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Monday, 28 Jan 2008
US New Home Sales Figure will Determine Today's Trend.
As we begin the last week of January, investors will look to recoup from last week's volatility. Last week saw a host of important economic data, which would have contributed considerable volatility to the market on its own; however unexpected news was the main focus for traders. Firstly, Fed Chairman Ben Bernanke's unprecedented and unexpected rate cut of 75bp last Tuesday caused the downward slide in the dollar and the Dow. Secondly, was the news regarding fraudulent activity at French firm Societe Generale, which suffered a detrimental case of employee trading fraud upwards of 7 billion Dollars. The market responded in turn, showing turbulent movement to end the week's trading.
This week should continue to produce volatile conditions as a plethora of significant data is to be released. Non-Farm payrolls, GDP, core durable goods, ISM and manufacturing numbers are all on tap. There is also continued speculation that Wednesday's scheduled interest rate statement will see another 50bp rate drop, in another effort to ease the falling US economy.
Today's calendar from the US will see New Home Sales released at 15:00 GMT. As the housing market has been one of the main catalysts in American financial woes, it is no surprise that New Home Sales is expected to fall yet again. Forecast's have the number dropping from 647K to 640K, its lowest mark in over 12 years.
As the US government slowly initiates their new stimulus plan, expect the dollar to continue to disappoint against its major counterparts, before Wednesday's expected rate cut.
The Euro begins this week having weathered yet another storm of uncertain economic data, which could have had serious effects on the Euro-zone economy. Instead, the ECB stood firmly and watched initial concerns regarding Societe Generale's fraud case slowly drift away, as the EUR managed to recover against the USD and JPY to close out the week.
The Euro-zone economy finds itself in a precarious position, as continued strengthening of the EUR along with US economic worries have put some pressure on tight monetary policies. Still, there are many European countries, namely France who want to see ECB President Trichet stick to his guns and keep interest rate hikes on hold.
The week ahead see's a small number of significant economic data from Europe. Amongst the more important events is Germany's release of retail sales and unemployment numbers as well as Euro-zone retail PMI. These should contribute partly to movement of the EUR; however the 13 nation currency will largely be dependant on US data. As has been the case for quite some time now, look for the EUR to respond positively in the early stages of the week, and make gains on major currency pairs.
According to the Semiannual Report on Currency and Monetary Control which was published last week we learned that Japan's economy is expanding moderately as a trend, although the pace of growth seems to be slowing mainly due to the drop in housing investments.
Housing investment has dropped substantially, affected by the revised Building Standard Law coming into force. With higher materials prices, business sentiment has become somewhat cautious. Exports, however, have continued to increase in a situation where overseas economies continue to expand with momentum being gained across a wide range of economies. Business fixed investment has also continued to trend upward against the background of generally high corporate profits. Inventories have been more or less in balance with shipments, and there has been no adjustment of pressure on production capacity and labor. With regard to the household sector, although nominal wages per worker have been somewhat weak, employee income has been rising moderately with the increase in the number of employees. In this situation, private consumption has been firm. Reflecting the rise in domestic and external demand, production has continued to increase.
These developments seem to indicate that a virtuous circle of growth in production, income, and spending has basically remained in place. Therefore, Japan's economy is expected to continue expanding moderately, although for the time being the pace of growth is likely to slow in a situation where housing investment is likely to remain sluggish.
Tomorrow, the Industrial Production figure is due to be out as the forecasted figure is 2.0% compared to -1.6% last month, if the Industrial Production figure will reflect an improvement we shall see a local strengthening of the JPY against the majors.
Today, the Nikkei Index is weakening by more then 4% during the opened Asian trading session. It indicates that the global market crisis has not skipped on the Japanese economy and the major concern has risen again ,as slipping into a recession is threatening the Japanese economy.
The bottom line is that the positive Semiannual Report on Currency and Monetary Control implies on how the Japanese economy is progressing however, the global sluggishness that the world economy is experiencing at the moment may drift the Japanese economy into dark territory.
There are three consecutive doji bars on the 4 hour chart which indicate an upcoming break to a certain direction. The slow stochastic is showing a bullish cross which implies that the move will indeed be bullish. Traders are advised to wait for the move to initiate, and swing with it.
The cable is in the middle of a correction move that was initiated at 1.9400. The hourlies are showing additional bullish momentum and the daily chart supports the bullish notion. Next target price appears to be 1.9840 with more room to run ahead.
The bearish move resumes on all fronts, as the pair now floats around 106.00. The daily chart is showing strong bearish momentum, as the hourlies are implying a diminishing one. It looks as if selling on highs might be the right choice today.
Last week, we saw a break through the very important support level of 1.0900, and a failed attempt to breach the 1.0850 which is now the critical support. A breach through that level will unleash a very powerful bearish move that might take the pair into the 1.0750 area quite fast.
The Wild Card
A very distinct bullish channel is forming on the 4 hour chart as the pair now floats on the bottom barrier. The slow stochastic on the daily chart shows no crosses and has a bullish slope which strengthens the notion that the bullish correction will continue. This is a rare opportunity for forex traders to ride a trend with potential to become a significant bullish move in the long run.
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||-||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||-||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|