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Thursday, 8 May 2008
The Greenback is Pushing Up Again.
Yesterday, the greenback was revived after several days of bearish behavior. Investors seem to have kept faith about the dollar as traders pushed it toward sharp profits versus most of its currency rivals. It has been briefly touched upon before in fundamental reports that global investors take any positive trend from the US economy and run with it, as the greenback has proven in history that it can take a severe hit and recover. What made the bullish trend even more significant was the overall market condition surrounding it as scheduled events didn't deter profits. Yesterday's US economic calendar was sprinkled with news that returned to negative results and should have had equal effect on the currency. Some though, did contribute to the rise, as Non Farm Productivity returned with higher than expected results at 2.2%. The figure was forecasted to come back at 1.7% annual quarterly gain. Unit Labor Costs came in at 2.2% down 0.4% from its expected return. Pending home sales came back as forecasted at -1.0%, kept the housing crisis as a cloud over many investors heads. Consumer Credit numbers were more than double their previous figure, as it seems that US consumers have taken on credit to do most of their shopping.
As a whole though it seemed that Productivity numbers helped justify the already lop-sided thinking behind investors of a change in dollar trends as most dollar pairs saw sharp gains immediately following its release. When glaring at the currency charts this morning, the USD finds itself in uncharted territory for 2008. The EUR/USD coming ever so close to 1.52, GBP/USD back down to 1.95 and USD/JPY back to 104 technical levels.
Today, Unemployment claims and Wholesale Inventories are on tap. Dollar bullishness will likely continue regardless, but any improvement from the last figure of 370K from unemployment claims will likely magnify bullishness.
The Euro saw a second straight day of losses yesterday, most notably against the greenback as economic concerns within the Euro-Zone are rising. On April 22nd the EUR/USD pair hit an all time high of just over 1.60, since then investors have seen nearly a 4.5% drop. The bearishness from the 15-Nation currency can be attributed to several factors. Firstly, yesterday's news releases from the Euro-Zone, brought back less than favorable results for lagging indicators. Euro-Zone Retail Sales fell by 0.4% last month, 0.3% more than the expected drop. The number backed up indications by investors that Europeans simply do not spend as much as they could, in order to push the overall economy in the right direction. Also released to negative results was German Factory Orders, which has become a solid indicator as to the overall state of the E-Z. Orders dropped off by 0.6% and didn't help curb speculation over the slowdown in the E-Z economy.
ECB President Jean-Claude Trichet has been hawkish regarding his monetary policy and most notably his unchanged benchmark interest rate of 4% for quite some time. Unfortunately for the ECB, such hawkish ness that led to a rising EUR and EZ prosperity was not backed up by actual consumer behavior. Now, with rising inflationary concerns and an obvious slowdown in the Euro-Zone economy, the ECB and its head honcho might very well have to ease the very interest rate they longed to keep constant. The GBP, which had an abysmal day didn't do very much good either as the proximity and close ties to the Euro-Zone economy made wary investors even more skeptical about the EUR.
Today, on tap from the EZ we can expect the Minimum Rate, which is the Interest Rate on the main refinancing operations that provide the bulk of liquidity to the banking system, and will remain unchanged at 4%. German Trade Balance (expected to remain steady at 16.9B) and German Industrial Production are also expected. If Production numbers come back as forecasted with negative results expect a continuation of EUR bullishness, as German figures are normally a precursor to overall EZ numbers. At 12:30 GMT there will be an ECB Press Conference with President Trichet and VP Lucas Papademos. Volatility should be expected, as the question and answer portion of the conference coupled with Trichet's speech generally gives way to many clues as to future policy changes.
Yesterday, JPY crosses saw bearish results, as the Japanese currency reacted toward a rising trend of risk aversion throughout the Forex market. With a halt in any Japanese news this week due to the Golden Holidays week, the Asian powerhouse has been subject to external news and movement in the markets. Similar to the Euro-Zone, the Japanese economy is juggling rising inflationary pressures and a stall to any consistent growth within its National economy. With such inflationary pressures at nearly a decade high, many investors believe that the Bank of Japan and its new leadership will be forced to raise the lending rate. Market makers have begun to see futures movement that shows such a change coming within the next year by almost 100%.
Until the return of the JPY to the news cycle, investors should expect to see mixed results as the currency reacts toward outside events.
The pair is the middle of a very strong downtrend and is testing fresh lows on a daily basis. The very important key support level of 1.5400 has been breached and fresh bearish momentum has been injected. Next target price might be around 1.5310.
The float within the narrowing bearish channel on the daily chart continues, as no significant breach has been made. The negative slope on the daily Slow Stochastic indicates the continuation of the bearish movement within the channel. Going short with tight stops appears to be the preferable strategy.
There is a very accurate bullish channel forming on the daily chart, as the pair now floats in the bottom barrier of it. The Slow Stochastic is showing that a bearish breach is very unlikely and that the bullish price movement will probably continue. Going long might be the right way today.
The pair is showing consistent bullish momentum for a while now and today is no difference. The bullish breach through the flat channel on the daily chart has created strong bullish momentum that is carrying the pair up with no local correction. It appears that there is still more room to run and that going long is probably the best choice today.
The Wild Card
After breaking every possible resistance level, and setting all time highs on a daily basis, Oil is now traded around 124.00. The momentum is more bullish than ever, and it appears that the bonanza will continue, possible to the 126.00 level on this move. Forex traders have a great opportunity to dive into a very healthy up trend with great profit potential.
|00:30||AUD||Private Capital Expenditure||q/q||-4.0%||-2.8%||-|
|09:00||EUR||M3 Money Supply||y/y||4.9%||4.9%||-|
|12:00||EUR||GfK German Consumer Climate||9.4||9.2||-|