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Wednesday, 26 Mar 2008
US Durable Goods on Tap.
The Greenback continued its bearish trend once again yesterday amidst surprisingly poor economic data. Selling of the dollar could have been forecasted, but was still expected to come much later on this week, if at all. Instead, a batch of unexpectedly bad figures from the US sent the dollar spiraling back down against a majority of its most traded currencies, notably the EUR which pushed itself back over 1.56. The big surprise yesterday, was the return of Consumer Confidence numbers. Initially expected to drop only a couple points from its previous figure of 76.4, Consumer Confidence dropped to 64.5 the lowest it has been for over 5 years. As if that wasn't enough to deter pro-dollar investors, the housing market is officially stuck in its worst slide since the 1980's. Housing prices in the US fell by just under 11% in January, bringing the index to its lowest point since the figure's inception in 1987.
The problems in the US look to be growing rapidly once again. Consumer Confidence being so low gives investors the grim outlook of the near future of the US economy, as the US consumer is still considered the worlds strongest. However, the housing slump is far more hurtful to the overall economic outlook. Poor employment, rising retail prices and the deteriorating existing homes market has left the Federal Reserve in the precarious position of possibly having to tweak interest rates once again.
Investors should feel somewhat hopeful about the long term state of the US economy, as last week's 75bp cut of the interest rate by the Fed did help stifle credit worries for banks. Still, it is a crap shoot at this point as to when a significant turn around in the US economy will come. The NY Times reported earlier this week that they expect another 20,000 job cuts to come from the lucrative financial sector which should contribute to more bearish behavior by the greenback.
Today the economic calendar is packed with a batch of data, as this could be a defining day for the Dollar. Core Durable Goods Orders, Durable Goods Orders,
New Home Sales and Crude Oil Inventories are all expected today. An important figure in preventing more of the bearish trend of the USD would be steady rise in Durable Goods. The figure is expected to improve and should help ease some tension in the US market. New Home Sales is expecting a slight drop, and we should hope it will only be slight, as any more negative news from the Housing sector can lead to major issues for the greenback. These figures will be accompanied by Treasury Secretary Paulson and Dallas Fed President Fisher scheduled to make speeches today, which will likely touch upon the growing concern of Consumer Confidence. Expect the greenback to continue its bearish trend today, unless we see surprisingly positive results from US data.
The Euro had a solid day of trading yesterday, after rebounding from an abysmal week of trading in the past few days. Much of the momentum has come from the switch in the trend of the dollar, but credit must also be given to Eurozone economic figures as well. Though we haven't had any this week, today we will get a fair share. Expected German IFO data has been the driving reason behind bullish trends by the EUR. The figures are expected to see a slight drop, but the data is still higher than most of the nations around the world. Every month the German confidence figures are forecasted to come in with a "slight drop" and then surprise everyone with good news instead. Additionally, the hawkish monetary policy set forth by the European Central Bank has prevailed, and has driven the 15-Nation currency to record numbers in the recent months.
World markets are now familiarizing themselves with the "European Consumer", who suddenly has more purchasing power and a more valued currency than ever before. Speculation over the strength of the European consumer still exists, and rightfully so. Nonetheless, we should continue to see growth from the Eurozone as well as the EUR currency pairs and crosses.
Today we await the release of the aforementioned German IFO figures, more specifically, German IFO Business Climate Index and the German IFO Business Expectations Index. Also on the calendar for today is the Eurozone Current Account balance and New Industrial Orders, which are expected to rise. The figures from the EU will be accompanied by remarks by ECB President Jean-Claude Trichet. Once again, barring any surprising swing in expected data, the EUR should rise throughout the day.
The JPY had a day of mixed results yesterday. The most commonly traded JPY pair, USD/JPY fell back toward the key level of 100 as that and the CAD/JPY were the only two JPY pairs or crosses to see negative days. All other JPY crosses were positively traded.
Yesterday's economic data was not really relevant to JPY movement and as such kept the currency quiet in the overnight session. What has become worrying is the cautionary stance of the Bank of Japan (BoJ) lately. It was only several weeks ago, where the world was predicting a boom in the Japanese economy. Now as a result of market uncertainty and the absence of a permanent Governor of the BoJ, the outlook in Japan has taken on an uncertain tone. BoJ Deputy Governor Kiyohiko Nishimura reiterated yesterday that the goal of the BoJ is to boost consumption; where as interim Governor Masaaki Shirakawa expressed the downsides to Japanese growth.
The uncertain future in Japan has only been magnified now that the global market place is in such a volatile state. What we should expect more of is a shaping of the new Japanese economic policy as they continue their search for a leader of the Bank of Japan. Expect the JPY to continue in its current trend during today's trading sessions.
The daily chart is showing strong bullish momentum as the slow stochastic is showing no crosses and is still floating at the 50 level. The 4 hour chart shows a moderate bearish cross which might indicate on a local corrective move before the bullish trend resumes. Buying on dips could be a great strategy for today.
The cable has been showing bullish consistency and is now traded around 2.0050 which is a key Fibonacci level. A breach through that level will validate a very strong bullish move with a potential target price of 2.0180. Going long might be a wise choice today.
There has been a very significant breach through the very distinct flag formation on the 4 hour chart. The bearish cross of the slow stochastic is supporting the bearish notion, and the next target price might be around 99.20.
After the pair breached through the bullish channel of the 4 hour chart it bottomed at 1.0040 and is now showing its first bullish signals. There is a very distinct bullish cross on the slow stochastic of the 4 hour chart which indicates that the pair might have room to run up to the 1.0150 area. Going long might be the way to go today.
The Wild Card
WILD - Gold
The 4 hour chart is showing that after a very sharp corrective move, gold is now establishing a fresh bullish path. The slow stochastic is forming a triple top formation with a positive slope which points to a very strong bullish potential. Forex traders have a great shot to get in the market at a very attractive entry price for a long position.
|23:30||AUD||AIG Construction Index||45.9||-||-|
|08:00||EUR||German Industrial Production||m/m||0.1%||0.6%||-|
|08:45||EUR||French Gov Budget Balance||-85.6B||-||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.0B||-|
|09:00||CHF||Foreign Currency Reserves||498.4B||-||-|
|10:30||GBP||Consumer Inflation Expectations||2.5%||-|
|14:30||CAD||Labor Productivity q/q||q/q||0.1%||0.2%||-|
|14:30||USD||Non-Farm Employment Change||257K||241K||-|
|14:30||USD||Average Hourly Earnings||0.5%||0.2%||-|