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Wednesday, 16 Apr 2008
US Core CPI - On Tap
Yesterday, the Greenback spent most of the trading day with bullish momentum against the majority of its currency pairs and crosses on the back of surprisingly strong U.S inflation and manufacturing data releases. The greenback added 0.35% to its value against the EUR locking the session below the rate of 1.58, after the first day this week for the USD to appreciate. Also, the strong U.S data release assisted the USD recovery against the Sterling and the JPY, stopping the bearish momentum which characterized the USD since Bernanke's speech last Wednesday.
We see yesterday's surprisingly strong U.S. economic data as a benchmark in the US financial crisis calendar. Those figures could be the first that clearly indicate that the US market is better condition than previously perceived.
March's PPI release yesterday came at the reading of 1.1%, well above February's inflation rate of 0.3%. Also, the important figure of the Empire State Business Conditions Index, which measures the general business conditions of manufacturers in New York State in March, showed a much higher than expected level of general business activity at the rate of 0.6, well above February's reading of -22.2.
The figures released yesterday, combined with higher than expected cross-border foreign and domestic purchases of long-term securities in March, raise speculations that the sharp financial crisis in the U.S. seems to be controlled and finally restrained by the Fed's actions and interest rate cuts. Those positive figures also assist strong probabilities that the Fed is not likely to cut the key interest rate more than 0.25pts at the next FOMC meeting, if there will be a rat cut at all.
Today's colander is full of figures that could continue the USD bullish momentum and send the greenback prices even higher. March's Core CPI release is expected to show a 0.2% increase from February. Moreover, the value of output produced by factories, mines, and utilities in March, measured by the Industrial Production report released at 16:15 GMT today, is expected to rise by 0.4% from February. Forex traders should follow this figure release because it could supply many indicators for USD behavior.
It is also interesting to mention Oil prices, that hit a new record, above $114 a barrel, on supply issues and rising demand in China. But the main factor contributing to high Oil prices is the weak dollar itself. The greenback is currently trading around the 1.58 level against the EUR; making safer commodities like Oil more attractive for dollar investments. In addition, due to oil being dollar denominated, as the dollar weakens, Oil prices should increase by relatively the same percentage.
Also today, traders will await the Fed's report on regional economic activity, known as the Beige Book. As a summary of economic conditions throughout each of the 12 Fed districts, the report could give key insight into how the FOMC will vote on April 30. Overall, the outlook for the USD seems favorable. The latest positive fundamental data signals that the Fed cannot keep cutting Interest Rates aggressively while the economy is not deteriorating as fast as it was previously expected.
The EUR dropped from an intraday high of 1.5875 after the ZEW Economic Sentiment showed investor confidence unexpectedly fell this month. The European currency also fell vs. the greenback on surprisingly strong U.S. inflation and manufacturing data. The EUR/USD last traded down 0.3% at 1.5802, following an overnight peak of 1.5875.
The economic data from the Euro zone continues to suggest that the region is beginning to feel the impact of its relatively high exchange rates and slowing global growth. As the ZEW demonstrated, European consumer are becoming concerned about the inflation and impact of higher food and energy costs on European consumers.
Today all attention will be focused on the Euro zone CPI inflation data. The market is expecting the figure to be left unrevised at 3.5%, the highest record level recorded since the launch of the EUR. However, if the indicator surprises with stronger then expected figures, it might further continue to support the EUR. Given market expectations for the ECB to maintain its focus on inflation and leave the Interest Rate policy unchanged - traders may expect the EUR bullish trend to continue during the near future.
Overall, today's data may not make much of a dent and the EUR/USD could spend the rest of the day in a tense standoff between the bulls and the bears as traders search for the best opportunities to enter the market.
The JPY fell vs. the greenback on the release of strong U.S. inflation and manufacturing data. The positive outlook for the dollar was also supported by the market belief that the Fed may not need to cut rates as aggressively. The carry trade has been restored and risk appetite seems to have returned to the market.
Both the Bank of Japan and the Japanese government recently noted increasing economic risks in the U.S. and their negative effects on Japan's economy. This suggests the BoJ will not be raising the overnight interest rate from 0.50% anytime soon. In the following days, the Japanese currency will continue to heavily depend on the volatility of the equity markets.
There was no significant economic news coming out of Japan yesterday and today is also devoid of data. We should see the JPY continue on its bearish path. 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.
The pair has been range trading with high volatility for a while now, and it appears that the bullish price movement might be back. The Slow Stochastic of the 4 hour chart indicates an upcoming test of the 1.5895 level. If that level is breached, swinging in the trend would be the best strategy.
The bearish flag pattern still remains intact on the daily chart, as the cable now makes a local correction. If the 1.9720 level is not breached we should expect the bearish trend to continue back to the bottom barrier of the flag. Selling on highs might be a good choice today.
The pair has been showing stable bullish movement since the end of March with very few corrective anomalies. The Slow Stochastic of the 4 hour chart is showing a triple top formation with a positive slope, which indicates that the price movement might still be bullish, but is approaching its final stage. Going long with very tight stops might be a good strategy today.
The daily chart is showing that the pair still does not have a distinct direction, as the chart appears to be quite horizontal for the past month. The Bollinger Bands are very tight, and the 4 hour Slow Stochastic is 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
The very important resistance level of 113.00 was breached and the bullish move has been validated. The Slow Stochastic of the 4 hour chart is showing that oil still has plenty of steam in that move. forex traders have a great opportunity to join this very strong key break and enjoy the rest of the bullish momentum.
|22:30||AUD||AIG Manufacturing Index||46.9||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.0%||-||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:00||EUR||Spanish Unemployment Change||-64.4K||-32.4K||-|
|08:15||EUR||Spanish Manufacturing PMI||53.8||54.2||-|
|08:45||EUR||Italian Manufacturing PMI||48.4||49.3||-|
|09:00||EUR||Final Manufacturing PMI||51.0||51.0||-|
|13:30||USD||Core PCE Price Index||m/m||0.0%||0.0%||-|
|14:45||USD||Final Manufacturing PMI||53.7||54.1||-|
|15:00||USD||ISM Manufacturing PMI||55.5||54.9||-|
|15:00||USD||ISM Manufacturing Prices||38.5||40.1||-|