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Monday, 14 Jul 2008
Upcoming High Volatility For the USD This Week
During the previous week the dollar underwent a volatile session against its major currency rivals, which ended up with a sharp bearish momentum.
The USD began last week with some unfavorable news, as the Pending Home Sales index fell by 4.7% in May. However, a batch of subsequently positive data contributed to the Dollar's volatility. The U.S unemployment Claims dropped from 404K to 346K. The Trade Balance showed that the U.S deficit has fallen by 1.2% from -60.5B to -59.8B, and the Prelim University of Michigan Consumer Sentiment had slightly risen from 56.4 in June to 56.6 in early July, terminating 5 straight months of declines. However, on Friday, the unfortunate news regarding the stability of two U.S mortgage giants, Freddie Mac and Fannie Mae, had led to a sharp bearish trend for the USD. The news also connected these worries with the Fed's avoidance to raise Interest Rates until now, enhancing the bearish move.
The week ahead will deliver many financial indicators that forex traders cannot afford overlook. On Tuesday, U.S Retails Sales, Core Retail Sales and the Producer Price Index will be published; all of them are forecasted to show disturbing figures for the U.S economy. On Wednesday, a bundle of data is due. The U.S Consumer Price index is expected to preserve its current figures and the TIC Net Long-Term Transactions are expected to suffer a deep slide.
This week, traders have an excellent opportunity to gain significant profits as it promises to be extremely intriguing week for the US dollar.
During last week's trading session the EUR saw rising trends against all its major currency counterparts as it has appreciated against the USD, the JPY and the GBP.
The EUR appreciated despite the fact that almost no market moving data was published from the Euro-zone during the previous week. The only significant financial indicators were the French Industrial Production, which went down by 2.6% in May from April, and the bulletin published by the European Central Bank (ECB) on Thursday. The ECB mentioned that the Euro-zone currency is supported by growing demand from oil-exporting countries, further raising its inflation. Therefore, the ECB Governing Council emphasizes that maintaining price stability in the medium term is its primary objective. According to the ECB, the current level of the European Interest Rate, 4.25%, is designed to achieve its medium-term price stability goal.
As for the week ahead, the European and the German ZEW Economic Sentiment will be published on Tuesday, and both are expected to deliver negative figures. On Wednesday the Consumer Price index is forecasted to remain intact. While on Friday, the German Producer Price Index is expected to slightly descend from 1.0% to 0.7%.
If analysts' expectation on this week's data will be ratified, the EUR might depreciate, mainly vs. the USD, giving traders a great chance to profit by timing the market correctly.
The JPY saw mixed results last week, as it underwent volatile sessions against the USD and the GBP. The Japanese currency also depreciated vs. the EUR.
The JPY was mainly influenced by its counterpart currencies as relatively few financial indicators were published during the previous week from the Japanese markets.
At the beginning of last week the Bank of Japan (BOJ) Governor Shirakawa delivered a speech, saying that Japan's economic growth is slowing, mainly due to the effects of high energy and material prices, emphasizing that falling trend was imminent. Later during the week, an extremely positive result of Core Machinery Orders had managed to bounce the JPY back. The survey rose by 10.4% in May, well above expectations of a 1.1% rise.
Yet, if it wasn't the USD with its major downfall on Friday, the JPY could have ended last week with predominantly falling trends.
Looking ahead to this week, the Japanese Interest Rate will be the determined on the Overnight Call Rate. The announcement will be followed by the BOJ Monthly Report. Japan's Interest Rate is expected to remain at 0.5%, however any change that may occur will most likely generate turmoil in the market. Later on this week, the Tertiary Industry Activity Index is forecasted to show a 0.0% growth, after last month's positive results. On Thursday night, the BOJ Monetary Policy Meeting Minutes will take place, and should also contribute to the JPY's volatility.
As further deterioration for the JPY is projected, traders should follow and analyze the economic calendar before entering the market.
Crude Oil -
The stock markets may witness a sharp fall if the prices of Crude Oil will touch the psychological mark of $150 a barrel on the New York Mercantile Exchange. Crude hit a life-time high of $147.9 a barrel last Friday. The prices have jumped by more than $10 a barrel since July 9.
Iran has threatened to cut Oil shipments through the Strait of Hormuz - through which 40% of the world's oil passes - if it is attacked by Isreal over its suspected nuclear weapons program. Meanwhile, a Brazilian oil workers union is planning a five-day strike.
Oil also rose due to the weakening dollar, which bolstered the appeal of commodities as a hedge against the US currency's drop. The dollar declined to an all-time low against the euro on concerns that US government may be forced to take over mortgage lenders Fannie Mae and Freddie Mac.
The strong bullish momentum is calming and the pair is finding consolidation at 1.5900. The Slow Stochastic on the 4 hour chart is showing a bearish cross, which indicates that a corrective move might be quite imminent. Going short with tight stops might be a good decision today.
On the hourly chart the pair consolidates around 1.9800 with the RSI now floating around the 50 level with no signs of a possible breach. On the daily chart the Cable continues to trade within quite a wide range, however the Bollinger Bands are getting tighter indicating that possible breach out of range might be imminent. By now, it would probably be recommended to stay out of this pair until a strong and distinctive signal will appear.
The pair is showing local bullish momentum on the hourly level after a very violent drop to the 105.63 level. The daily chart is still bearish which means that it might be preferable to sell on highs today when the moderate corrective move ends.
The moderate bearish price movement continues within the bearish channel which still has yet to be breached. The daily chart is showing a strong bearish cross, and the 4 hour chart is also joining to that notion with the Slow Stochastic pointing to the continuation of the bearish movement. Next testing point should be around 1.0135. Going short appears to be preferable today.
The Wild Card
The violent bullish trend continues as all technical indicators on the daily and the 4 hour charts are showing that the direction is up and the momentum is high. This provides forex forex traders with a great chance of enjoying the additional momentum still left for the commodity.
|08:00||CHF||UBS Consumption Indicator||1.41||-||-|
|08:00||EUR||German Import Prices||0.3%||-0.3%||-|
|10:30||GBP||Second Estimate GDP||q/q||0.7%||0.7%||-|
|10:30||GBP||Prelim Business Investment||3.3%||2.3%||-|
|10:30||GBP||Index of Services 3m/3m||0.8%||0.7%||-|
|12:00||GBP||CBI Realized Sales||28||31||-|
|14:30||USD||Core Durable Goods Orders||m/m||-0.1%||0.5%||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:30||USD||Durable Goods Orders m/m||m/m||-1.1%||-0.4%||-|
|15:55||USD||Revised UoM Consumer Sentiment||89.4||90.2||-|
|15:55||USD||Revised UoM Inflation Expectations||2.6%||-|
|16:00||USD||New Home Sales||467K||471K||-|
|16:00||USD||Pending Home Sales||m/m||0.3%||0.9%||-|
|16:30||USD||Crude Oil Inventories||2.6M||-|
|18:00||USD||Natural Gas Storage||-17B||-|