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Monday, 25 Aug 2008
USD Rebounds As Oil Weakens.
Last week was a volatile trading week for the U.S. dollar and overall it saw mixed results with gains against most counterparts besides the EUR. This week will start right away with some volatility for the USD as the very significant Existing Home Sales figure is expected to be released today and should rise compared to last month.
USD - Existing Home Sales on Tap.
Last week was a volatile trading week for the U.S. dollar and overall it saw mixed results with gains against most counterparts besides the EUR. During last week, there was a slight loss against the EUR while a lot of bullishness was seen against the GBP in particular during the end of the market week. With the Sterling's weak economic data releases including a fall in its GDP compared to previous figure, the USD took the cross down to the mid 1.85's. In terms of American economic news, there were more ups than downs with the major positive releases coming from the PPI, Unemployment Claims and Bernake's speech on Friday. The Fed Chairman spoke on Friday and said that the Fed should be able to maintain its low federal funds target rate for a while getting help by the recent drop in commodity prices coupled with reduced demand for resources due to the economic downturn should reduce the threat of inflation. Trader should still note that Bernake thinks that the inflation outlook is still "highly uncertain".
This week will start right away with some volatility for the USD as the very significant Existing Home Sales figure is expected to be released today and should rise compared to last month. There is a batch of economic releases scheduled for this week as every day will have major news. The highlights of the week will be the releases of the New Home Sales, Core Durable Goods Orders, Preliminary GDP and Personal Spending. Results should be mixed versus their previous figures with the New Home Sales expected to stay steady and a rise forecasted for the Prelim GDP, however the other two main releases are expected to decline compare to their previous results.
Day traders should pay close attention to the economic data coming out of the U.S. this week as the USD trading trends should be very volatility this week.
Compared to a very volatile week expected for the USD, there will be less action today as the only releases scheduled is the Existing Home Sales. Although this release could cause the USD to see some bullishness, there are no other news that are expected out of the USD, EUR and GBP and this release will be the main factor in today's trading session.
EUR - Weaker Employment Data and Easing Price Pressures Continue to Dictate EUR Pace.
Last week, the EUR saw bullish results varying between the difference currency crosses. The EUR rose versus all of its counterparts in particular the GBP and CHF. Against the greenback, the EUR rebounded from last week's bearish trading, but lost a lot of its gains on Friday with a fall in the Current Account and Bernake's hawkish speech. The EUR/USD finished the week under the 1.48 range.
Although there is a batch of economic data releases scheduled this week, none of the major data is expected. Most of the economic releases will come out of the Euro-Zone's biggest economy, Germany. The main German releases will be the German Consumer Confidence, German Ifo Business Climate Index and German Prelim CPI, all forecasted to be lower than their previous results. The main general EUR releases will be the yearly CPI Flash Estimate, Consumer Confidence and Unemployment Rate, all scheduled for Friday and not expected to change compared to their previous results. It seems like most of the general market news will come from the USD and look for a lot of volatility to be caused by the greenback this week.
There are no EUR economic news scheduled for today and overall it will be a fairly quiet trading session by all currencies. The USD's Existing Home Sales will be the main factor in today's trading direction and look for the EUR to be hurt by the forecasted rise of this indicator today.
We continue to expect the ECB to be sidelined for now, as the combination of weaker employment data and easing price pressures comes as no surprise. We expect this development to continue in the quarters ahead. This will intensify the pressure on the ECB to cut Interest Rates.
JPY - No Economic Growth in Japan Boosts the Attraction of the USD as an Alternative Investment.
The Yen completed last weeks trading session with mixed results against its currency counterparts. The Japanese currency saw volatility during last week against the USD and after rising strongly, it finished the week close to where the cross started at around 110. The Yen saw a little bit of bearishness against the EUR, but strong gains were seen against the week GBP and CHF. The GBP/JPY came close to the 203 market last week, reaching a low (a high for the JPY) that hasn't been seen since May.
This week's economic releases from Japan will be concentrated today and on Thursday night. BOJ Governor Shirakawa will speak this morning and the day will end with the yearly CSPI, which is expected to slightly rise compared to last year's result. On Thursday, the Yen should have a bullish day with a batch of positive economic data expected. The main releases on Thursday will be the Tokyo Core CPI, Prelim Industrial Production and yearly Retail Sales, all expected to rise significantly in comparison to their previous figures. Look for the USD's news filled week to also affect the JPY and cause some volatility.
As previously mentioned, the JPY will see some volatility of its own today and should see a bullish day with the positive news expected. With the USD Existing Home Sales expected to rise, the USD should see a rising trend which will support the JPY against its other currency counterparts. Trades should mind the impact of Shirakawa's speech this morning and later stay tuned on the news coming out of the U.S.
Oil - Oil Extends Losses on Easing Geopolitical Tensions in Georgia.
Crude Oil prices in the US stayed below $120 per barrel on Friday. Earlier last week, the bulls came back with a vengeance in the Oil market as Crude prices closed above $121 a barrel on Thursday for the first time in 2 weeks.
However on last Friday, Crude prices declined in New York posting the biggest single-day drop in dollar terms since Jan. 17, 1991, when U.S.-led forces expelled Iraq from Kuwait. Oil's sharp fall on Friday was also prompted by reports that showed an uptick in OPEC Crude Oil output and another showing an expected decline in U.S. travel over the Sept. 1 Labor Day holiday weekend as high fuel prices hit consumers. Light Crude also deepened losses yesterday, hovering just above $114 a barrel, on diminishing supply concerns as Tropical Storm Fay crossed over land and on easing geopolitical tensions as Russia withdrew the bulk of its troops from Georgia.
Analysts estimate that the market would also keep a close watch on the U.S. dollar, after its surge on Friday also helped push oil prices lower. A rising dollar encourages selling from investors who bought Crude Oil and other commodities as a hedge against inflation and weakness in the U.S. currency.
The 4 hour chart shows that the pair has been going through choppy sessions for the past few weeks, without making any significant breach. Earlier today, the pair has tested the 1.4700 level. Should the pair reach beneath that level, further bearish movement might take place, with a price target of 1.4650.
The pair underwent a sharp bearish session throughout the weekend, as the cable is now rated around 1.8430. As all oscillators on the 4 hour chart are pointing down, the pair might be ready to test a two years low at the price level of 1.8385.
The pair gained over 150 pips since the weekend, and is now traded around the 110.00 level. A bullish cross on the daily chart's Slow Stochastic is implying that the pair should continue to rise. Going long seems to be preferable today.
The pair is in the midst of a very strong bullish trend, as the pair has breached through the 1.1010 level. After a few failing attempts to test the 1.1040 level, the pair seems ready to cross this psychological boundary. Should the breach occur, the pair will most likely see further bullish behavior.
The Wild Card
After going through a moderate bullish correction, a bearish cross on the daily's Slow Stochastic suggests that Gold might be on the verge of resuming its general bearish trend. This might give forex traders an opportunity to enter the trend at a very convenient price.
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