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Wednesday, 26 Nov 2008
U.S. Economy Slides Down a Rotten Path of Economic Recession
According to the Federal Reserve report published on Tuesday the U.S. economy has contracted in the 3rd quarter as consumer spending plunged to a 28-year low, raising the specter of a deeper recession. The U.S government blames the contraction in the economy on the credit crisis that has emanated from the collapse of the U.S. housing market.
USD - Consumer Confidence Shaken; Fed Injects More Money
The USD is falling on hard times, and right before the holiday season in the United States. During the week of Thanksgiving, an American holiday which falls on the fourth Thursday of November, the greenback has so far witnessed a sharp decrease in value against its currency counterparts.
It could be that American consumers are having their first real gut check this week prior to Black Friday, the opening of the Christmas shopping season. Until now, the average consumer would stick to necessities, but during times of increased spending, such as gift-giving holidays like Christmas, consumers now have to check their budget and gauge whether or not such purchases are truly feasible. This sends a shockwave through consumer confidence and weakens economic outlook.
This couldn't have come at a worse time. Take this blatant signal of economic weakness and couple it with an additional $800 billion bailout plan and a decrease in demand for safe haven assets like the USD and it may spell a disaster for investor confidence. These are strong signals that the U.S. economy is continuing down a rotten path of economic recession. The major world economies may not be too far behind, either.
Looking ahead today, there will be a very significant batch of data coming from the American economy. With market-moving figures such as Unemployment Claims and New Home Sales being released, the market will likely see higher-than-usual volatility. Traders should wait to see which way the USD moves after the release of this data and enter the market accordingly.
EUR - EUR Appears to Make Gains but Actually Remains Flat
The primary counterpart for the EUR is the USD. Glancing at this pair would lead one to believe that the EUR was gaining strength since it now sits near 1.3000. However, the market tells us something different. The EUR did in fact make strong gains against the Dollar, but it remained flat against every other currency counterpart.
This signifies two important pieces of information. First, this means the EUR did not move the EUR/USD pair, the USD did the moving. Second, it tells us the EUR is not moving much at all. This means the Euro-Zone economies are not having much of an impact on the value of its currency. The EUR may in fact be waiting for clear signs of direction from the United States' economy before picking a direction.
With the holiday season approaching, European countries are just as concerned about consumer confidence and spending levels as Americans. As such, confidence levels are playing an important role throughout the European economies. This factor alone seems to drive the Euro-Zone market more than actual economic indicators.
Looking at today's news, investors are set to see the release of a less impactful piece of data from the German economy - Prelim CPI - which will likely not move the market of the EUR too much throughout the day. More importantly, there will be a speech from European Central Bank President Jean-Claude Trichet at 8:30 GMT. This may move the value of the EUR slightly, but not nearly as much as the news from the U.S. will. Traders should keep track of the economic data emanating from the American economy today as this will be the primary driving force in the market.
JPY - Japanese Yen Strengthening from Global Economic Weakness
The JPY is currently experiencing appreciation across the boards. This bullish momentum is explained by most analysts as a result of unwinding carry trades. As the global economy weakens further, especially with signs such as the U.S. economy injecting another $800 billion into markets, major economies the world over are cutting interest rates and weakening their currencies to boost investment. This results in investors selling off their higher yielding assets which were funded with JPY and helping to boost the Japanese currency to new strengths.
Looking at today's trading there will be very little news from Japan about the future of its economy. The most significant data will be released at 23:50 GMT as Japan releases the minutes from its Monetary Policy meeting. However, as already stated above, the factor moving the Yen may not be found in Japanese economic data, but rather in the strength of the global economy. As the world's economy weakens, the JPY may likely continue to gather momentum, possibly breaching the 92.00 level.
OIL - Oil Supply and Production Cuts Spark Increased Speculation
The price of Crude Oil saw a rather sharp increase yesterday after investors began speculating on the possibility of a coordinated production cut between OPEC and Russia. However, with results not dissimilar from the piracy off the coast of Somalia, the price of Crude Oil continues to slide after a short-lived $5.00 increase in price proved to not be strong enough to reverse the downward trend.
Starting today's trading near the $50 mark, the price of Oil appears to have leveled off and waits for further speculation about supply levels - with today's announcement of U.S. Crude Oil Inventories - as well as further information regarding this potential production cut from two giant Oil producing entities. Investors would be wise to pay close attention to the USD today as it will likely be the primary market mover.
The pair is in the middle of an uptrend momentum, and the Slow Stochastic on the 4 hour chart shows that there is still more room to run. The very important key resistant level of 1.30 has been breached and the pair is likely to continue is bullish trend. Next target price might be around 1.3150.
The 4 hour chart is showing that the pair is still floating within its bullish channel. On the hourlies the Slow Stochastic is also showing a bullish cross, suggesting that a bullish trend is likely to continue in nearest time frame. Going long with tight stops appears to be preferable
The 4 hour chart shows that the bearish channel still remains intact, and the pair is now floating around 94.90 level. Both the RSI and the Slow Stochastic on the 4 hour chart are pointing towards bearish grounds, and no correction appears to be in sight. Going short seems to be a good strategy today.
After showing a consistent bullish momentum for the past week, the hourlies are showing signals of a falling correction. The bearish breach on the hourly chart has created strong downwards momentum that might eventually carry the pair to the next target price of 1.1900. The daily Slow Stochastic is showing no crosses, which also indicate the continuation of the bearish trend. Going short appears to be preferable today.
The Wild Card
Gold prices have rose significantly in the past two days and peaked at $811 an ounce. However, a bearish cross on the 4-hour chart's Slow Stochastic suggests that a bearish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.