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Tuesday, 22 Jul 2008
USD Stays Under Pressure Amid Economic Slowdown Concerns.
Yesterday was a day of falling trends for the greenback. The USD lost close to 100 pips against the EUR, establishing the EUR\USD around 1.5920. The USD experienced a similar scenario against the GBP as the pair rose from 1.9940 up to 2.0040.
As no significant U.S data was published since the beginning of the trading week, the USD mainly fell as a result of poor analyst forecasts for the upcoming leading indicators later this week. Forecasts this week show that both the Existing Home Sales and the New Home Sales are expected to decline from last month's surveyed marks. The U.S Unemployment Claims are expected to grow, and the Durable Good Orders are forecasted to continue delivering negative figures, all suggesting that the U.S recession is still intact. Another traders' concern was the sharp drop in American Express profits. The biggest U.S credit-card company's profits have decreased by 37%, also indicating that the slowdown in U.S growth may deepen.
Looking ahead to today, two indicators will be published, the U.S Home Price Index, and the Richmond Manufacturing Index. Both are expected to deliver negative figures, yet they do not tend to have large influence on the market. On the other hand, two U.S chiefs will deliver speeches today. First will be the U.S Treasury Secretary Henry Paulsen, and second will be Federal Reserve Bank of Philadelphia President Charles Plosser. Considering the lack of vital financial indicators, the scheduled speeches may generate an even larger impact on the market then usual, and it appears that a hawkish speech might be the only thing to prevent further deterioration for the greenback, as currently the USD is expected to continue its downtrend, and a new record low against the EUR might take place.
Yesterday, the EUR saw volatile sessions against most of its major currency counterparts. The EUR appreciated greatly against the USD, yet it mainly range-traded against the other major currencies.
The EUR's rising trend against the USD came mainly as a result of pure outlook for the U.S economy and not as a result of positive figures from the Euro-zone, as no significant data was released since the beginning of the trading week. That is the reason why the EUR did not experience bullish behavior against the other currencies.
Yesterday, in an interview given to four newspapers across Europe, the European Central Bank (ECB) President Jean-Claude Trichet said that the overall growth in the Euro-zone is expected to recover from its current slowdown further on this year, in spite of the recent negative data, such as the European Industrial Production which fell by the largest amount in a single month since 1992. Despite Trichet's hawkish statement, he deliberately avoided delivering any information regarding the ECB's future interest rates manipulations. Yet considering that the Euro-zone's growth over the second quarter of the year is not expected to be positive, an interest rate hike seems very unlikely.
As no data is expected from the Euro-zone today, traders should pay close attention to U.S developments together with Oil Prices movements, as they should play a main role in today's trading session.
Yesterday, the JPY saw mixed results against its major currency rivals. The JPY slightly rose against the USD, and underwent volatile sessions against the EUR and the GBP.
The only indicator that was published from the Japanese economy yesterday was the All Industry Activity Index, which measures the change in spending goods and services. The index rose by 0.4% in May from April, and the Ministry of Economy, Trade and Industry said that the strong gains in industrial output more than offset weaker spending in the services sector.
Later on this week, the Japanese economy outlook should support the JPY, as both the Tokyo and the National Core Consumer Price Indices are forecasted to show the continuation of positive figures.
Today, the JPY will be absent from the economic calendar, which gives traders an opportunity to take an advantage of the sharp price movements that are expected later during this week. Thus traders could open new positions at currently stable price zone, and than close them with high profits, following the expected volatility in the market
Crude Oil -
Crude oil bounced back from a six-week low in Asian trade yesterday, as concerns over supply risks outweighed worries that demand might falter on slowing economic growth worldwide.
Following Iran's refusal to suspend its nuclear program, the Crude Oil prices rose by over $2 yesterday to $132 a barrel. The Crude strengthened as a result of renewed concerns of violence involving in Iran, which threatens to disrupt the distribution of oil coming from the Middle East.
Another main issue regarding Oil prices yesterday was weather concerns about tropical storm Dolly reaching the Mexican Gulf and the southern tip of Texas. That area accounts for about 25% of U.S oil production and if indeed the Gulf will be hit, it could cause severe shortages in Oil delivery to the US.
The markets are still facing tight supplies amid growing demand from emerging countries. However, there is growing concern that a global economic slowdown may hurt energy demand and eventually bring to a drop in Oil prices.
The range trading on the 4 hours and the daily charts is starting to form into a narrowing bullish channel. The pair if approaching the upper level of it, and with the very tight Bollinger Bands, the possible test of the 1.6000 appears to be quite imminent. Traders must pay attention for a possible breach which could create a great buying point for a strong potential bullish momentum.
The daily chart is giving mixed signals with its RSI floating in neutral territory. However, the Slow Stochastic of the 4 hour chart is showing quite a strong bullish momentum, and the RSI confirms that the direction is indeed up. The hourlies support the bullish notion as well, and it appears that the pair still has more room to run. Going long with tight stops is a preferred strategy today
The pair has been quite choppy in the past two days yet no clear direction was seen. The hourlies are showing mixed signals. The 4 hour chart is showing that a bearish correction is imminent, while the dailies are showing that there is still some more room for the uptrend. Traders advised to wait for a clearer signal on the hourlies before entering the market.
The bearish momentum the pair has shown since the breach of the channel on the daily chart continues. The 4 hour chart's Slow Stochastic is showing the continuation of the trend, and the daily studies also confirm the bearish notion. Going short might be the right choice today.
The Wild Card
It seems that the bullish momentum is still relevant, and that Silver is heading up with plenty of room to run. The Bullish correction which took place 3 days ago seems to have larger potential as all oscillators on the daily and the 4 hour charts are showing fresh upwards momentum. Forex traders have a great opportunity to join the bullish move at a very early stage and with a great entry price.
|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||-||-|