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Thursday, 21 Feb 2008
US Unemployment Claims On Tap
It was a very active trading day yesterday with market moving news coming from all 4 corners of the Forex market. The USD was firm ahead of the New York open but reversed all of its gains by the end of the U.S. session.
Yesterday's U.S. Labor Department reported a 0.4% increase in the Consumer Price Index, while Core Inflation, which excludes food and energy, showed an increase of 0.3%. That was the biggest jump in this measure in 7 months. Both of the indicators printed slightly ahead of Wall Street expectations.
Although consumer prices and housing numbers were stronger than expected, the greenback's rally quickly evaporated as traders realized that it was not enough for the Fed to reconsider their intentions of lowering interest rates. This belief was also validated by yesterdays' FOMC minutes. At the meeting, the U.S. Central Bank reduced its growth forecasts while increasing forecasts for future inflation and unemployment.
A separate report showed yesterday that Housing Starts in the U.S. are very near to their lowest level since 1991. The housing data has confirmed once again that the U.S. economy is still in a major slowdown and it is very far form recovery during the mid-term. January housing gained 0.8%, but only after plunging by a revised 14.8% in December. Housing starts rebounded but building permits fell another 3% to their lowest level in 16 years.
Today, Leading Indicators, Jobless Claims and the Philly Fed Survey are due for release. We expect the USD to continue to remain weak because consumer prices was the only release this week that had the potential to trigger a reversal but unfortunately the impact was minimal.
The EUR weakened yesterday vs. the USD after a Labor Department Report showed both the U.S. CPI and the Core CPI indices rising above the expectations. Immediately after the report, the European currency tested the 1.4614 level against the greenback but soon reversed all of its losses and stood again above the 1.47 level.
With every passing day, the European Central Bank is slowly shifting its tone. Earlier this month, ECB President Trichet, acknowledged that there are downside risks to growth which basically means that the Euro zone will no longer be immune to the U.S. slowdown it turns out that the credit markets could have a bigger impact on Euro zone growth than it was initially anticipated.
The European economy is slowing down as the Euro zone households are not willing to spend as they did in the past, due to higher food and energy prices which sent inflation to a record high. That is the main reason why the ECB won't cut Interest Rates until all other options are utilized to the fullest. We expect a rate cut to come in the second half of the year, which might lead to a reversal in the EUR/USD.
Today the most significant news coming out of the European markets will be the Swiss PPI the British Retail Sales. It will be crucial for traders to identify how the preceding economic indicators from Europe and the U.K. will affect the 13 Nation currency. Traders may expect another active trading session today.
The JPY fell yesterday for the 7th straight day against the EUR and stood relatively unchanged vs. the USD. The Yen declined only 0.09% to 108.27 per USD by the end of the Tokyo session.
According to yesterday's Japanese Ministry of Finance data, the Trade Balance notched its biggest deficit in 2 years as higher Crude Oil and natural gas prices drove imports up. The Japanese trade balance indicated a dramatic weakness in Japan's export growth due to the fact that imports rose 9% in January causing a trade deficit.
The BoJ has been adamant that Japan's long, but extremely shallow, recovery is still in place. However, without the foundation of a healthy domestic economy the risks are high for Japan to return into a recession.
The Japanese economic calendar does not include any additional events for today. Forex traders should keep an eye on the economic events around the world, as today could prove to be another very volatile day for the Japanese currency. .
There is a widening channel forming on the 4 hour chart as the pair now floats in the middle of it. The slow stochastic is showing strong bullish momentum together with the RSI on the 50 level. The daily chart supports the bullish notion, and the next target price appears to be 1.4780.
The cable is floating in a very strong support zone, and is not very far from the recent bottom of 1.9400. At the moment all oscillators are showing signs of a bullish reversal move, which might transform into a local correction move. On the other hand, if the cable will breach the support level, we will probably see a very violent bearish move.
The tight range that the pair is trading in has started to form into a bullish channel with moderate momentum. The daily chart is showing that the pair is trading at the lower level of the channel, and together with the positive slope of the daily RSI, we might see a bullish move quite soon. Going long with tight stops might be preferable today.
The pair has been going through choppy price behavior with no distinct direction in the past two weeks. The bearish momentum is back on the local level, and 1.0900 appears to be a valid target price for the upcoming move. Both the daily and the 4 hour slow stochastic are supporting the bearish notion. Going short with limits around the support level might be a good strategy today.
The Wild Card
Gold is trading at record highs again after a very significant breach has occurred in the recent 48 hours. All oscillators are pointing that a fresh all time high is quite imminent, and it would be very good chance for forex traders to join that bullish train into profit.
|03:00||NZD||ANZ Business Confidence||-2.3||-||-|
|03:30||AUD||Private Sector Credit||m/m||0.5%||0.5%||-|
|08:00||EUR||German Retail Sales||m/m||0.5%||0.3%||-|
|08:45||EUR||French Consumer Spending||m/m||0.1%||0.7%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.4%||12.3%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.2%||0.2%||-|
|11:00||EUR||Italian Prelim CPI||m/m||0.1%||0.0%||-|
|14:30||USD||Employment Cost Index||q/q||0.7%||0.6%||-|
|16:00||USD||Revised UoM Consumer Sentiment||93.3||94.2||-|
|16:00||USD||Revised UoM Inflation Expectations||2.8%||-||-|