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Monday, 14 Apr 2008
U.S. Retail Sales On Tap.
Last week we saw the return of significant volatility to the Forex market. Amidst fears of recession in the US, due to the housing and credit crisis as well as poor labor numbers, investors once again became weary of the dollar. The last part of March heading into April saw the greenback swing up and down after a host of key events and interest rate cuts dictated its movement. This past week saw top vs.officials voicing concerns about the recession as well as the deductionthat today's American consumer base is "very concerned". In response to worries, the dollar fell against most of its major currency rivals, seeing record lows versus the EUR. The $159.13 rate had some believing the dollar would see drastic losses, although as the week ended the pair closed at a little over 1.58.
This weekend saw the Group of Seven (G-7) Finance Ministers and Central Bankers met in Washington D.C. Economic leaders from the United States, Japan, Germany, United Kingdom, France, Italy, and Canada met to discuss a host of economic issues. Surprising to some was the amount of concern held toward currency values and interest rates. It is no secret that the US and to some extent the UK had has to use interest rate cuts as a last resort solution to stopping the economic crises that face their nations, especially in the US. The concern voiced over the dollar sent a shockwave through the currency markets, as weekend movement helped the opening of the EUR/USD pair in the Forex market to drop 150 pips.
The specific concern is the fear that unstable exchange rates will retard the world marketplaces. Also becoming increasingly worrisome is the increase in food prices around the globe. Essentials like Rice and Wheat have seen abnormal price gains, to the extent that countries both rich and poor are feeling the effects.
As a result of the development from these meetings, investors are expecting more dollar bullishness mainly against the EUR. Investors will likely look to buy dollars to recover losses felt from the weekend shift in prices.
Looking ahead to this week, we expect to see a host of key economic data from the US which if positive could contribute even more to dollar bullishness. With intervention unlikely at this point by the G-7, US data will likely drive market trends. This week we expect to see a wide range of figures from all economic and production sectors in the US. Most notably, we await the release of the Empire State Business Conditions Index, PPI, TIC Net Long-Term Transactions, Core CPI, Industrial Production, Unemployment Claims and the Philadelphia Fed Manufacturing Index, all of which can contribute to movement in the market. These will be headed by today's release of Core Retail Sales, as the index is expected to show that last month saw a small rise in retail sales. We can also expect Business Inventories and a speech by Fed Governor Warsh. Volatile movement surrounding the Retail Sales release is likely; as a result bullish dollar behavior should be expected.
The EUR spent most of last week gaining against most of its currency rivals, namely the dollar, as a combination of positive Euro-Zone figures and poor US data sent the 15-Nation currency to record highs versus the greenback as the pair hit 1.59 and above.
During last week's volatility in American and Asian markets, the Euro-Zone showed once again that though inflationary concerns loom, stability and growth are helping carve out a reputable name for the EUR. ECB President Jean-Claude Trichet was steadfast with his hawkish stance on Euro-Zone monetary policy as yet another EU interest rate announcement passed by with no change. Last week the release of German wholesale numbers came back higher than expected, as it reaffirmed the one slight concern in the Euro-Zone which is inflation.
As stated earlier, the G-7 meeting changed quite a lot as the EUR saw the greenback leap 150 pips to open Sunday's trading session, as other EUR crosses saw steady results.
This week will be news event dominated especially by the US as the only significant European data will be the German IFO Report. We should expect steady EUR growth, except for the famed EUR/USD which should continue to fall.
Despite broadly weak data the JPY managed to gain last week, as unsavory conditions for the carry trade weighed on the USD/JPY following the G7 finance ministers' statement that global economic prospects have weakened and financial market losses will continue.
The Yen also rose against all of the major currencies as General Electric Co.'s first quarterly decline in profit since 2003 led to sharp declines in stocks and encouraged investors to reduce holdings of higher-yielding assets.
The JPY first dropped to as low as 101.97, down from around 101.00 level in late New York trade, but later trimmed its losses and stabilized around 100.89.
In the next 48 hours, there is no fundamental data expected to come out of the Japanese market. Later, on Thursday, the news suggests that Japanese Industrial Production and the Household Confidence will remain low for the foreseeable future. Today, traders should keep an eye on the U.S. Retail Sales data as higher then forecasted printing might pull the U.S. currency up against the JPY.
After a very sharp drop at the opening ot the session which took the pair down 150 pips, there is a certain consolidation around 1.5720. The daily chart is showing renewed bullish momentum, and the hourlies support. It appears that going long might be the better choice today.
There is a narrowing bearish channel forming on the daily chart, as the cable now floats in the middle of it. The Slow Stochastic shows a negative slope and indicates a possible continuation of the bearish trend. If the cable will breach the 1.9680 level, we should be expect a very sharp bearish drop to follow the breach.
The momentum which was created after the pair breached through the very accurate bullish channel continues atfull steam. All oscillators are showing very bearish momentum and it appears that the pair might have a target price of 100.00 on this move.
The range trading continues without a distinct breaking direction. The daily chart is giving mixed signals and is mostly floating in neutral territory. The hourlies are showing moderate bearish momentum. It appears that going short with very tight stops might be a good decision today.
The Wild Card
There is a very interesting widening bearish channel formation on the 4 hour chart as the pair now approaches the bottom section. The momentum is very bearish according to all oscillators, which provides forex traders with a great opportunity to swing into what appears to be a very strong bearish move with a potential to be even stronger.
|03:00||CHF||Daylight Saving Time Shift||-||-||-|
|03:00||EUR||Daylight Saving Time Shift||-||-||-|
|03:00||GBP||Daylight Saving Time Shift||-||-||-|
|01:00||EUR||German Prelim CPI||m/m||0.9%||-||-|
|01:00||EUR||Italian 10-y Bond Auction||1.36|1.5||-||-|
|01:50||JPY||Prelim Industrial Production||m/m||3.7%||-||-|