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Monday, 9 Jun 2008
US Pending Home Sales On Tap
The greenback had a tough trading session last week, which was capped off by a huge bearish slip on Friday. Sparked by a batch of mediocre US data and positive EUR news, the USD saw losses throughout the week that saw a return to exchange rates it had during the height of the credit crisis, only several months ago. The oft traded EUR/USD pair was one of the more effected trading pairs of the week, as it saw fluctuation in the early parts of the week, dipping as low as 1.5360, before skyrocketing back to levels of 1.57 and above. The early part of the week saw decent fundamental news from the US, as ISM manufacturing, ADP NonFarm Employment Change and Unemployment Claims all showed improvement. Thursday's unemployment claims were released at the same time as a press conference for the European Central Bank (ECB), which was where any hope of more dollar bullishness ended. The routinely hawkish President of the ECB Jean-Claude Trichet made market-moving news as he announced the likelihood of an unprecedented rate hike in the Euro-Zone (EZ) by July. Investors were privy to a bullish run on the EUR/USD that moved nearly 200 pips before the end of trading on Thursday.
Friday was equally important for the market as the release of NonFarm Payrolls and the US unemployment rate sent the market into what was an expected frenzy. NonFarm numbers came back at -49K, a more positive release then expected, still though it was the 5th straight month that we have seen the all important figure see negative results. The Unemployment rate provided the surprise of the day as it ballooned to 5.5%, its highest mark since late in 2004. The 0.5% hike brought immediate losses to the greenback against a majority of its currency rivals. As the day progressed, more details of the unemployment situation were felt throughout the US. With the bearishness of the USD came the rise of Crude Oil prices as the important commodity shot back up to record high rates of over $138 per barrel. Equally as important was a nearly 400-point drop in US stock markets.
Looking ahead to this week, we will see a batch of US data headlined by Michigan Consumer Sentiment, Core CPI, Retail Sales and the US Fed President Trade Balance. The fundamental forecast has the aforementioned making slight gains, except for Trade Balance. Still though it is hard to see how the US will manage to climb out of the current state of affairs, as rising commodities prices and investor wariness surrounding the USD will likely stunt any positive calendar news. Also expected next week are two important speeches by Federal Reserve Chairman Ben Bernanke. The Fed boss is under some scrutiny from US officials regarding the decrepit state of the US economy, and will likely address the current situation, hopefully with a feasible solution. Still though expect high volatility in and around the time of his comments.
Today, the US has a light news day as we expected Pending Home Sales and comments from New York Fed President Geithner. With a batch of outside data and another speech by ECB President Trichet, expect the greenback to continue its bearish trend.
The Euro spent last week, posting steady gains against a majority of its currency rivals. A combination of mixed US and GBP news and the ECB Press Conference proved enough to bring solid results to the world second most liquid currency. The EUR saw most of its bullishness immediately following and ECB Press Conference where President Trichet labeled his growing concern over inflationary risks by hinting at a July rate hike in the EZ. The sudden change in policy by the staunch ECB sparked bullish EUR positions by investors throughout the market. Trichet warned that the move is still not ideal, but because of the strength of the EUR and the lack of similar growth in the EZ economy, the rate hike looks more and more likely.
On Friday, the EUR saw positive gains amidst poor local economic data. German Industrial Production dropped unexpectedly by just under 1%, as a result of rising material costs in April.
The current state of the US economy and the fears surrounding rising food and oil prices have also helped cement the growth of the 15-Nation currency. The correlation between EUR/USD and Crude Oil is dangerously close to 100%. The EUR/USD should prove to be interesting pair for Forex investors this week, as many believe it will test levels of 1.60 yet again.
There is a host of European data on tap this week, but little that should really make a lot of noise in the market. A speech by ECB President Trichet today and Industrial Production data from Italy and France could contribute to some EUR bullishness.
The JPY saw significant recovery on Friday after a week of bearishness versus most of its currency rivals. The JPY was absent from the news docket for most of last week. Average Cash Earnings, Monetary Base and a speech by new Bank of Japan (BoJ) Governor Shirikawa, did little to move the Asian currency. In fact, there is very little to come out of Japan regarding local economy that has moved the currency lately.
Friday provided strong bullish movement for the JPY as traders renewed reacted to a drop in the Dow Jones and the Standard and Poor's index to renew the buying of the low interest JPY. The renewal of carry trading came also as world commodities prices rose for yet another week.
On tap this week from Japan we can expect quite a lot of important economic data. Machinery and Industrial indices, Overnight Call Rate, the BoJ Monthly report and Press Conference and GDP could provide some volatility to the JPY. However it is still recommended to watch global news and Stock movement to really gauge the direction of the JPY
The 4 hour chart is showing that there has been a breach through the very strong resistance level of 1.5790. This breach might indicate the continuation of the strong bullish trend to the next target price of 1.5850. Going long appears to be preferable.
The range trading within the bearish channel of the daily chart continues. The cable is now showing local bullish movement in the channel and it appears that a test of the upper level is quite imminent. Going long with tight stops might be a good strategy today.
The pair has tested the bottom barrier of the daily bullish channel unsuccessfully. The daily oscillators are showing that the bullish momentum is back and that the next target price might be 106.00. The 4 hour RSI is supporting the bullish notion and it appears that going long might be the best choice today.
The daily chart is slowly showing that the bearish trend is moderately back after a long period of range trading without a distinct price direction. The 4 hour Slow Stochastic is showing a double top formation with negative slope which indicate that the bearish momentum might increase. Going short might be a preferable strategy today.
The Wild Card
WILD - Crude Oil
With fresh all time high being breached on a daily basis, it appears that Oil is showing no signs of a stop. The momentum is very high and the price movement transcends all normal technical logics. Forex traders have great opportunity to join the bullish bonanza while the momentum is higher than ever.