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Wednesday, 5 Mar 2008
US ADP Data on Tap
Yesterday the greenback remained range bound against the EUR and the GBP, failing to breach new lows. However the greenback did lose some ground against the JPY and the CHF after Fed Chairman Bernanke painted a gloomy picture of the struggling U.S housing sector in his speech yesterday. He mentioned that mortgage foreclosures are likely to remain on the increase coupled with falling home prices and therefore an active policy will be needed by the Fed in order to provide this failing sector with some stability. These comments added to the rising fears of a recession in the U.S and there are already some key investors such as Warren Buffet who believe that the U.S economy has already crossed that line. Yesterday was a day full of speeches by key U.S Fed Officials which included Fed Governor Mishkin and Dallas Fed President Fisher. Mishkin's comments were still in accordance with the majority opinion in the Fed, which is that growth is the main concern with inflation expected to ease in the medium term. On the other hand Fisher continued on his one man crusade against inflation in the US, saying that slower growth was preferable to higher inflation. These comments however did not really manage to cause any significant volatility.
Looking ahead, the main news from the U.S today will be the ADP report which is forecasted to release at 10K, significantly lower than last months figure of 126K. This figure has some predictive value with regards to Friday's key NFP report and it should cause some volatility. However traders' main focus is Friday's NFP report and this will cause a heightened level of caution, so investors will be hesitant to drop the greenback any lower ahead of Friday, unless the ADP springs a major surprise. The longer term picture remains gloomy for the greenback as the poor U.S. economic outlook will keep the Fed on its interest rate slashing path.
The EUR had a stable trading session all across the board yesterday. The EUR has reached a new all time highs against the greenback on each of the last five consecutive days. However this record setting trend was halted yesterday by comments from leading European Finance Ministers ahead of the ECB meeting on Thursday. Chairman Juncker of the Eurogroup of finance ministers mentioned his concern about the current excessive exchange rate volatility and this gave the greenback some reprieve. The only news coming in from the Euro-zone yesterday was the GDP and PPI figures, which released inline with expectations at 0.4% and 0.8%, respectively. This news did not have any effect on the EUR, which continued to remain solid throughout the day.
Looking ahead to today, we expect the Euro-zone Services PMI and Retail Sales figures. However these figures will not impact the EUR, which may slip slightly versus the greenback today as traders exercise caution ahead of Friday's NFP report. However the broader EUR outlook is still very bright as no ECB rate cut is expected any time soon, while the Fed is expected to cut rates by at least 0.5%. Many analysts believe that the EUR will target the 1.5500 level against the greenback.
The JPY strengthened slightly against the greenback yesterday on the back of Bernanke's negative U.S housing outlook and recommendation of active policy in order to stabilize the sector. However it lost some of these earlier gains towards the end of the European trading session. Many analysts believe that the JPY will breach the 100.00 level against the greenback in the near term. The main reason for this is because the JPY is benefiting from risk aversion, which is a product of weakness in the equity markets across the globe. Another reason for the rosy JPY outlook is the fact that there is developing now a substantial interest rate compression between the USD and the JPY. Therefore the USDJPY has lost the status as the “King” of the carry trades, leading to a sharp depreciation of this pair. The only news released out of Japan earlier today during the Asian trading session was the Capital Spending figure, which measures the total amount of new capital expenditures by private businesses. This figure surprised on the downside releasing at -7.7%, which was well below the forecasted figure of -2.4%. However it did not have any effect on the Japanese currency which is mainly affected by risk sentiment.
The pair continues to consolidate around 1.5180, and moderate bearish momentum is being created on the 4 hour chart. The daily slow stochastic is showing a bearish cross, and the correction towards the 1.5100 appears to be imminent. Going short with tight stops, might be a good choice today.
The cable has made the first step of the bearish correction move and appears to be continuing with that notion. The slow stochastic of the 4 hour chart is showing negative slope, and the RSI is floating on the 50 level, which indicates that the pair still have much more room to run. The first target price might be 1.9700.
After bottoming at 102.50 the pair is gaining in a moderate corrective move and is now floating around 103.60. There is a very bullish structure forming on the slow stochastic of the 4 hour chart, and the momentum is high. Going long appears to be the preferable strategy today.
After a moderate bullish correction, the pair is heading south again and is now traded around 1.0400. The 4 hour chart is showing growing bearish momentum, and the daily study supports the bearish notion. The estimated target price for the next move should be around 1.0340.
The Wild Card
There is a very clear and distinct channel forming on the daily chart, as gold now floats at the middle level of it. Oscillators are showing bearish momentum, and it appears that we might see gold touching 960.00 before the weekend. This is a great opportunity for Forex traders to enjoy a very clear and strong technical entry point.
|15:00||USD||Natural Gas Storage||-13B||-141B||-162B|
|22:30||AUD||AIG Construction Index||54.4||*||-|
|07:45||EUR||French Gov Budget Balance||-80.8B||-||-|
|07:45||EUR||French Trade Balance||-5.8B||-5.1B||-|
|08:00||CHF||Foreign Currency Reserves||434.7B||*||-|
|09:30||GBP||Consumer Inflation Expectations||3.2%||-||-|
|11:00||EUR||German Factory Orders||m/m||3.3%||-0.4%||-|
|13:30||USD||Non-Farm Employment Change||204K||180K||-|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|