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Wednesday, 23 Apr 2008
The USD Reaches All Time Low
The U.S. economy is facing fresh difficulties that will probably further dampen the national currency. Yesterday, the greenback tumbled to fresh lows trading as low as 1.6022 vs. the EUR after the European Central Bank policy makers signaled they may raise Interest Rates due to inflation concerns.
The USD extended its drop against the EUR following the low printing of the US Existing Home Sales in March. Falling house prices and rising mortgage risks continue to slow the U.S. economic growth. As a result of shrinking sales, builders are forced to pare back construction and reduce prices.
A tumbling dollar also prompted investors to purchase commodities. U.S. Crude Oil rose yesterday to a record 119.90 a barrel in New York, gaining on a Nigerian supply disruption and a U.K. refinery strike threat. Crude from Nigeria, Africa's biggest producer, is low in sulfur and is prized by U.S. refiners because of the proportion of high-value gasoline it yields. The falling dollar and higher global demand for raw materials have led to records this year for commodities including gold, corn, soybeans and rice.
Today, there is no significant news expected from the U.S. markets. Traders should closely watch the fundamental data from the Euro zone as it may determine the future USD direction. Today, we may expect another volatile trading session for the greenback. There is a possibility that the dollar will further weaken, finally stabilizing above the 1.60 mark against the EUR.
The EUR rallied against the USD yesterday and traded above 1.60 after ECB officials said they are ready to increase Interest Rates if inflation doesn't slow. The EUR reached the 1.6022 level, but later gave back some of its gains, finally closing at 1.5978.
A European Union report showed last week that annual inflation rose to a 16-year high of 3.6% in March. The ECB's concerns over inflation have increased with the recent rise in Oil prices and it has therefore sharpened its tone. Yesterday, ECB Member Noyer stated that the bank would do what is needed to bring inflation back to its target of just below 2%, adding the central bank would move rates if needed.
Still, the ECB is seen keeping rates at least at a 6 year high of 4.0% for a while. In contrast, markets expect the Fed to lower benchmark U.S. rates further from the current 2.25% at a policy meeting expected on April 29-30.
Today's European fundamental calendar is relatively stuffed with events. Service and Manufacturing PMI numbers will shed more light on how well the Euro zone economy is holding up given current market conditions. Also, ECB President Trichet is expected to deliver a speech later today in Spain. The speech will be closely followed by investors for hints on future ECB monetary policy. Today, we may see the EUR extending its gains vs. the USD if the Euro zone news will indeed surprise on the upside.
The JPY depreciated vs. the USD yesterday after Oil prices hit a record high of $119.90 a barrel. The Yen tested bids around the 102.80 level and was capped around the 103.50 level.
The relatively strong Yen and the rise in raw materials costs is the worst combination the Japanese economy could wish for. The weak dollar continues to weigh heavily on exporters in general and Japan's automakers in particular.
Traders are also closely watching the food situation in Japan. Asian demand for rice remains very high. On one hand, Japan is facing a major food shortage, while on the other hand it imports more than half of the food it consumes. Yesterday's Trade Balance released at 0.77T, well below the forecasted figure of 0.89T.
Later today, we will see the All Industries Activity and the CSPI indices posting there results. Apart from that, Forex traders should keep an eye on the economic events around the world, as today could prove to be another very volatile day for the Japanese currency.
After a touch at the all time high of 1.60, and a failed attempt to validate a breach, the pair consolidates around 1.5980. The daily oscillators are very bullish, and indicate the continuation of the bullish trend. The hourlies are still moderately neutral and a local correction might be in place. Waiting for the validated breach beyond 1.60 and swing should be a very good strategy today.
The 4 hour chart is showing a strong bearish cross on the Slow Stochastic and RSI is floating around 50. The daily chart is in neutral territory with no distinct signal on any side. Waiting for the bearish momentum to grow before entering the market could be a good choice today.
There is a very distinct bullish channel forming on the daily chart, as the pair now floats in the middle of it. The daily Slow Stochastic is bullish, and the hourlies confirm the bullish notion. Going long appears to be a preferable strategy today.
The range trading the pair is going through in the past month is forming into a horizontal narrowing flag, as the pair now approaches the end of it. The momentum is moderately bullish, and the Bollinger Bands are very tight, which together indicate a potential move quite shortly. Traders are advised to wait for the breach through the flag before swinging, as it might be quite strong when it occurs.
The Wild Card
The violent bullish trend continues at full steam without showing the slightest pause for consolidation. A fresh all time high has breached on a daily basis, and the end doesn't appear to be close. Forex traders are advised to join the bullish trend with relatively loose stops, until the first signal of a slowdown is received.
|05:30||JPY||All Industries Activity||m/m||0.6%||-0.2%||-|
|09:30||GBP||MPC Asset Purchase Facility Votes||0-0-9||0-0-9||-|
|09:30||GBP||MPC Official Bank Rate Votes||0-0-9||0-0-9||-|
|11:00||GBP||CBI Industrial Order Expectations||2||4||-|
|15:30||USD||Crude Oil Inventories||1.4M||-||-|
|19:00||USD||FOMC Meeting Minutes||*||*||*|
|01:00||AUD||CB Leading Index||0.2%||-||-|
|01:00||GBP||10-y Bond Auction||2.70|1.8||*||-|
|ALL||Jackson Hole Symposium||*||*||*|
|02:35||JPY||Flash Manufacturing PMI||50.5||51.7||-|
|04:00||NZD||Credit Card Spending||y/y||7.0%||*||-|