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Friday, 12 Sep 2008
Today's Economic Indicators Expected to Create High Volatility
Today is an important day to check your calendars and stay attuned to daily news releases of economic data. Multiple indicators are going to be released from the US and the Euro-Zone which will no doubt cause intense fluctuations in today's market.
USD - USD Retail Sales and Consumer Sentiment on Tap
Yesterday the greenback saw a volatile session against most of its major currency counterparts. The USD began yesterday's trading session with rising trends as the EUR/USD dropped beneath the 1.39 level for the first time in a year. However, later on, the trend reversed, raising the pair back to the 1.40 level.
The USD appreciated with the beginning of yesterday's trading session mainly as a result of some negative data arriving from the Euro-Zone. It was enough to continue supporting the current trend of a strengthening USD. However, a batch of unfortunate data regarding the U.S economy has managed to halt the trend and launch a reversal. The most significant being the U.S Trade Balance, which dropped well below expectations in July, as the U.S trade deficit widened to $62.2B, the largest since March 2007. Another disturbing piece of news was the weekly Unemployment Claims, which slightly fell to 444,500 individuals filing new claims for unemployment insurance, counter to the forecast of a drop in 4K. Furthermore, the Labor Department also said that the number of individuals continuing to file claims for unemployment rose to 3.525 million, the highest level seen since October 2003.
Looking at today, traders can expect a steady stream of news coming from US which will increase the market's volatility. The main focus should be tuned to 12:30 GMT, when several significant indicators will be published. The most influential indicator will be the U.S Retail Sales Survey, which is expected by analysts to rise by 0.2% as opposed to the previous month. At the same time, the Core Retail Sales and the Producer Price Index (PPI) are scheduled for release; however they are expected to deliver more negative figures. If the expectations of analysts will be confirmed, the market is likely to react with fluctuating movements in light of the mixed results. This might give traders a window of opportunities to gain profits out of the volatile sessions, before the market stabilizes to continue the current trend of a strengthening USD.
EUR - ECB President Trichet Alludes to a Hike in Euro-Zone Interest Rates
The EUR underwent a volatile session yesterday within its major current pairs. At first the EUR saw bearish behavior on all fronts; however, it managed to recuperate as the day progressed.
The EUR started the day with a downward movement as a result of negative publications from Germany and France. The German Wholesale Price Index fell by 1.8% in August, well below expectations for a 0.3% drop. Later on, the French Final Non-Farm Payrolls marked a 0.2% decrease in the second quarter of the year from the previous one. As long as the strongest nations in the Euro-Zone will continue to deliver signals of contraction, the EUR will continue to drop, especially against the USD and the JPY, which have been strongly supported by the euro's downfall over the past two months. Nevertheless, as the EUR almost fell to a two year low against the JPY, it bounced back up following a hawkish speech by the European Central Bank President Jean-Claude Trichet. In his speech, Trichet said that inflation remains the bank's key focus. By saying this, Trichet alluded to the possibility of an interest rate hike in the region. In addition, a batch of unfavorable data from the U.S economy has weakened the USD, which may support the EUR in the short term.
Looking ahead to today, the European Industrial Production is due at 09:00 GMT, and analysts forecast it to fall by 0.2% from the previous month. Such a result will most likely be reflected in a bearish inclination for the EUR. Traders should also follow today's U.S leading indicators, as they will generate the largest impact on the market today.
JPY - JPY Reaches Two-Year Highs Versus a Batch of Crosses
The JPY saw mixed results yesterday as the equity markets produced varying signs of risk appetite. The day started with strong risk aversion throughout the market, resulting in bullishness for the Japanese currency. By mid-day yesterday it had gained over 100 pips against the USD, EUR, GBP and CHF and also trading near 2-year highs versus the NZD and AUD. With Japanese data having little effect on its own currency movement, it was only a matter of time before market behavior changed as the JPY forfeited most of it earlier gains before market closing. The swing in market sentiment came as Lehman Brothers announced its struggle to regain capital following their monumental losses earlier this year. The credit giant is still looking for potential buyers with the help of the US government and news of such will likely provide a huge swing of risky trading. Yesterday's local data from Japan, as mentioned earlier had little effect on its pricing. Both quarterly GDP and annual GDP price index numbers saw slight gains for this month compared to last, despite posting negative figures. Final Q2 revised GDP saw a 0.2% gain from initial expectations of -0.9% and the price index was also slightly up against forecasts.
