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Tuesday, 11 Mar 2008
US Trade Balance - On Tap
The greenback slipped lower against the JPY yesterday as U.S stocks tumbled on the back of heightened recession speculation. Therefore carry trades continued their sharp unwind as “riskier” positions were pared off by investors. However the greenback did manage to consolidate nearly all across the board today, in particular against the EUR on the back of comments from President Trichet that the ECB is concerned about the recent exchange rate volatility. Nevertheless, despite the greenback's slight recovery today most analysts believe that it will continue its bearish path, at least over the next few months. Investors are now ready for another rate cut by the Fed after the recent string of negative U.S economic data which was topped off on Friday by the surprisingly weak NFP report. With the constantly increasing recession fears it also now seems likely that the Fed could make another emergency rate cut ahead of its next scheduled meeting on March 18th.
If this occurs, then we will see the greenback fall much steeper far quicker than anticipated.
Yesterday there was no real market moving news released from the U.S economy and the dollar movement was mainly EUR news related. Looking ahead to today, we expect the U.S Trade Balance and a speech from Fed Governor Kroszner. The U.S Trade Balance, which measures the difference in value between imported and exported goods and services, is forecasted to release lower than last month at -59.5B. However this figure is likely to surprise on the upside as the recent sharp deprecation of the greenback should have boosted U.S exports but there may be a lagging effect. If the Trade Balance comes out strong today then the greenback should be able to sustain yesterday's consolidation and it may even trigger a rally. However the near term outlook for the greenback remains dismal in particular with the potential for upcoming Fed rate cuts. In addition the relentless stream of weak U.S data should keep the U.S currency on its back foot.
The EUR dropped slightly lower yesterday on the back of comments from ECB President Trichet warning of excessive volatility in the currency markets. The EUR hit a record high against the greenback last week touching the 1.5459 level after the ECB held Euro-zone interest rates firm at 4.0%. However the EUR now seems to be correcting on the back of Trichet's comments. Nevertheless, analysts expect this correction to be short lived as these comments were still perceived as relatively dovish. In addition further inevitable weak U.S data will give the EUR an offensive edge against the greenback.
There was a string of European data released yesterday and most of the figures surprised on the upside. The most significant data to note is the better-than-expected release of the German Trade Balance, which is still on the increase despite the appreciation of the EUR. Looking ahead, the most important news to be released today will be the German ZEW Economic Sentiment which measures institutional investor sentiment in the German Sector. The German economy is one of the key players in the EU and is heavily reliant on exports. Therefore the ZEW Economic Sentiment will shed more light for investors as to how the German economy is holding up despite the sharply appreciating EUR. The EUR may still continue yesterday's correction but it is more likely to resume its bullish surge against the greenback on the basis of further expected weak U.S data. However traders holding long positions on the EUR should remain weary of the upcoming U.S Trade Balance figure which may trigger a USD rally.
The JPY was one of the few currencies to strengthen against the greenback yesterday as U.S stocks fell on the back of increased recession fears. The JPY traded near an eight-year high against the greenback as widening losses in credit markets prompted investors to trim holdings of higher-yielding assets funded by loans in Japan. The JPY will continue to appreciate against the greenback for as long as “risk phobia” maintains its stranglehold over investors. Also positive Japanese news ensured that the JPY remained well supported as Private Sector Machinery Orders unexpectedly surged a seasonally-adjusted 19.6% in January from the previous month, the fastest gain since August 2000. The JPY will now head towards the $100.00 level and although Japanese corporations are suffering, according to the latest Tankan Survey, it is unlikely that the BoJ will intervene.
After a very strong bullish trend the pair is showing some consolidation on the past few days. There is a bearish cross forming on the 4 hour chart which indicates a possible upcoming reversal move. The 1 hour RSI is support the bearish notion, and Forex traders are advised to wait for the break and swing in the trend.
The cable is floating around 2.0060 which is a key 38.2% Fibonacci level of the 2.1130/1.9400 move. If a breach through that level will be validated with a full bar on the daily chart, we should see a stronger bearish move continue until the 1.9900 zone, and it would be advisable to enter the market with a short position.
After a touch at the 101.50 level, the pair now shows its first signs of a bullish movement. The 4 hour chart is showing the formation of a strong bullish cross, and together with the RSI at the 50 level, we should probably see a moderate corrective move in the next 48 hours.
The pair is showing some consolidation at the very deep abyss of 1.0200 after a sharp drop for the past two weeks. The daily chart is still very bearish, yet the 4 hour chart is showing hints of a local correction. Selling on highs might be a good strategy for today.
The Wild Card
There is a very distinct downwards channel forming on the 4 hour chart. The slow stochastic is floating at the 40 level with a negative slope. This could be a great opportunity for Forex traders to enjoy a strong signal for the continuation of the bearish corrective move.
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|