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Monday, 16 Feb 2009
The U.S. Currency is bolstered by Optimism about the U.S. Government Program
It appears that actions taken by the new administration of President Barack Obama might help to restore confidence among investors in the United Sates economy. U.S. Treasury officials said on Saturday that the U.S. dollar is likely to emerge from recession sooner than expected following massive fiscal stimulus.
USD - U.S. Dollar Sees Strong Recovery after Economic Stimulus Bill is Approved
The U.S. Dollar opened this week with a dramatic jump in the right direction. Gaining strength against every major currency, except the JPY, the greenback has been benefiting heavily from the passage of last week's economic stimulus bill, which is due to be signed by President Obama this Tuesday. Closing last week against the EUR at 1.2870, and against the Pound at 1.4358, the USD saw lows this morning around 1.2783 and 1.4251 respectively after market open.
The $787 billion economic stimulus bill passed by both the U.S. Senate and House of Representatives marked a great success for the early period of Barack Obama's administration. The market jumped in excitement from the optimism this legislation brings to the American economy. While not a clear indication that the economy will start to recover immediately, it nevertheless places a degree of confidence behind the notion that it may indeed recover at a later time.
For now, the market focuses its attention to the signing of this bill on Tuesday, followed by the discussion of another bank bailout program to be detailed by various FOMC Chairmen later this week. The important economic figures to watch this week, outside of the layout of various stimulus and bailout plans, is this month's housing data. On Wednesday, the U.S. government will release data on building permits and housing starts during the month of January, and may likely show a continuation to the recent downtrend these figures have seen since last year. Balanced against the stimulus euphoria, these negative figures may not carry as large an impact as usual.
EUR - European GDP Weaker; ECB Remains Conservative on Interest Rates
As Europe's GDP slumps even further, the Euro-Zone currency begins to slide lower against most of the other major currencies. After dropping as low as 1.2720 against the USD late last week, the EUR later rebounded towards levels of 1.2870 by end of trading Friday. However, upon market opening this week, the EUR dropped against the greenback towards a price near 1.2780, signaling a shift back towards general weakness in the Euro-Zone.
Friday's economic data releases on regional GDP indicated a decrease of roughly 1.5% for the combined total economies making up the European Monetary Union (EMU). The European Central Bank (ECB) commented on Saturday that they will remain conservative with interest rate decisions as they would like to maintain a level of flexibility when it comes to a plan of attack which utilizes monetary policy. The trouble comes as analysts begin to forecast that without an aggressive rate cut, the Euro-Zone could enter a severe period of downward-spiraling negative economic output; further weakening the EUR.
Looking ahead, the Euro-Zone is preparing for a quiet news week as Tuesday will see one of the only indicators to be released until Friday's various reports on manufacturing and service sector output. The ZEW Economic Sentiment report from Germany has been inching towards a positive number steadily since July of last year. While expected to remain a negative figure, this report may show that confidence in the German economy has gained lately and may spark a short correction to the EUR's pairs early in the week.
JPY - JPY Largely Unaffected by Largest GDP Drop Seen Since 1974
The Yen saw some relatively moderate appreciation against its currency rivals as this weekend's G7 Summit reaffirmed very little which wasn't already known by world financial chiefs. Failing to comment on the recent strength of the JPY led some to believe that it was a normal turn of events, even expected by the Bank of Japan (BoJ) despite growing concerns over a slouching GDP. The Yen ended last week down against the USD near the 91.90 price level, but has strengthened back towards 91.50 during this week's early trading hours.
Slowing down the pace at which the Japanese economy recovered, however, was the recent release of its preliminary GDP figures which showed a 3.3% decline in the island economy's output, the largest decline since 1974. With a number of economic indicators being released this week, including another round of interest rate talks, the JPY may see a higher-than-normal amount of volatility, especially considering that most indicators are forecast to show further negative levels of economic output. Traders may look for a further weakening of the Yen in the coming days.
OIL - Crude Oil Trades Below $38 on Slowing Global Demand
The price of Crude Oil broke through a number of significant barriers last Friday. Starting the day just above $36 a barrel, the price then cut through the $35 and $34 price barriers before climbing back up $3 higher by market close. This week, the price of Crude appears to be back on the downward slide as the price has already fallen over $0.40 towards the $37 a barrel price range.
The strengthening of the USD from last week's passage of Obama's economic stimulus bill helped push the value of this commodity lower towards the end of the trading week. With more news on the way regarding the signing and implementation of this bill, the USD is likely to appreciate throughout the coming days, putting further downward pressure on the price of Crude Oil. Traders may in fact see the price of Oil drop to as low as $30 a barrel by week's end.
After a long period in which the pair has mainly fluctuated, it seems that we are on the verge of a relatively strong move. The pair has crossed the lower border of the 4 hour chart's Bollinger Bands, indicating that it should enter a downtrend. A breach through the 1.2720 might validate the bearish move with a price target of 1.2690.
The pair is continuing its bearish development, as the cable dropped almost 300 pips in the past 3 days. All oscillators on the hourly chart are pointing down, indicating that the falling trend has more room to go. Next price target might be 1.4100.
The bullish momentum continues with full steam as the pair breached the key Fibonacci level of 90.91. Currently, all oscillators on the daily chart are giving bullish signals; hence, going long seems to be preferable.
It seems that the pair is extending its bullish correction, as it entered an uptrend ever since it tested the 1.1600 level. Currently, all oscillators on the 4 hour chart are pointing up, suggesting further bullish behavior for the pair. Going long might be preferable today.
The Wild Card
The 4 hour chart shows both the tightening of the Bollinger Bands, and also a bullish cross on the Slow Stochastic, suggesting that a strong bullish momentum is likely to take place. This might give forex traders an excellent opportunity to enter a promising trend at a very early stage.
|17:00||USD||FOMC Member Dudley Speaks||*||*||*|