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Tuesday, 23 Sep 2008
U.S. Economic Salvage Program Kicks Off Today
Traders will listen to two crucial testimonies to be given by U.S. Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson today. These will represent the initial steps in the deliberation and implementation of their newly proposed economic rescue plan.
USD - Market Uncertainty Lands Heavy Blow against the USD
The USD saw a traumatic day of trading yesterday as it stretched as high as 1.48 versus the EUR, and spiked up to 1.8636 against the GBP. This sharp decline in the value of the USD comes from the ongoing financial crisis and the fact that the recent rescue plan has not yet produced enough confidence in the future of the financial sector. Investor uncertainty lingers over the question of whether or not this plan will do the job, especially when many of its details may not get released until later next week. Until then, the USD will continue to bear the brunt of the recent volatility emerging from this crisis.
Another player in the USD's recent drama is the sharp climb in the price of Crude Oil. As October contracts came to a close, traders dove into the craze over black gold and watched with joy at the record-high one-day jump in the price of Oil, adversely affecting the USD - as Oil is bought and sold in dollars - pushing its already weakened value to a lower mark.
Looking at today's trading, there will be two crucial testimonies given by U.S. Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson. These will represent the initial steps in the deliberation and implementation of their newly proposed economic rescue plan. They are expected to emphasize their latest actions concerning the $700 billion bailout, Fannie Mae and Freddie Mac, the investment bank failures, and other financial problems. Their testimony will take place at 14:00 GMT in front of the U.S. Senate Committee on Banking, Housing and Urban Affairs. Traders should watch these speeches carefully as they will no doubt bring extreme volatility to the market, especially on the direction for the USD over the next few days.
EUR - Will the EUR's Rally be Short-Lived?
The EUR's rally yesterday can be attributed to the rash sell-off in dollars as traders were bailing out of the USD in light of the recent Wall Street blues. No doubt European Central Bank President Trichet's speech about transparency in financial institutions made a positive impact as well. The EUR hit a high mark it hasn't seen in some time as it reached up to the 1.48 level against the USD, as well as spiking versus the JPY up to the 156.8 level. Given all the positive data emerging from yesterday's market it appears as if the EUR is on a rather strong bullish run. However, dark clouds are on the horizon.
The difficulties which the EUR may see are going to begin later today. With many economic indicators being released from France, Germany, Belgium, and the Euro-Zone in general, the European markets may see high volatility. The downside of these indicators comes from the fact that they are all expected to return negative results as compared to the previous release of this data.
On tap today, traders should pay close attention to French Consumer Spending, the French and German Manufacturing PMI, as well as the Euro-Zone's Industrial New Orders figure since all this data together will carry a heavy impact on the EUR. The question is whether or not the negative data coming from the Euro-Zone can out-do the strong downtrend in the USD and create a reversal in the EUR's primary trading pair. If today's indicators come out worse than expected, traders might see a reversal to yesterday's trends.
JPY - Japan Not Behind the Wheel of JPY's Recent Movement
No data emerged from the Japanese economy yesterday as banks on the island country observed Autumnal Equinox Day. As a result, the driving forces behind the JPY yesterday were the other major currencies. The JPY saw mixed results based on recent American and European figures. Against the USD, the Yen rose in value as the dollar took a plunge resulting from the recent financial crisis and market uncertainty. However, against the EUR, the JPY witnessed a sharp devaluing spike as the EUR recorded a long-overdue jump in strength.
As with the USD, the JPY is also influenced by the price of Crude Oil. When Oil prices soar, as traders saw yesterday, the Japanese economy loses steam from an expected increase in the cost of transporting goods, thereby increasing the cost of Japanese exports. Today, traders should watch the Japanese BSI Manufacturing Index indicator as it is forecasted to be lower than the last release. This negative release may drive the JPY further down versus its currency counterparts. However, the USD and EUR are expected to be behind the wheel of today's trading.
Oil - The Price of Crude Oil Soars
Just when investors thought it couldn't get worse, the market drops and creates a record jump in the price of Oil. The price of black gold made history yesterday as it jumped $25 in one day. This price explosion did not go unnoticed by traders. As investors gambled on the direction and future strength of the market, the price of Crude Oil became a stronger currency-hedge for traders. After experiencing a significant drop in price, falling as low as the $91 mark last week, the price of Light Sweet Crude unexpectedly reversed and began an upswing which has done nothing but gain strength.
The uptrend does not appear to be losing momentum; however, if the USD rallies, we may see some leveling-off in the price of Oil. Adding to the upswing in the price of Oil yesterday was the expiration of the contracts for October delivery of Light Sweet Crude. As the contracts for November kick off, traders may see some signs for a reversal. Today, on the other hand, traders should note the direction of the USD during and after the speeches delivered by Bernanke and Paulson as the dollar's movement is typically a strong indicator for the direction of price of Crude Oil.
Yesterday the pair was consolidated around the 1.4780 level, after making a 300 pips rise. Currently, a bearish cross on the 4-hour chart's Slow Stochastic suggests that a bearish correction might take place. Going short with tight stops could be a good strategy today.
There is a very distinct bullish channel forming on the daily chart, as the cable is now floating in the middle of it. The current price has crossed the Bollinger Band's upper border, signifying that the uptrend should continue. Going long might be the right choice today.
It appears that the bearish momentum has reached its peak, as the pair failed to breach the 105.00 level. A rise to the 105.70 will validate the bullish reversal, with a target price of 106.60.
The pair has limited its bearish momentum after testing the 1.0700 level. And now, a bullish cross on the 4-hour chart's Slow Stochastic indicates that a bullish movement is quite imminent. Going long seems to be preferable.
The Wild Card
After failing to breach the $910 level, gold prices dropped significantly, and are now traded around $889. The Bollinger Bands on the 4-hour charts are tightening, suggesting that the bearish move should extend. This might be a great opportunity for forex traders to join a very promising trend.
|00:30||AUD||AIG Manufacturing Index||47.3||*||-|
|00:50||CAD||Tankan Manufacturing Index||12||11||-|
|00:50||JPY||Tankan Non-Manufacturing Index||19||17||-|
|01:00||EUR||German 10-y Bond Auction||1.05|1.4||*||-|
|01:00||GBP||10-y Bond Auction||-||-||-|
|USD||Total Vehicle Sales||17.5M||16.9M||-|
|02:35||JPY||Final Manufacturing PMI||51.7||51.7||-|
|08:15||EUR||Spanish Manufacturing PMI||52.8||52.3||-|
|08:45||EUR||Italian Manufacturing PMI||49.8||49.4||-|
|09:00||EUR||Final Manufacturing PMI||50.5||50.5||-|
|13:15||USD||ADP Non-Farm Employment Change||204K||206K||-|
|14:45||USD||Final Manufacturing PMI||57.9||58.0||-|
|15:00||USD||ISM Manufacturing PMI||58.0||56.8||-|
|15:00||USD||ISM Manufacturing Prices||58.0||58.6||-|