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Tuesday, 17 Jun 2008
The USD Continues To Be Under Pressure.
Yesterday the EUR/USD par experienced a highly volatile trading session and ultimately closed at 1.5466. This closing price represented almost a 90 pip loss for the Dollar versus the Euro. Early morning trading in Asia added another 100 pip to the EUR/USD pair as it raced passed 1.55. In addition the greenback depreciated versus the rest of its major currency rivals yesterday as well. A possible explanation for the dollar's decline can be found in yesterday's issued reports on the economy. The Empire State Business Conditions Index came in much lower than expected. The index which measures the general business conditions of manufacturers in New York State came in at -8.7, nearly 8 points lower than initially forecasted. The NAHB Housing Market Index surprised many investors with a slight drop from the forecasted reading. Economists were surprised because they thought homebuilders had begun to recover from the subprime credit crisis that has ravaged the US economy. Also yesterday Federal Reserve (Fed) Chairman Ben Bernanke spoke in front of the Senate Finance Committee Health Reform Summit, where he addressed the poor state of the US HealthCare system. Surprisingly, Bernanke did not touch upon the state of the US economy or the monetary policy. On a positive note, TIC Net Long-Term Transactions were released at $115.1B. This event which measures the monthly difference in cross-border foreign and domestic purchases of long-term securities, returned much higher than the expected mark of $63.0B.
Today we can expect a batch of significant US calendar news. The most important of which will be the PPI index. The PPI measures the change in the price of finished goods and services sold by producers, and is expected to rise by 1.0% this month on the back of rising energy prices. Also expected to boost the USD is Industrial which is estimated to rise for the month of May. PPI and Industrial Production will likely have to combat negative news from Building Permits, Housing Starts and Core PPI. Housing Starts measures the annualized number of new residential buildings that began construction during the previous month. The index is expected to see a small decline from the already low figures from last month.
It is safe to say that the movement of the USD today will be largely dictated by its own local news. High volatility in and around the release of PPI and Housing Starts (12:30 GMT) should be expected.
The EUR strengthened against the major currencies during yesterday's trading session. The most notable gain for the EUR was against the USD as it gained close to 100 pips in the European trading session yesterday. The strengthening of the Euro was validated by stronger than expected fundamental news from the EZ yesterday. Only two Euro-Zone indicators were made public yesterday. Core CPI and CPI which both measure the rate of inflation in the market returned with positive gains from the previous month. The Core CPI came in at 1.7%, which was 0.1% higher than previously published and the CPI came in at 3.7%, which was 0.2% higher than previously published. The revised raise in both indices strengthened the probability of the Euro-Zone Interest Rate hike next month.
On tap from the Euro-Zone today we can expect the German ZEW Economic Sentiment, Italian Trade Balance and Euro zone Trade Balance. The German ZEW Economic Sentiment should have the greatest impact the European currency; however investors are still torn over the validity of forecasted results. The indicator measures institutional investor sentiment and more specifically reflects the difference between the share of investors that are optimistic and the share of investors that are pessimistic. The indicator generally serves as a pre-cursor to Euro-Zone confidence as a whole and could provide substantial liquidity during the early European trading session. As of now it is projected to be released at -42.4, and could change the course of the EUR to a bearish trend. Nonetheless traders should anticipate that news from EZ counterparts, specifically the US and UK will dominate the direction for the Euro today.
The Yen, during yesterday's trading session, devalued versus most of the major currencies except the USD. This mixed result is a direct continuation from last week's trading. Traders should note that even though the JPY strengthened versus the dollar, it was above the psychological level of 108.
In a slow news day from Japan, yesterday, only one indicator was published. The Tertiary Industry Activity Index was supposed to strengthen the JPY, as it came out higher than previously published, however it didn't manage to push the local currency up. In fact, the effects of outside news dominated the Japanese fundamental reports from yesterday, leading to its overall bearish behavior.
Today will once again be a slow news day for Japan. The only indicator that could shade light on the state of the local economy will be the Monetary Policy Meeting Minutes. The Monetary Policy Meeting Minutes details the record of the Bank of Japan's last Interest Rate meeting that is normally held about a month prior to it. This indicator is important for Forex traders because it gives them insight into the thinking of the Bank of Japan on the direction of their currency and in turn the necessity of any interest rate changes. Today traders will be wise to keep their eyes open for news from outside of Japan and place their transactions accordingly.
After dipping sharply for the last couple of days, this pair manages to recover slightly yesterday. This cross will once again target the 1.5600 as all indications are still bearish today. If this level is breached we may see another sharper move upwards.
The RSI and Momentum on the daily chart are negatively sloped indicating that this pair still has steam left in its bearish movement. However the 4 hour chart is slightly bullish, so the preferred short term strategy today will be to buy on a dip as the daily movement should still be bearish.
We are at the beginning of a downward channel on the 4 H chart. Although the 4 H chart RSI and Momentum are still positively sloped, there is a clear bearish cross on the daily chart's Slow Stochastic, meaning that in a long range there might be a trend reversal. Traders should wait for a clearer signal on the hourlies before entering the market.
The typical range trading on the 4 hour chart continues. Both the 4 hour chart RSI and Slow Stochastic are floating in neutral territory. The daily chart is also supporting the neutral notion with its oscillators still showing no sign of a possible trend change. Forex traders are advised to wait for a clearer signal before entering the market n this pair.
The Wild Card
Wild - Crude Oil
The Oil continues its extremely volatile session as it might be in the center of forex trader's focus today. Yesterday's inability to breach the 140.00 level, together with additional bearish indications by various oscillators is strengthening the notion that a correction move is quite imminent. Going short with tight stops and limits might contain high profit potential.
|01:00||EUR||French 10-y Bond Auction||-||-||-|
|01:00||EUR||Spanish 10-y Bond Auction||-||-||-|
|03:00||NZD||ANZ Commodity Prices||m/m||-4.7%||-||-|
|05:45||JPY||10-y Bond Auction||0.45|2.7||-||-|
|09:00||EUR||Spanish Unemployment Change||-118.0K||-||-|
|14:30||USD||Non-Farm Employment Change||280K||229K||-|
|14:30||USD||Average Hourly Earnings||m/m||0.3%||0.2%||-|
|16:30||USD||Natural Gas Storage||-||-||-|