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Monday, 9 Feb 2009
The Market Anticipates a U.S Economic Rescue Package
The U.S. Senate is slated to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. The world's largest economy entered a recession in December 2007, according to the National Bureau of Economic Research in Cambridge, Massachusetts. Gross Domestic Product contracted at a 3.8% annual rate in the fourth quarter, the most since 1982.
USD - Will the Economic Stimulus Bill Help the USD Recover?
Last week ended with a dismal report from the U.S. Labor Department which showed Non-Farm Payrolls dropping an additional 598,000 jobs this month, the deepest employment cut in 34 years! Traders saw the USD drop against every major currency pair, save the JPY, as a result. After closing Thursday's session up against the EUR at the 1.2835 price level, the USD turned around and lost a healthy portion of its momentum Friday, closing the week at 1.2966. Against the Pound Sterling, the greenback continued to take on loss and is currently trading at 1.4843.
What's reassuring at the start of this week is the fact that U.S. stocks have begun to rebound as investors are anticipating a hasty passage of the economic stimulus bill currently in the Senate. Analysts began forecasting that this stimulus package would get passed rather quickly as a result of the poor employment data released on Friday. With such negative news in the jobs sector, the U.S. government will no doubt need to take quick steps to counter this recent turn of events as it appears to be spiraling out of control. But will this stimulus be enough to stave off further losses in the U.S. Dollar?
As far as news goes this week, the USD is not set to receive much information regarding economic releases. However, as this week may mark the passage of President Barack Obama's economic stimulus package, forex traders will see a flurry of speeches and press conferences being held by high ranking members of the administration on the future of the economy, among other topics. Information released in this fashion can sometimes carry subtle clues as to the future of other potential stimulus legislation as well as monetary and fiscal policies. If the bill is indeed passed this Tuesday, as many economists expect, it may carry the impact of boosting demand for U.S. goods and services, which will likewise increase the demand for the USD. Traders might look to an appreciation of the Dollar versus most of its currency pairs this week.
EUR - Despite Recent Strength in the EUR, Something is Still Missing
The EUR appears to be the recipient of much support lately as the other safe-haven currencies have taken a dive on recent economic data. The U.S. jobs market took such a beating last month that the Dollar appears to be feeling the effects and has now raised this pair back up towards the 1.3000 price level. The only currency appearing to be out-pacing the EUR's recovery at the moment is the British Pound. The EUR/GBP has continued to distance itself from the recent near-parity price levels and is now trading around 0.8750.
After the European Central Bank (ECB) decided to hold short-term interest rates steady at 2.00% last Thursday, the EUR has remained relatively flat against most pairs; continuing previous trends at a mild pace. However, once U.S. employment data was released on Friday, the EUR/USD saw a sharp appreciation of over 100 pips throughout the last hours of the New York trading session as a result of two factors. One was that the EUR benefited from an increase in risk appetite brought on by the assumption that the U.S. Senate will pass Obama's stimulus bill by Tuesday this week. The second factor was a depreciation of the major rivals to the 16-nation currency brought on by negative economic data.
The EUR has been in a relatively unstable position these past few weeks as traders don't quite know what to think of this currency. The USD has always been the safe-haven of choice, and the European economies typically fare well as a result of the French and German economies; yet something is amiss lately. Data doesn't seem to support the EUR, and that data which shows positive results, lately, has weakened the Euro-Zone currency contrary to forecasts. Until the Euro-Zone regains confidence in the markets, it isn't likely that forex traders will see a significant rise in the value of the EUR.
JPY - Japanese Yen May Weaken as U.S. Markets Rebound from Stimulus
The Japanese Yen has seen some signs of a small reversal against last week's downtrend against the USD. Ending trading on Friday at 91.81 against the Dollar, the JPY now trades near the 91.60 price level. With such poor employment data emanating from the U.S. on Friday, most investors were speculating that the U.S. government would take hasty steps to pass the economic stimulus bill proposed by President Obama. The bill is expected to pass during Tuesday's vote.
Adding to this is the prediction that Treasury Secretary Timothy Geithner is going to announce a bank consolidation plan aimed at controlling toxic mortgages on the balance sheets of many banks. These moves together will likely boost confidence in the U.S. markets and will help drive the USD higher versus the Japanese currency. The Yen has been the primary beneficiary of the recent financial crisis and recession as its currency is programmed to operate counter to the economic cycles. As the U.S. markets rebound, traders are likely to see a depreciation of the Yen versus its major currency pairs.
OIL - Oil Producers have High Hopes that Oil has Hit Bottom; But Has It?
After a short-lived spike in the price of Crude Oil last Friday, the commodity has apparently returned to its previous holding pattern and now trades around the $40 price level. Traders may actually be seeing the price of Crude Oil reach a stable price level. For the first time in months, the price of Light Sweet Crude has remained relatively stable with no clear indication of direction. We now have analysts claiming that $40 may be the lowest price Crude Oil will hit for the year 2009.
Not to be tempted into the fallacy of relying on such predictions, it is more likely that OPEC's production cuts, coupled with the recent weakening of the USD due to employment data, is the culprit behind the stable price of oil. Global energy demand remains low and the recession doesn't appear to have an end in sight. As such, the price of Crude Oil should still be under a downward pressure. The recent events just outlined above, however, are helping to support the price of this commodity. If the USD makes a healthy rebound after Obama's stimulus bill is passed in the Senate, and further oil production begins to arrive from Iraqi ports, traders are likely to see a continuation of the downtrend to the price of Crude Oil into the 2nd quarter of 2009 at the very least.
The bullish trend is loosing its steam and the pair seems to consolidate around the 1.29 level. The 4 hour chart's RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. Going short with tight stops appears to be preferable strategy
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 1.47 level. The 4-hour chart RSI is already floating in the overbought territory. It appears that the possible next move might be a bearish one. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The Daily chart showing that the pair is still in the bullish configuration; however, the RSI is already floating in the overbought territory. On the contrary, there is a fresh bullish cross on the hourly chart's Slow Stochastic indicating a bullish correction might take place in the nearest future. In that case traders are advised to swing in after the breach takes place.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The Wild Card
Silver prices rose significantly in the last 2 weeks and peaked at $13.07 for an ounce. However, daily charts' RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for
forex traders to enter the trend at a very early stage.
|22:30||AUD||AIG Manufacturing Index||46.9||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.0%||-||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:00||EUR||Spanish Unemployment Change||-64.4K||-32.4K||-|
|08:15||EUR||Spanish Manufacturing PMI||53.8||54.2||-|
|08:45||EUR||Italian Manufacturing PMI||48.4||49.3||-|
|09:00||EUR||Final Manufacturing PMI||51.0||51.0||-|
|13:30||USD||Core PCE Price Index||m/m||0.0%||0.0%||-|
|14:45||USD||Final Manufacturing PMI||53.7||54.1||-|
|15:00||USD||ISM Manufacturing PMI||55.5||54.9||-|
|15:00||USD||ISM Manufacturing Prices||38.5||40.1||-|