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Monday, 28 Apr 2008
USD Gaining Power
Last Friday, the greenback kept up its sharp bullish momentum against most of its major rivals. The USD gained as a result of favorable economic data, which was released from the US during the last week, combined with disappointing indicators released from the Euro-zone. The USD added almost 1% to its value against the EUR, appreciating from Wednesday's all-time low of 1.6017. The greenback also climbed to a 2 months' high vs. the JPY when it closed trading at 104.80.
By midday Friday, the USD strengthened against the EUR, trading in a range of 1.5655 to as low as 1.5590. Speculations on the FED halting Interest Rate cuts and a rally on the dollar during the week, which may have led investors into taking profit ahead of the weekend, supported the dollar during trading session.
It's a major shift in sentiment regarding the outlook of Interest Rates and we may see the dollar strengthening until the next Fed meeting. The perceived odds of the Fed keeping its benchmark Interest Rate unchanged at 2.25% at its meeting next week rose to about 26%, according to the futures. Just over a week ago, futures were evenly split between a 25- and a 50-basis-point cut.
Also, a number of important growth data will be released this week, including Q1 GDP, ISM Manufacturing and Non-Farm Payrolls. NFPs are expected to fall negative for the 4th consecutive month, indicating that consumer spending will continue to deteriorate as record high energy and food prices sap disposable income. Tuesday's economic data will likely highlight some of the reasons why traders are ramping up speculation that the country is in midst of a recession. Markets are expecting some poor numbers which does not leave much room for a downside surprise.
Until then, we expect last week's positive indicators to keep supplying traders with reasons to buy USD.
Last Wednesday the EUR reached a new all time record, rising as high as 1.6017 vs. the USD. That move took place after 3 bullish days for the 15-nation currency, mainly due to strong German data releases. However, between Wednesday and Friday, the EUR lost 2.7% of its value after weak indicators release increased inflation speculations from the Euro-zone. The EUR bearish movement came also as a result of strong economic data coming from the US. Recent positive US fundamental printings contributed to a stronger dollar momentum especially vs. the EUR.
The only important data released on Friday was March's German Import Price Index, which came out well above the expectations of 1.1%. This indicator, combined with the previous CPI and PPI reports from the Euro-zone countries, depicts a rather melancholic picture regarding the inflation rate in Europe, leaving investors with no choice but to go short on the EUR. As a result, the EUR/USD pair locked the session at the rate of 1.5627, losing 0.7% on Friday alone.
Looking ahead, this week will supply traders with many figures that may allude to the size of the impact of the US financial crisis over the Euro-zone economy, and could give traders a vision of the EUR direction for the short term. Today, March's CPI report is due to be published. The report is expected to show an extremely high rate of inflation in the Euro zone, 3.5% higher than last year's. Aside from that, traders should mainly focus on U.S developments. The U.S has a bundle full of data planned for this week. Traders should stay keen as this week is expected to turn extremely volatile.
The JPY depreciated sharply against the USD on Friday, as a part of the global bullish trend of the USD. The USD\JPY opened the trading session at the rate of 104.36, and locked at the rate of 104.70, growing 0.2% in one single day.
Japan's economy supplied traders with almost only negative data, raising speculations that the country is currently on the fast lane to local financial crisis and even a sharp recession, even though the world's economy starts to blossom and is showing signs of recovery. March's Tertiary Industry Activity Index, released on Sunday, came well bellow expectations with a reading of -1.7%, showing a deep damage to the services sector.
Also, Tuesday's Trade Balance report showed a non-expected sharp decrease in value between imported and exported goods and services.
Last week's figures drew a very gloomy picture, reminding us of the late 80's financial crisis in Japan.
Considering that Japan is mainly affected by the Asian markets, and that its limited to only 3% imported rice, it is very interesting to see how the Bank of Japan will handle the increasing prices of cereals and meat. The BoJ have nothing to do with the increasing inflation rate and there is no key rate cut possible for the country.
Today there is no trade in Japan due the Showa Day; traders may expect the Yen to remain calm and to be mostly sensitive to US data release. March's Industrial Production report, which is expected to be released tomorrow, is forecasted to show a 0.7% decrease in value of output produced by factories, mines, and utilities in Japan.
After bottoming at the key Fibonacci level of 1.5550, the pair is showing regenerated bullish momentum. The 4 hour Slow Stochastic is showing a bullish cross, and it appears that on the hourly level the next target price is 1.5680. Going long appears to be preferable today.
The bullish momentum which was created after the breach of the flag is slowly diminishing. The daily chart is showing a increasing bearish momentum and the hourly Slow Stochastic is strengthening the bearish notion. With an estimated target price of 1.9710, it appears that going short might be a better choice today.
The bullish channel on the daily chart is getting tighter, and the pair now floats near the upper section of it. The general momentum is very bullish, yet the hourlies are indicting a possible correction. It appears that buying on dips should be the best strategy today.
The bullish momentum the pair has shown since the breach of the channel on the daily chart continues. The daily Slow Stochastic is showing the continuation of the trend, and the hourly studies confirm the bullish notion. Going long might be the right choice today.
The Wild Card
The failed attempt to breach through the bullish channel from the bottom section has caused the bullish momentum to regain its strength. Crude Oil is now showing extremely strong bullish momentum as seen by the hourly oscillators. This is a great opportunity for forex traders to join the trend, with fresh all time highs being breached on a daily basis.
|07:45||EUR||French Gov Budget Balance||-80.8B||-||-|
|07:45||EUR||French Trade Balance||-5.8B||-5.1B||-|
|08:00||CHF||Foreign Currency Reserves||434.7B||*||-|
|09:30||GBP||Consumer Inflation Expectations||3.2%||-||-|
|11:00||EUR||German Factory Orders||m/m||3.3%||-0.4%||-|
|13:30||USD||Non-Farm Employment Change||204K||180K||-|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:55||USD||Prelim UoM Consumer Sentiment||75.1||76.2||-|
|14:55||USD||Prelim UoM Inflation Expectations||2.9%||-||-|
|20:00||USD||FOMC Member Evans Speaks||*||*||*|