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Friday, 24 Oct 2008
The Time to be in the Market is Now!
The Dollar is breaking new records today against the EUR and the GBP, with price movements that are unprecedented. The time to be in the market is now!
USD - Wild Price Swings for the USD
Right now the volatility we are experiencing in the USD has never been seen before, with hourly gains greater then 100 pips! Traders have been riding the strength of the USD wave, collecting profits on huge price ticks. These types of currency swings are rarely seen and the opportunities to take advantage of the wild price movements need to be maximized.
This mornings movements may be creating a new pecking order in the currency realm as the EUR and GBP surrender huge movements to the USD. Yesterdays rally late trading day appears to have been the calm before the storm, allowing for the USD to reach new highs this morning.
The U.S. currency rallied late in trading yesterday and remained virtually unchanged versus the Euro. The late day charge may be due to speculation that that U.S. policy makers are going to take another proactive step and spend $40 billion to prevent more home foreclosures. This plan became a positive for the Dollar as it shed only 13 pips to close at $1.2767 per Euro because it shows unity and cohesion and demonstrates once again that the U.S. has the economic size to really address this financial crisis. Moreover, several analysts predict that the Dollar will rise to as much as $1.2190 per EUR by the end of the year, since there are some concerns in the market of a deepening economic slowdown in Europe. The European currency has tumbled this week on bets that the European Central Bank will favor interest-rate cuts to stimulate the 15-nation economy.
EUR - EUR Hits the Floor against the USD
Deteriorating financial conditions in emerging markets, which have prompted several European governments to take action to protect their economies, prompted investors to rush to the Dollar, causing the Euro to briefly touch a new two-year low against the Dollar. The market players were quite staggered by the unexpectedly sharp fall in the European currency, as investors are realizing that economies of Europe could deteriorate more then the U.S. economy. The selling of the European currency keeps piling up as the global credit crisis continues to spread through the Euro-Zone region. There are major concerns over country risk in Europe, after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. The currencies appear to be under speculative attack because their banking sectors aren't sufficiently guaranteed by their governments. One of the reasons why the EUR/USD continues to head lower has to do with the rising risks that pressures in Eastern Europe will have a negative boomerang effect on Euro-Zone economy.
The GBP also had drifted lower versus the Dollar to $1.6150; that is a 6.5% decline over the week. It fell on speculation the Bank of England will lower interest rates amid a global recession. The EUR and the GBP may weaken even further as European and U.K. banks have five times as much loan exposure to emerging markets as the U.S. with most lending to Eastern Europe. While emerging market tensions continue and growth in the Euro-Zone economy deteriorates, the recent pressures over the European currency are still maintained and the Dollar may remain highly supported. There are some serious economic troubles unraveling in Eastern Europe and perhaps due to the intensive trade integration. A deep recession may affect the Euro-Zone economy much more so than the U.S. Worsening troubles in the slumping European equity markets may put further pressure on an already battered EUR.
JPY - Yen Continues to Fly High on its Rivals
The JPY's huge gains recently over a basket of major currencies have raised the speculation that the Bank of Japan may cut interest rates. There is growing concern that the world's second-largest economy may suffer a prolonged recession. The Bank of Japan didn't take part in this month's joint rate cut with its counterparts from North America and Europe. The BOJ has very little room to influence rates as current rates stand at 0.50%. Japan's borrowing costs are already very low. Now it may have little choice in coming months as plunging stocks and a surging Yen take their toll on an already weakening Japanese economy. According to several analysts, the central bank may likely lower the key rate to 0.25% from 0.5% by year-end.
This rate cut by the Bank of Japan seems to be unavoidable, with growing concerns about Japan's financial system and economy, while the Yen advances and stocks continue to fall. The Nikkei 225 Stock Average tumbled 25% this month, and the JPY has climbed 8.7% against the Dollar and 19% versus the EUR. There is a high possibility of a rate cut in Japan, after the government this week acknowledged that Japan has probably entered its first recession in six years after the economy shrank in the second quarter of this year. Despite this fact, likelihood that the Bank of Japan will cut rates is still slim, given that there is little room for policy maneuvering. However, we cannot rule out the possibility the bank will be forced to cut jointly with other central banks should global market turbulence intensify.
OIL - Oil Prices Could Go as Low as $45!
The Crude Oil prices rose yesterday by $1.09, to $67.84 a barrel in New York on speculation that Organization of the Petroleum Exporting Countries (OPEC) will agree to cut production in order to stem a slump of more than 50% in Oil prices. The prices have fallen a great deal in the last few weeks following concerns that slowing economic growth will curb demand. If OPEC decides to make a cut in Oil production, prices are expected to firm up and move higher in a short term. However, it is also likely that the market will eventually start moving lower again in response to weakening global economy.
The Oil prices also sunk during yesterday's trading session after Saudi Arabian Oil Minister Ali al-Naimi declared that Oil prices will be determined by the market and not by a possible product cut by OPEC. OPEC leaders are scheduled to meet in Vienna today. If OPEC decides to lower production, it may restore equilibrium in the markets and the balance of prices. The last time OPEC lowered its production was in December 2006. The cuts were reversed later in 2007 as Oil prices rose.
The hourly chart shows fresh signs of a bullish move, suggesting that the downtrend has vanished. The 4-hour chart's RSI also supports this notion indicating that the upwards momentum has more steam in it. Going long with tight stops might be the right strategy today.
The bearish formation on the daily chart remains intact; however the momentum seems to be fading. The 4-hour chart is also maintaining a slightly bearish configuration yet with no distinct conclusion. Traders are advised to hold for the break and then swing into it.
The pair is showing consistent bearish momentum on the daily chart's RSI for quite a while now, and today is no different. Although the signal is not strong, the pair might have a local target at 94.00 level, which might make it feasible for forex traders to go long with tight stops.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's RSI providing us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
The Wild Card
The gold price is once again dropping and an ounce of gold is currently traded around $703. However, the 4-hour chart is showing growing bullish momentum, while the daily studies also support that notion. This may prove to be a good opportunity for forex traders to join a potentially strong uptrend that might yield high profits.
|03:00||CHF||Daylight Saving Time Shift||-||-||-|
|03:00||EUR||Daylight Saving Time Shift||-||-||-|
|03:00||GBP||Daylight Saving Time Shift||-||-||-|
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|