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Wednesday, 18 Feb 2009
U.S. Stimulus Bill Signed into Law; Dollar Strengthens
Following the signing of President Barack Obama's economic stimulus bill yesterday, the USD made modest gains against most of its currency rivals. In expectation of today's housing data, the USD may continue to strengthen unless this news disappoints investor confidence.
USD - Greenback Broadly Extends Gains
The Dollar continued to benefit on Tuesday amid heightened worries about the global economy and investors' concern that Euro-Zone banks are highly exposed to financial turmoil in Eastern Europe. The greenback was also pushed higher after President Barack Obama signed a $787 billion stimulus bill into law yesterday. The bill passed both houses of Congress on Friday.
The U.S currency rose 1.4% yesterday to end the day at 1.2595 per EUR after earlier appreciating as high as 1.2564, its highest level since December 4th. Against the Japanese currency, the USD rose 0.8% to 92.44 Yen, not far from a one-month peak at 92.75 hit earlier today.
Although the U.S. economic data has painted a grim picture, with the New York Federal Reserve reporting its manufacturing activity index plunged to a record low this month, analysts say that the Dollar still remains just about the only short-term alternative for investors. It appears that foreign demand returned to U.S. securities in December, supported by ongoing safe-haven buying of Dollar-denominated deposits. As the market focuses on bad news from Eastern Europe, which plays an important role in the weakness of the EUR, and on the slide in Japan's GDP, investors seek the relative safety of the greenback, hence broaden USD gains.
EUR - EUR Falls on Eastern Europe Concern
The Euro-Zone currency was traded near a 10-week low against the Dollar after a credit agency said it may cut the ratings of several banks with units in Eastern Europe, adding to concern that financial turmoil will deepen. The agency stated that the combination of higher provisions for bad debt, the rise in bank borrowing costs, and falling currencies, would weigh on the profitability of the banks concerned and erode their capital base. As a result, the EUR is likely to further extend its losses versus the greenback and the Yen on speculation the currency will fall on renewed concerns about credit markets, making the U.S. and Japanese currencies more attractive as havens.
The EUR was traded at 1.2579 from 1.2582 late in New York yesterday. It also was down at 116.31 Yen from 116.27. The European currency was also lowered 1.3% against the British pound to 88.45 pence per EUR yesterday after the Office for National Statistics said inflation slowed last month, prompting analyst speculation that the Bank of England (BoE) will reduce the pace of Interest Rate cuts.
Analysts now say that the main reason for the EUR weakness is from worry not only about the European regional economy but specifically those in Eastern Europe where currencies are falling rapidly across the board. The EUR was also under pressure on growing expectations that the European Central Bank (ECB) will ultimately have to play catch up on rate cuts made by the Federal Reserve and Bank of England. Market players anticipate Euro-Zone Interest Rates to fall below 1.0% later this year, with a cut to a record low of 1.5% in March.
JPY - Japanese GDP Data Increases Recession Fears
Japan's economy, only months ago, forecast to be the best performing among the world's most advanced nations, has now become the worst. Gross Domestic Product (GDP) shrunk an annualized 12.7% last quarter, the Cabinet Office said yesterday. Japan's government is struggling to cope with the economic crisis, and may expand its stimulus plans by 20 trillion Yen to 30 trillion Yen to fund a supplementary budget for the fiscal year starting April 1, 2009. The second blight on the Japanese economy is the surge in the Yen currency. The JPY has climbed 17% in the past year; in today's trading the currency was at 92.44 per USD.
As the global financial crisis deepened, investors reduced their carry trades, where they borrowed in low-yielding currencies to invest in nations where interest rates exceeded Japan's. Investors' focus is on whether the Bank of Japan (BOJ) will come out with specific policies to lower term rates. The BOJ has already cut its benchmark Rate to 0.1%, from 0.5% in October, in a bid to help spur the faltering economy. According to several analysts the BOJ policy-makers will likely keep borrowing costs unchanged on February 19th, leading the JPY to continue with its recent trends.
Oil - OPEC to Discuss Production Cuts; Oil Demand Falling
The Organization of the Petroleum Exporting Countries (OPEC) is looking to reduce oil supply further if demand is insufficient to absorb supplies, oil ministers said on Tuesday. OPEC, supplier of more than a third of the world's oil, has raced to cut supply to match falling demand from a slowing global economy. OPEC next meets in March to discuss supply. Crude Oil Prices have fallen by more than $110 from the peak seen last July's to now trade at $38 a barrel on Tuesday. Oil has mostly traded in a $35 to $45 range since December.
Analysts say that the economic outlook will continue to dominate the first half of 2009. The United States, Euro-Zone and Japan are all in synchronized recession, which is depressing fuel demand and sending Crude Oil prices down sharply from its record highs. Traders should watch for U.S. crude oil inventories data to be released by the American Petroleum Institute later on Wednesday and by the U.S. Energy Information Administration on Thursday. These will give an indication to the reserves held by large energy consumers like the United States.
A bullish cross appears to have just taken place on the 4-hour chart's Slow Stochastic, signaling an imminent bullish correction to the recent downward trend. The price also appears to be floating in the over-sold territory on the 4-hour chart's RSI which also lends support to this notion. Going long with tight stops might be the right choice today.
The Bollinger Bands on the hourly chart are tightening, signaling an imminent volatile price movement. With the recent bullish cross on the daily chart's Slow Stochastic, the imminent movement will likely be in an upwards direction. Going long with tight stops might be the preferable strategy today.
After yesterday's volatile price movements, this pair appears to have temporarily calmed down. The price appears to be floating in neutral territory on most oscillators and momentum appears to be showing a flat price movement. Waiting for a clearer signal might be the right choice today.
The price of this pair appears to be floating in the over-sold territory on the hourly chart's RSI, signaling an upward movement may occur in the near future. This pair, however, appears to be trading in a bullish channel. Traders can benefit by buying on the lows and selling on the highs of this up-trend.
The Wild Card
Silver has been trading in a steady bullish channel for the past few weeks with clear peaks and troughs. Following this commodity's recent upward movement, traders can now see the price hovering in the over-bought territory on the 4-hour and daily charts' RSI, combined with bearish crosses on their Slow Stochastic oscillators as well, all signaling the impending downward correction. Forex traders can benefit from this style of range trading by buying on lows and selling on highs as the price of Silver holds steady on this path.
|01:00||JPY||Monetary Policy Statement||*||*||*|
|01:00||JPY||BoJ Press Conference||*||*||*|
|01:00||EUR||German 10-y Bond Auction||1.28|1.6||-||-|
|EUR||EU Economic Summit||*||*||*|
|01:30||AUD||Westpac Consumer Sentiment||-5.1%||-||-|
|09:30||GBP||MPC Meeting Minutes||0-0-9||0-0-9||-|
|09:30||GBP||Public Sector Net Borrowing||16.7B||7.6B||-|
|11:00||CHF||SNB Chairman Jordan Speaks||*||*||*|
|11:00||GBP||CBI Industrial Order Expectations||-25||-17||-|
|13:30||CAD||NZD Core Retail Sales||m/m||0.7%||0.2%||-|
|15:00||USD||Existing Home Sales||4.92M||4.99M||-|
|15:00||USD||Fed Chairman Bernanke Testifies||*||*||*|
|15:30||USD||Crude Oil Inventories||-0.6M||-||-|
|19:00||USD||FOMC Meeting Minutes||*||*||*|