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Wednesday, 13 Feb 2008
US Retail Sales On Tap.
The greenback drifted lower against the EUR and the GBP yesterday ahead of today's much anticipated Retail Sales report, which is expected to disappoint and therefore increase speculation that the U.S economy is headed towards a recession. It is highly unlikely that the Retail Sales figure will surprise on the upside amidst a slowing U.S economy, so traders already began to short the dollar yesterday ahead of today's report. There were no significant economic indicators released from the U.S yesterday, however there was some major market moving news as billionaire investor Warren Buffet offered to take a $800 billion state in municipal bonds guaranteed by troubled MBIA Inc., Ambac Financial Group Inc and FGIC Corp. in his attempt to control approximately 33% of the debt insurance market. This news bolstered U.S stocks as there was speculation that this move would ease credit markets and help prevent a slump in the value of municipal debt. Therefore it was not all doom and gloom for the greenback as it did manage to rally sharply against the JPY on the back of this news, due to the resulting momentary resumption of risk appetite among global investors. On the other hand this willingness to take risks among investors due to some real positive market news was another major reason why the greenback depreciated against the Sterling and the EUR yesterday. Since the interest rate gap between the U.S and Europe has widened substantially in recent weeks and so it now makes the greenback susceptible to carry trades. Also the dollar gains against the JPY were cut short as investors concluded that the so called “Buffet Plan” was insufficient to relieve the grey cloud surrounding the U.S economy.
Today, the only important data from the U.S will be the Retail Sales headline and core figures. Analysts expect a downside surprise amidst a slowing U.S economy and much of this speculation was already incorporated into yesterday's dollar slide. However, should Retail Sales drop far beyond expectations then this will throw the dollar back to the bears, any other outcome will result in a greenback consolidation after yesterday's sharp decline.
There was positive news yesterday for the EUR as both the German and Euro-zone ZEW Economic Sentiment released better-than-expected. These figures measure institutional investor sentiment and the monthly indicator reflects the difference between the share of investors that are optimistic and the share of investors that are pessimistic. Now although both the German and Euro-zone ZEW figures are still negative indicating that the share of pessismism outweighs the share of optimism, yesterday's figures nevertheless indicated an improvement in sentiment because there is declining pessimism. Therefore the EUR rallied against most of the majors, particularly versus the USD and the JPY on the back of the so called “Buffet Plan”. Also the negative speculation surrounding the greenback ahead of today's U.S Retail Sales report was another key contributing factor in the EUR's sharp rally versus the greenback. The EUR's rally versus the JPY was eventually capped as investors concluded that the “Buffet Plan” was not enough to remove the negative sentiment surrounding the U.S economy. Nevertheless, the EUR was able to maintain its gains versus the troubled U.S currency which faces another difficult day today with the looming Retail Sales figures.
Looking ahead to today, there should be more positive news for the EUR as Euro-zone Industrial Production is expected to release at 0.5%, which is significantly better than the previous figure of -0.5%. Therefore this is a very positive indication for the European economy as high levels of production are signs of a strong economy. So although the German economy is heavily reliant on exports, the Euro-zone economy is still showing resilience despite the strong EUR. We expect the EUR to continue its rally against the greenback today but much depends on how the U.S Retail Sales figures release.
The JPY declined all across the board yesterday after Warren Buffet's plan to shore $800 billion worth of municipal debts. This news sparked a risk appetite among investors and therefore carry trades were back in full swing, albeit temporarily. The JPY managed to recoup some of its losses as investors realized that this move was not enough to change the current negative sentiment surrounding the global economy. Earlier today during the Asian trading session the only news released from Japan was the Current Account and the CGPI figures. The Current account came in at 1.86T, which was slightly below the previous figure of 1.90T but still very strong. The CGPI figure, which measures the rate of inflation experienced by corporations when purchasing goods, released at 3.0% which was noticeably better than the forecasted figure of 2.7%. The JPY should continue to rebound today as risk fear resumes it's strangle hold on investor sentiment as the market now moves forward from yesterday's positive news. So with the outlook for the global economies remaining bleak, carry trades should continue to unwind and the JPY should maintain its positive momentum although a JPY level below 106.00 versus the greenback could dampen Japanese exports dramatically.
The daily chart indicates a relatively high bullish momentum as the slow stochastic is floating around the 50 level. The 4 hour chart is supporting the bullish notion yet it might be preferable to wait for a significant break above the 1.4600 in order for the next move to be validated.
There is a very distinct downwards channel forming on the 4 hour chart as the cable now floats in the mid section of it. The momentum is locally bullish, and traders must wait for a breach beyond the upper level of the channel at 1.9620 in order for the correction move to be fully validated. A failed breach will keep the cable floating within the channel in a mild bearish movement.
The flat tight range is still in place, as the pair is showing very weak bullish momentum within the range. The Bollinger Bands are very tight on the daily chart which indicates that the break can't be very far away. The slow stochastic has a positive slope which might imply that the break could be beyond the 107.60.
The bullish momentum is slowing down and the pair now consolidates around 1.1020. The daily chart is giving mixed signals, and the tight Bollinger bands and the doji formation are implying an upcoming strong move. The direction of the move is still vague, and traders are advised to hold for the break and swing into it.
The Wild Card
Gold is being traded within a very distinct channel on the daily chart, and is now floating at a strong key point of the bottom barrier. forex traders are advised to wait for a break beyond the 899.00 which will validate a sharp dropping move that might take gold prices into a deep abyss.
|22:30||AUD||AIG Manufacturing Index||46.9||-||-|
|23:30||AUD||MI Inflation Gauge||m/m||0.0%||-||-|
|01:35||JPY||Final Manufacturing PMI||52.1||52.1||-|
|08:00||EUR||Spanish Unemployment Change||-64.4K||-32.4K||-|
|08:15||EUR||Spanish Manufacturing PMI||53.8||54.2||-|
|08:45||EUR||Italian Manufacturing PMI||48.4||49.3||-|
|09:00||EUR||Final Manufacturing PMI||51.0||51.0||-|
|13:30||USD||Core PCE Price Index||m/m||0.0%||0.0%||-|
|14:45||USD||Final Manufacturing PMI||53.7||54.1||-|
|15:00||USD||ISM Manufacturing PMI||55.5||54.9||-|
|15:00||USD||ISM Manufacturing Prices||38.5||40.1||-|