR. Therefore EUR movements today will remain dollar-centric and with a rate cut expected in the U.S on Tuesday, the EUR bulls should have a rodeo and push the European currency further up into unknown territory.
The JPY rallied to below the 100.00 level versus the greenback on the back of the Bear Sterns saga which raised further credit turmoil concerns. Investors now fear that there is a systematic problem in the U.S banking sector and these concerns are causing carry trades to unwind sharply as risky positions are being pared. Therefore the JPY has been on a sharp upward rally, in particular against the high yielding and emerging market currencies.
Earlier today, during the beginning session of Asian trading the JPY rallied to as high as 95.75 versus the greenback, a level not seen since September 1995, down sharply from 99.18 in New York late Friday. Also earlier today the Japanese Finance Minister Nukaga voiced concern about the JPY's spike to 12-year highs against the dollar, stating that the surge was excessive. Investors are worried that the stronger JPY will hurt Japan's export-led economic recovery and undermine corporate earnings. The JPY should be able to maintain its bullish momentum over the longer term but as soon as the Fed begins to restore confidence in the U.S economy, we will see the JPY rampage ease off sharply. After peaking earlier on today we expect the JPY to lose some of its gained ground later on as the market cools and learns to adapt to yesterday's emergency rate cut by the Fed. However the near term outlook for the JPY remains very much bullish as a U.S economic redemption is highly unlikely to occur anytime soon and recession fears will continue to drive risk aversion.
The pair continued to show strong bullish momentum overnight, and is now traded around 1.5800. There is a bearish cross forming on the slow stochastic of the 4 hour chart which indicates that a local correction might be imminent, before the bullish trend resumes. Buying on dips might be a wise choice today.
There is a very distinct bullish channel forming on the 4 hour chart as the cable now floats around the bottom level of it. The slow stochastic is indicating a reversal move, which means that it might be a good entry point for a long position.
The pair continued to plummet after the very important breach through the 100.00 level was validated. There is local bullish momentum on the hourlies which indicates that we might see a moderate bullish corrective move before the bearish momentum resumes. Selling on highs might be a good strategy today.
The 4 hour chart is showing a fresh cross on the slow stochastic, and RSI which is floating around the 40 level. This means that on the short term we might see the pair correcting back to the 0.9950 level before resuming the very strong bearish trend. Traders might want to keep track of the pair's fresh high before entering the market with a short position.
The Wild Card
There is a very accurate bullish channel forming on the daily chart, as the break through the upper level of it was just validated. Gold now has enough bullish momentum to be carried into the 1026.00 zone. This is a great opportunity for forex traders to use this technical break and swing into a high potential bullish move.
|10:00||EUR||CPI Flash Estimate||y/y||0.3%||0.3%||0.3%|
|10:00||EUR||Italian Prelim CPI||m/m||0.2%||-0.3%||-0.3%|
|14:00||USD||S&P/CS Composite-20 HPI||y/y||8.1%||7.5%||-|
|15:00||USD||CB Consumer Confidence||92.4||92.2||-|
|00:30||AUD||AIG Manufacturing Index||47.3||*||-|
|00:50||CAD||Tankan Manufacturing Index||12||11||-|
|00:50||JPY||Tankan Non-Manufacturing Index||19||17||-|
|01:00||EUR||German 10-y Bond Auction||1.05|1.4||*||-|
|01:00||GBP||10-y Bond Auction||-||-||-|
|USD||Total Vehicle Sales||17.5M||16.9M||-|
|02:35||JPY||Final Manufacturing PMI||51.7||51.7||-|
|08:15||EUR||Spanish Manufacturing PMI||52.8||52.3||-|