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Thursday, 17 Apr 2008
U.S. Unemployment Claims On Tap
The USD extended losses yesterday after the economic reports from the U.S. showed lower than expected inflation and a sharp fall in Housing Starts, suggesting more possible Federal Reserve Interest Rate cuts ahead. The greenback depreciated 1% reaching 1.5979 vs. the EUR from 1.5790 during the prior trading day.
A separate report showed yesterday that U.S. Industrial Production rose 0.3% in March, beating economists' forecast for a 0.1% decline. But despite the surprising printing, the news had little impact on the greenback, failing to halt its descent against the EUR.
Also yesterday, a government report showed that U.S. Consumer Prices rebounded in March mainly due to the rising Oil prices. The inflation buildup comes as Oil prices hit fresh record highs in recent weeks, pushing up the price of gasoline. Crude Oil topped $115 a barrel Tuesday, resulting in a 19% gain so far this year.
Moreover, rising inflation complicates the Fed's task to keep pumping enough liquidity into financial markets to ease turbulence. The credit crunch and housing downturn are also hurting the broader economy, with Fed Chairman Ben Bernanke recently acknowledging the risk that the economy could slide into a recession.
The Fed has slashed its benchmark rate by 3% since September, to 2.25%, and further easing is expected later this month. Futures on the Chicago Board of Trade showed investors are certain policy makers will reduce the fed funds target by at least a quarter-percentage point on April 30.
As for today a bundle of crucial data is expected. The most significant news will be published at 12:30 GMT as the Unemployment Claims will be delivered. Analysts predict an increment from last month's 357k up to 375k. If the prediction is verified it will probably create harsh negative momentum within USD pairs. Later on Federal Reserve Vice Chairman and FOMC voting member Donald Kohn will deliver a speech. Kohn is one of the main individuals responsible for setting the U.S short term interest rate, and clues regarding any possible rate cut might be scattered.
Investors should follow today's developments carefully for just as negative data can retain greenback's bearish trend, so can an unpredictable positive report give rise to a bullish inclination. Special caution should be taken throughout today's speeches as any hidden hint can stir up an unexpected Dollar behavior.
Yesterday, the EUR struck a fresh record against the USD after the soft U.S. economic data reinforced market expectations that the Fed will be cutting Interest Rates further later this month. The news that the U.S. inflation did not surprise to the upside during March, and that the housing market remains in trouble, gave traders the opportunity to further sell the greenback, with the EUR rising to as high as1.5979.
The single currency was also boosted by yesterdays' record high Euro zone CPI figure. European inflation rose more than expected to 3.6%. Record energy prices and high food costs are the main reason behind the latest high CPI printing.
Coming up for today, at 8:00 GMT we are scheduled for The ECB Monthly Bulletin. At this event, hints regarding interest rate changes might take place. Moreover, the risk to price stability will be discussed, and keywords aiming at the EUR/USD situation shouldn't be taken lightly.
Today can be a good day to go with the flow and go long on the EUR, as the trend should keep its momentum for the rest of the week. Yet traders should keep their senses keen as any use of words depicting a rate hike might hinder the EUR.
Yesterday was quite a bearish day for the Yen as it lost strength against most of its currency adversaries. After a while when it seemed that the JPY is building momentum, there is now no doubt that the Yen is once again heading a slippery hill, what others might refer to as a freefall.
What is still missing from Japan's economic outlook is a leader who can map out a clear cut strategy for the future. Inflationary pressure has begun to deteriorate but can very easily reappear if investors lose confidence in the interim governing of the Japanese economy.
On for today, investors should maintain their focus mainly on USD surging data, such as the Unemployment Claims and The Fed Vice Chairman Kohn's Speech, and take under consideration the bad news regarding the U.S might very much react also as bad news for the JPY.
The pair breached the very significant level of 1.5900, reaching at peak levels to 1.5970 and setting a fresh all time high. The 4 hour chart is showing a strong bearish cross, as the daily chart indicates a continuation of the bullish trend. Buying on dips might be a perfect strategy today.
The daily chart is shaping into a narrowing bearish channel as the cable now floats in the middle of it. The Slow Stochastic indicates the continuation of the bearish trend and the 4 hour RSI is strengthening the bearish notion. Going short appears to be preferable today.
The bullish trend continues at full steam as the pair shows no immediate signs of a halt. The 4 hour Slow Stochastic is showing a positive slope and the RSI is floating at 50 which points at additional bullish momentum. There seems to be no upcoming correction on the local level, and going long looks like the right decision today.
The aimless floating of the pair continues on the daily chart, and no major price break has occurred since mid March. The daily oscillators are showing neutral momentum, and the hourlies are showing moderate bullish momentum. The Bollinger Bands are still quite tight which indicates an upcoming move, so traders are advised to wait for the break and swing.
The Wild Card
There has been a very sharp breach through the upper barrier of the bearish channel on the 4 hour chart. The Slow Stochastic is showing that the momentum is still very high, and that the next target price is around 201.90. This is a great opportunity for forex traders to swing in a very strong breach with high profit potential.
|08:00||CHF||UBS Consumption Indicator||1.35||-||1.25|
|08:00||EUR||GfK German Consumer Climate||10.1||10.0||10.2|
|12:05||EUR||German 30-y Bond Auction||1.07|1.3||-||-|
|15:00||EUR||Belgian NBB Business Climate||-6.2||-5.7||-|
|16:00||CAD||BoC Rate Statement||-||-||-|
|03:30||AUD||Private Capital Expenditure||q/q||-2.2%||-2.3%||-|