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Thursday, 14 Feb 2008
US Trade Balance and Unemployment Claims on Tap
The USD continued to rebound yesterday after a surprising gain in January Retail Sales suggested consumer spending was holding up. Retail Sales increased 0.3% last month, following a 0.4% drop in the prior month.
Government data showing higher Retail Sales in the month of January - diminished economists' expectations for a decline in the greenback. The report was also a surprise for investors because it followed a weak January jobs report and shrinking service sector numbers, which normally acts as an early indicator to sub par Retail figures .
Yesterday's data pushed the greenback primarily against the JPY, while against the rest of the major currencies such as the EUR and GBP, the USD remained relatively unchanged. Traders continue to scale back positions ahead of today's' testimony by Fed Chairman Ben Bernanke. The Federal Reserve Chairman may signal more rate cuts in the near future, as the last few days of bullish dollar behavior may only be a glitch in the bearish dollar trend that has existed for most of 2007 and 2008. Based on Interest Rate Futures, markets are expecting the Fed to reduce its benchmark interest rate to as low as 2% this year, although expectations for another 50bp rate cut have decreased. The market is now pricing in a 68% chance for 50bp cut, down from yesterday's 80%.
Today, the greenback's momentum may continue as all attention will be focused on the U.S. Trade Balance, Unemployment Claims data and Fed Chairman Bernanke's speech. We may see the greenback extend its gains across the board if the U.S. news surprises on the upside but it may also retreat slightly as the current market sentiment seems to be that the recent USD rally is running out of steam.
After developing a small rally for 3 days running, the EUR lost ground against the USD on the back of weaker Euro zone Industrial Production and stronger U.S. Retail Sales numbers yesterday. The EUR was down 0.1% at $1.4569 after hitting a session low at $1.4534.
The unexpected increase in Retail Sales, helped ease fears of an economic slowdown in the U.S., placing some additional pressure on the 15 nation currency. The European market was looking for Industrial Production to accelerate in the month of January, but instead the indicator printed at -0.2%, far below the forecasted 0.5%.
Today, we await the release of the GDP data from Germany and France. Both of the figures are expected to drop, further dragging the EUR down. Today's price action could be critical in determining whether the retreat this week is a correction or a larger rebound in the greenback.
Also the ECB President Trichet is expected to deliver a speech later today in Spain. The speech will be closely followed by investors for hints on future ECB monetary policy. Today, we may see the EUR extending its losses against the USD if the U.S. news will indeed surprise on the upside.
Yesterday, the JPY dropped to a one-month low against the USD after U.S. government data showed an unexpected rise in Retail Sales last month, easing concern that the biggest economy will slide into a recession. On its way down, the JPY reached a low of 108.37 before easing to 108.10 by the end of Tokyo session yesterday.
Carry trades unwind resumed yesterday as the Japanese GDP figure rose to 0.9%, after growing only 0.3% through the previous quarter. On the other hand, The GDP deflator, a broad measure of prices used to derive real growth from nominal, fell 1.3% from a year earlier, the biggest drop since 2006.
Today the Japanese economic calendar is barren of any scheduled events. Forex traders should keep an eye on the economic events around the world, as today could prove to be very volatile.
The pair is consolidating around 1.4570 with a moderate bullish momentum. The 4 hour chart is still bullish and the daily chart indicates that there is still room to run. 1.4590 is a key Fibonacci level which if breached will validate the next move up with a target of 1.4650.
The 4 hour chart is showing a very strong uptrend with increasing momentum. The 1.9650 level was fully breached indicating that the bullish momentum will continue to grow locally. The daily RSI is floating around 50 which indicate that on the longer run we might see the trend reach 1.9850 as a valid target price.
The much anticipated breach through the 108.00 has occurred, as the pair now heads up north. The positive slope on the daily slow stochastic strengthen the notion that the bullish momentum is about to grow. Being on the buy side appears to be the right choice today.
The pair maintains the bullish move with a diminishing momentum. The daily chart is indicating an upcoming bearish with a potential to bring a bearish correction move. The 4 hour chart is still bullish which make the selling on high strategy quite feasible today.
The Wild Card
The massive uptrend continues with full momentum as Gold is now regaining energy for the next move on the daily channel. All oscillators support the bullish notion and this could be a great opportunity for forex traders to enter a very intensive uptrend with no intentions to stop.
|16:00||USD||IBD/TIPP Economic Optimism||42.0||-||-|
|19:00||EUR||ECB President Draghi Speaks||-||-||-|
|23:30||USD||FOMC Member Williams Speaks||-||-||-|
|00:30||AUD||AIG Construction Index||53.8||-||-|
|01:01||GBP||BRC Shop Price Index||y/y||-1.4%||-||-|
|02:00||AUD||HIA New Home Sales||m/m||-1.8%||-||-|
|02:01||JPY||Monetary Policy Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|