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Friday, 14 Mar 2008
The Greenback Is Now In Polar Bear Territory
On Thursday the U.S. dollar dropped to a 12-year low versus the JPY and to a record low versus the 15-nation European currency influenced by uncertainty about the long-term impact of the Federal Reserve's efforts to ease strained credit and money markets. The dollar extended losses after U.S. retail sales fell in February by more than expected, boosting worries about a U.S. recession. The report reiterated how the housing slump is filtering through the economy. Purchases of furniture, electronics and building materials all dropped. A separate report from the Labor Department showed further gloomy data, as the number of unemployed who remain on jobless aid stood at the highest level in nearly two and a half years.
Oil rose to a fresh record high, above $110 a barrel, hitting new peaks for the seventh trading day as a weak dollar overshadowed an increase in U.S Crude Oil Inventories. The dollar's slide came despite remarks from U.S. President George W. Bush on Wednesday that he would like to see a stronger dollar and expressed concern that its falling value was one of the causes of soaring U.S. energy prices. Due to fewer jobs, rising fuel costs and falling property value will continue to push the economy closer to a recession.
Despite all the pain the U.S. economy suffered during this week, we truly believe that the greenback will still have to decrease further before seeing any sort of relief. However if next week the Fed cuts the interest rate by 0.5% only, then we may see a sharp dollar rebound.
The EUR is being traded in a consistent fashion and it rallied later on yesterday to stay above the 1.56 level against the greenback. The EUR has become a mainstay in the global economic world, as some see it as the world's new dominant currency. It seems as if any gain from the greenback is not substantial enough to deter the overwhelming strength that the 15-Nation currency has had lately. The sentiment for the U.S. dollar continues to worsen, and the dollar fell for an additional day to a record low versus the EUR. The U.S. currency fell to an all-time low as continuing flow of weak economic data from the US erode confidence in the world's top reserve currency.
The EUR rose to a new high of $1.5625 following a report that showed U.S. retail sales fell in February, beating a day-old record of $1.5559. It later fell back to $1.5587 in late New York trading, still above the $1.5526 it bought in New York on Wednesday.
Fears over the U.S. economic outlook raise expectations that the Federal Reserve will continue to cut interest rates, even as the European Central Bank sticks to a tough anti-inflation standpoint and signals that no rate cuts are on the way for the 15-nation euro zone. Therefore as long the interest rate differential between the U.S and Europe continues to widen, the EUR will remain the preferred currency amongst traders.
The JPY was the biggest beneficiary of this week, for the first time since 1995 the U.S. dollar fell bellow 100 Japanese yen. Risk aversion has dominated and we've seen the carry trade unwind on credit-market concerns. The Japanese currency rose 10% against the USD during this month and hit a 1.5 years high on as fears of wider credit-related losses at U.S. financial firms dulled investor's appetite for risk, thereby causing an unwinding of carry trades.
The JPY is now being traded at 100.60 level and we estimate that if the Yen will break below 100 it would probably continue to 98.00 before heading up again. By now, falling house prices and high energy costs had pushed the U.S. consumer confidence to its lowest. Fear is predominant in the market that the worst is not behind. As a result, all risk is being liquidated and the JPY is benefitting tremendously from the resulting carry trade unwind.
As it stands today, the JPY should continue its bullish rampage against the high yielders and as long as investors continue to seek a safe haven, the outlook for the JPY will remain bright.
The pair continued this week's trading session with strong bullish momentum, and is now once again trading around all time record levels around. The 1 hour and the 4 hour chart are indicating further bullish momentum, and the daily chart is showing that a potential corrective move is not imminent.
The cable is still showing strong bullish momentum on the daily chart and on the 4 hour chart with plenty of room to run. The hourly is showing a moderate bearish signal which might make it wise for Forex traders to buy on dips. Next target price will be 2.0350.
The pair was in the middle of a massive bearish trend as indicated on the 4 H chart by the 6 consecutive falling bars. The bullish cross forming on the daily chart is now in its middle stages. The daily chart indicates the continuation of the bearish trend locally, making it preferable for Forex traders to buy on dips.
The pair is showing some consolidation at the key resistance level of 1.0100 after a sharp drop over the past two weeks. The daily chart is still very bearish, yet the 4 hour chart is showing hints of a local correction. Selling on highs might be a good strategy for today
The Wild Card
There is a very distinct upwards channel forming on the 4 hour chart. The slow stochastic is floating at the 65 level and indicates further upward movement. This could be a great opportunity for forex traders to enjoy a strong signal for the continuation of a sustained bullish move.
|13:00||EUR||GfK German Consumer Climate||8.5||8.6||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.5%||2.3%||-|
|00:30||JPY||National Core CPI||y/y||3.0%||2.9%||-|
|00:50||JPY||Prelim Industrial Production||m/m||2.9%||-0.4%||-|
|01:00||NZD||ANZ Business Confidence||26.5||-||-|
|01:05||GBP||GfK Consumer Confidence||-2||-1||-|
|01:30||AUD||Private Sector Credit||m/m||0.5%||0.5%||-|
|08:00||EUR||German Retail Sales||m/m||-3.2%||1.7%||-|
|08:45||EUR||French Consumer Spending||m/m||-0.8%||0.2%||-|
|09:00||CHF||KOF Economic Barometer||99.8||100.1||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.6%||12.6%||-|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.4%||0.3%||-|