In early morning trading the Japanese released their revised monthly Industrial Production figures which show positive growth of 1.3% last month. As expected markets reacted with little motion as JPY enthusiasts will need to look toward a full fundamental news day from global markets to map out their positions.
Oil - Against All Odds the Price of Crude Oil Continues its Decline
As Hurricane Ike inches closer to the Texan coast, oil refineries are getting shut down with blinding speed and civilians are clogging highways and draining gas stations in their attempt to flee the oncoming destruction. However, the most contradictory piece of data to emerge from this turmoil is the steady drop in the price of Crude Oil. When storms threaten major refineries, the historical impact has usually been to lower market supply and force prices to move upward as people, and nations, begin to stockpile in expectation of a shortage. As of right now, however, we are seeing the exact opposite of this outcome. Supply is being cut by suppliers and tropical storms, yet we continue to see the price of oil slip further and further reaching as low as $100.10 during yesterday's trading session.
How can this be? As no one explanation will suffice by itself, this slippage may be the result of three causes. The first is the lowering demand for pricey energy sources. As oil prices reached record highs this past July, demand for such an expensive source of energy sank. We are still feeling the effects of this slump in demand and prices are sinking to meet the appropriate level consumers are willing to pay. The second is the weakened global economy. As the value of currencies weakens during this time of global recession, it becomes harder to afford the previously expensive energy costs and countries are buying less as a result. Prices drop to meet that reality. The third cause is the impact of speculation. When the economy's bottom dropped out, commodities like gold and oil were bought up as a safety net. This drove prices higher and higher. Now, as the USD gets stronger and the economy attempts to correct itself, these commodities are dropping back to their normal market levels and speculators are selling off all their shares in these defensive commodities to escape their decreasing value, which of course forces prices to drop even further. Important for today's trading is for traders to be aware that the price of oil may resist the inclination for an increase in price given the recent news releases about supply. However, once market demand is corrected, supply will then continue to be a source of information about prices.
The cable has breached the key Fibonacci level of 1.4000, and the break has been validated by a full bar beneath that level on the 4-hour chart. The negative slope on the daily Slow Stochastic strengthens the notion that the momentum is quite bearish. Going short might be wise today.
The pair is in the middle of a very intense downtrend that still shows great momentum and on a bigger scale appears to have more room to run. In the short term, a bullish cross on the hourly chart indicates that there might be a small correction before the bearish move resumes. Selling on highs appears to be preferable today.
The pair has been range-trading with high volatility for a while now and it appears that the bearish price movement is back. The Slow Stochastic and the RSI of the daily chart are indicating an upcoming test of the 106.00 level. If that level is breached, swinging in the trend would be the best strategy.
The daily chart is showing that the pair is still in the bullish configuration; however, the RSI is already floating in the overbought territory. On the contrary, the hourly's and the 4-hour chart's Slow Stochastic are both showing a bearish cross. It appears that the possible next move might be a bearish one. In that case traders are advised to swing in after the break.
The Wild Card
It seems that the bearish momentum is still relevant, and that Oil is heading down with plenty of room to run. This can clearly be seen on the 4-hour, daily and hourly charts as all Slow Stochastic and RSI are pointing downwards. Forex traders have a great opportunity to join the bearish move at a very early stage and with a great entry price.
|15:30||USD||Crude Oil Inventories||-4.5M||1.1M||-2.1M|
|01:00||AUD||HIA New Home Sales||1.2%||*||-|
|EUR||German Prelim CPI||m/m||0.3%||0.0%||-|
|01:00||EUR||Italian 10-y Bond Auction||2.60|1.5||*||-|
|02:30||AUD||Private Capital Expenditure||q/q||-4.2%||-0.8%||-|
|08:55||EUR||German Unemployment Change||-12K||-6K||-|
|09:00||EUR||M3 Money Supply||y/y||1.5%||1.5%||-|
|09:00||EUR||Italian Retail Sales||m/m||-0.7%||-0.2%||-|
|11:00||GBP||CBI Realized Sales||21||25||-|
|13:30||USD||Prelim GDP Price Index||q/q||2.0%||2.0%||-|
|15:00||USD||Pending Home Sales||m/m||-1.1%||0.6%||-|