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Friday, 28 Mar 2008
The USD Still Roams Bearish Grounds.
The USD rallied yesterday against the EUR, after a data showed that the U.S. economy grew in line with market expectations during the 4th quarter.
Yesterday's finalized GDP figure eased fears of a steeper slowdown after it printed at 0.6% - unchanged from the month prior. A fall in U.S. Unemployment Claims in the latest week further helped the USD regain ground after it posted sharp losses in the last two sessions. Personal Consumption data was also dollar supportive as it unexpectedly rose to 2.3% from 1.9%.
However, the data showing a decline in Jobless Claims did not change the market's view about the need for further U.S. Interest Rate cuts to boost a weakening economy. Short-term Interest Rate futures indicate that investors see a 54% chance of the Fed cutting rates by another 0.5% point in April. A 0.25% point cut has already been fully priced in. Given expectations for additional policy easing at the FOMC meeting in April, the Interest Rate gap will continue to widen, weighing on the USD in the near future. The greenback has lost 18% against the EUR in the past year as the Fed cut its benchmark interest rate 6 times to 2.25% to avoid a recession.
Looking ahead, more consumer data will kick off the morning at 12:30 GMT, with the Personal Consumption and Spending index adding to the downward pressures for the U.S. dollar as both indices are expected to decline. The last release for the week will be the University of Michigan Confidence index which is due out at 14:00 GMT. Investors should look for more drops in the dollar price as there does not seem to be anything that prevents the detrimental fall of the greenback.
The EUR broke the 1.58 level against the USD during the early New York trading session yesterday, but it was finally down 0.6% by the end of the day at $1.5757.
Banks were the top positive influence on the broader European equity market after the central banks of Britain and Switzerland promised extra funds to ease pressure on interbank lending rates, while the European Central Bank said it was ready to step in with extra cash if needed.
It remains clear that the ECB will likely remain focused on its inflation and will probably leave its benchmark lending rate unchanged at 4.0%. There is no significant economic news expected to come out of Europe today. The near term outlook for the EUR, remains quite bright as most analysts believe that the EUR will once again head towards the 1.6000 level against the USD. Look for the EUR to continue to gain strength on most currency pairs, namely those that don't include JPY and USD.
The JPY fell yesterday against most of the major currencies, as the increase in U.S. Consumer Spending encouraged traders to venture back into buying higher- yielding assets funded by cheap loans in Japan. The JPY traded at 99.63, following a gain of 0.5% against the USD.
Manufacturers are beginning to feel the affects of a strong Yen and U.S. downturn. Confidence among Japanese manufacturers in the first quarter fell to -12.9 from 5.2 the prior quarter, the lowest levels in 4 years.
According to the Ministry of Internal Affairs, the Japanese Core Consumer Price index rose 1.0% in February. The result marked the fifth straight month of gains.
The data reflect rising prices for imported oil and commodities, putting upward pressure on living expenses in Japan. Record high Gold and Oil prices are the main reason behind the inflationary fears.The BoJ which has attempted to maintain a policy of steady rate increases, have found themselves facing pressures to cut rates in the near term. The clear issue for the central bank in cutting rates is the fear of rising inflation.
There is no real market moving news to be released from the Japanese markets today. As speculation grows for a potential BoJ rate cut, the USD/JPY will continue to generate support for dollar bulls.
The pair is consolidating at 1.5780 on the short term, and it appears that the momentum on the 4 hour chart is moderately bullish. The daily chart is showing that an attempt to breach through the 1.5850 is quite imminent, and might occur as early as the beginning of next week. Going long appears to preferable today.
The cable is currently correcting down on a local level within the bigger bullish trend. The cross on the 4 hour chart indicates that the bullish trend's comeback is at the doorstep. A strong breach through 2.0058 will validate the bullish return.
The daily chart is very bullish as the slow stochastic shows no crosses and is floating at the 50 level. The 4 hour chart is giving mixed signal with no distinct market direction. Forex traders are advised to wait for a clear bullish sign on the hourlies before entering the market.
After the strong bearish drop to the 0.9650 levels, the pair shows a moderate consolidation on the 0.9930 level. The 4 hour chart is showing a slightly bullish momentum, as the daily chart supports the bullish notion. Going long with tight stops might be a wise choice today.
The Wild Card
There is a very distinct breakout pattern forming on the 4 hour chart in the shape of a triple doji. The slow stochastic is showing no crosses and has a positive slope. The Bollinger bands are tight which means that the bullish break is quite imminent. This could be a great opportunity for forex traders to enter the market on a long position with very high profit potential.