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Wednesday, 27 Aug 2008
The USD is on the Crossroads of Financial Development.
Yesterday's trading session may definitely be considered a global crossroad in terms of financial developments. Whereas the U.S economy seems to be pulling itself out of its gloomy status,the Euro-Zone looks to be falling into a deep recession.
USD - Today's Durable Goods Orders Will Clarify USD Prospects.
Yesterday the greenback saw rising trends against most of its major currency counterparts, including a 6 month record against the EUR, and a two year high against the GBP. However, equal concerns on downside risks to growth and upside risks to inflation are keeping dollar activity restrained in the aftermath of yesterday's FOMC Minutes.
Two main reasons led to yesterday's dollar positive session. First was the batch of poor economic data from the Euro-Zone, especially regarding the German economy, which promptly weakened the EUR, and thus strengthened the USD. Later on, two leading indicators were published from the U.S economy and boosted the Dollar further. The U.S Consumer Confidence Index rose well above the expectations to a 56.9 mark, continuing a series of positive results from the survey. On the other hand, the New Home Sales failed to reach expectations, yet it did show that the poor housing sector has managed to seem positive despite its bleak condition, as the sales of newly constructed U.S single-family homes in July increased from an almost 17-year low in June.
Yesterday's trading session may definitely be considered a global crossroad in terms of financial developments. Whereas the U.S economy seems to be pulling itself out of its gloomy status, the rest of the world, and the Euro-Zone on top of it, looks to be falling into a deep recession that if proven to be correct, might lead to a long-lasting bullish trend for the USD. Of course, the U.S economy is still far from a total recovery, but things are looking better for the US economy as a whole.
As for today, on tap will be U.S Durable Goods Indices, which analysts forecasted to deliver weak results. If it goes as planned, the USD may suffer a minor pullback. However, in the case of better than expected figures, the USD will likely find itself aiming to establish new records. Another indicator that should be noticed is Crude Oil Inventories that could generate turmoil in Oil prices and as proven, tends to have a great impact on the market.
EUR - Expect Another Volatile Session as No European News is Expected.
Yesterday the EUR experienced bearish behavior within most of its crosses. Yet it doesn't seem as if we've reached the finish line of a EUR downfall. The European currency marked yesterday a 6 month low against the USD, as the pair breached through the 1.4575 level.
Yesterday's trading session was filled with disturbing data from the Euro-Zone, as the German economy delivered even lower than expected figures. From all the unfortunate data, it is difficult to point out which was worse. The German GDP shrank in this year's 2nd quarter, for the first time since 2004. The German Consumer Sentiment failed to reach expectations, and instead struck a 5 year low. Furthermore, the extremely important German Business Climate Index saw a harsh fall to a 3 year low, and the Business Expectations Index declined again, for the 3rd consecutive month.
The German economy is Europe's leading and strongest economy, and these poor results are painting a very gloomy picture about its current condition.
It is widely known that if German economy enters into a recession, it is fairly likely to assume that it will pull the entire region down with it. Therefore, as long as the Euro-Zone continues to provide contracting signals, and the U.S economy won't, the EUR will probably continue deteriorating.
Looking ahead for today, most eyes will be focused on additional publications of German economic indicators that are once again forecasted by analysts to deliver poor figures. In case no dramatic changes take place, the EUR might see another day of falling trends, at least until U.S data is published.
JPY - Japan Following European Markets With Great Concern.
Yesterday, the JPY mostly underwent rising trends vs. its major currency rivals. The JPY appreciated against the EUR and the GBP, and saw a volatile session against the USD.
Yesterday, the most significant data that was published from the Japanese economy was Japan's fourth-largest automaker company's (Mazda) July global output. The report showed that Mazda's output increased by 25.5% from the same time the previous year to 126,025 vehicles. Nevertheless, the JPY's movements were only partially influenced by this report, and were more affected by global developments such as the Euro-Zone's poor data. The Japanese economy chiefs are following with great concerns the processes inside the Euro-Zone. A pullback in Europe may generate chain reactions that will also threaten the Japanese economy.
As for today, the JPY will be absent from the economic calendar, and traders should follow overseas data, especially from the U.S in order to place their positions on the JPY.
Crude Oil - Oil is Up on Storm Factor.
Oil prices rose more than $1 yesterday as Hurricane Gustav struck Haiti, raising concerns that the storm could slam into major Oil operations in the Gulf of Mexico. However, the price rise was tempered by a stronger dollar and a report from the Energy Department showing even slower fuel demand than many traders expected.
After dropping as low as $112.36 per barrel in overnight trading, Sweet Crude for October delivery ended the day up $1.16 to settle at $116.27 a barrel on the New York Mercantile Exchange.
If Gustav continues along a path toward the Gulf, it could mean an uptick in gas station prices ahead of the Labor Day weekend in the United States. Also rising tensions with the West over the breakaway Georgian territories of Abkhazia and South Ossetia increases the risk of instability in Oil flows to Europe which relies heavily on Russian energy supplies.
Similarly to what is happening all across the board, the USD bullishness did not skip this pair as well. It appears that the local EUR/USD bearish momentum might be taking the pair to 1.4500 level. There are several bullish signals on the hourly level, yet it seems that pair is overlooking all technical aspects. Going short appears to be the smartest move today.
A bearish formation on the daily chart is still intact; however the momentum is already quite low. The 4 hour chart is maintaining a slightly bearish indication yet with no distinct conclusion. The Bollinger Bands are tightening which indicates that the break might be imminent. Traders are advised to hold for the break and then swing into it.
The bullish trend is loosing its steam and the pair seems to consolidate around the 109.20 level. It appears that the bullish breach above the range was not validated, and that range trading might be the name of the game. Taking short term selling positions might be the right move today.
The bullish channel continues with strong momentum as the pair now floats around 1.0980. The slow stochastic on the hourly chart is floating around 50 which indicates that the bearish signal is in place. The RSI is forming back into bullish formation and supports the general notion. Next target price might be 1.150.
The Wild Card
After a moderate bearish correction, this commodity is heading $117 per barrel again. 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.