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Wednesday, 16 Jul 2008
Will Crude Oil Conitnue its Slide?
The USD completed yesterday's trading session with mixed results versus the major currencies. The news of the first half of the day surrounded the oft traded EUR/USD pair which hit record highs and peaked at 1.6035 before correcting back to just a bit less than 1.60. The USD slowly strengthened throughout the day, right up until the 14:00 GMT testimony of Fed Chairman Ben Bernanke. Bernanke along with Treasury Secretary Henry Paulson testified before the Senate Committee on Banking, Housing, and Urban Affairs and spurred market volatility almost instantaneously. Bernanke warned that high energy prices have helped limit the spending power of U.S. consumers. He reiterated that the high crude oil prices will likely add stress to the economy throughout the rest of the fiscal year. This led to the biggest drop in Light Sweet Crude prices since the George Bush Sr. presidency, nearly 17 years ago, as the highly traded commodity surfaced at just over $138/barrel. The USD began to strengthen shortly after and closed the trading day at 1.5910, more than 100 pips off of earlier highs in day.
Yesterday was also a big news day for the US as many conflicting indicators came to light. Retail Sales and Core Retail Sales grew a 0.1% and 0.8% respectively, far off expectations. The PPI index went up to 1.8% as Core PPI saw the second month of similar growth at 0.2%. Empire State Manufacturing Index rose to -4.9 from a previous reading of -8.7, Business Inventories came in with a change of 0.3%, and the IBD/TIPP Economic Optimism remained the same at 37.4. The aforementioned data did surprisingly little to move USD trends as most of the attention was put on Bernanke and Crude Oil prices.
Today will be another big news day for the greenback. Core CPI is forecasted to rise by 0.2% similar to last month and CPI should rise to 0.7%. The TIC Net Long-Term Transactions is set to decline to 70B and Industrial Production is expected to stay unchanged. The two big volatility events will likely come from the release of Crude Oil Inventories, which is expected to rise and yet another day of testimony from Bernanke and friends before the Senate Banking committee. Reading the indicators today does not give us a clear picture of future market movement for the USD.
The EUR lost ground versus its major rivals, including the strange day versus the dollar. The EUR reached a new high against the USD when in peaked at 1.6035 in the early European trading session. However the pair ultimately closed at 1.5910 in response to poor Euro-Zone data and market speculation. Pessimism is on the rise throughout the European economic-zone which might be the reason for the EUR's trend yesterday. Yesterday was a slow news day for Europe as two indicators were released. The German ZEW Economic Sentiment deteriorated to -63.9, and EU ZEW Economic Sentiment declined to -63.7.
Today a number of indicators will be published from the EZ. German Final CPI is forecasted to come out at 0.3% and French CPI should decline from 0.5% to 0.4%. The important event of the day for Europe will be CPI figures which are forecasted to provide yet another 4% gain this month, this could help recover some ground lost by the EUR over the last few days. With the CPI numbers expected to rise both in France and in Germany as well as the whole of the EZ, it is likely we will see some EUR bullishness.
The Yen strengthened versus the major currencies yesterday. The biggest gain for the JPY came against the EUR as it gained 179 points yesterday; one day after the EUR/JPY pair hit all time highs. A good reason for this appreciation can be found in the fundamental news from the Asian giant. Yesterday was an important news day for the Japanese economy as crucial indicators were released. Overnight Call Rate as forecasted and previously decided upon was set again at 0.5% and Tertiary Industry Activity Index came in lower then projected at -0.2%. Also, the BOJ Monthly Report stated: "Japan's economic growth is slowing, mainly due to the effects of high energy and materials prices". However the Bank of Japan Governor Masaaki Shirakawa declared the Japanese economy is not slipping into stagflation, even though he stressed the need to closely watch developments in the prices of energy and raw materials given the increasing uncertainties surrounding the economy. This statement was a pleasant surprise for investors. Thus investors seemed to reward Japan with a strengthening Yen.
Today unlike yesterday Japan will be absent from the economic calendar. Thus investors should pay close intention to the JPY's counterparts before placing their transactions. Mapping the movement of the Stock markets worldwide could also provide much needed clues as to the direction of the heavily traded currency
CRUDE OIL -
Yesterday Crude Oil saw a big drop as testimony from Federal Reserve Chairman Ben Bernanke, and rising production numbers sent the prices for Light Sweet Crude diving almost $10 from highs at $146 to lows of $136 before closing trading just above $138 per barrel. Such bearish movement in Oil prices has not been seen since 1991, when President George H.W. Bush pulled out of the Strategic Petroleum Reserve
The recent shift in Iraqi Oil numbers has also helped. In 2003 oil production fell to close to zero barrels produced a day. Recently oil production in Iraq rose to the previous level of 2.5M barrels day. As well the big oil companies are about to enter the Iraqi market which ought to increase production levels still further. Thus these actions can help retreat crude oil prices in the near future. As such it might help reduce inflation in the USA, consequently strengthening the USD.
After the pair crossed the 1.6000 level yesterday, there has been a sharp drop in EUR/USD price. The hourly chart is showing a distinct bearish channel, as the pair now floats in the middle of it. The momentum is strong and the next target price might be 1.5800. The 4 hour and the daily charts are showing fresh bearish momentum and all oscillators are showing that there is still much more room to run. Going short might be a good choice today.
After a violent breach through the 2.0100 resistance level yesterday, the pair appears to have established a starting point for a relatively strong downtrend. The hourly and the 4 hour chart show that a bearish formation is intact. A negative slope on the Slow Stochastic validates that notion. Going short seems to be a good choice
According to the hourlies the pair is still in a bearish configuration. However, a recent bullish cross on the Slow Stochastic of the 4 hour chart implies that the reversal of the current bearish trend is possible. The 4 hour chart's Relative Strength Index (RSI) swings low further supporting the possibility of the reversal. Traders should wait for a stronger signal before jumping into the bullish trend.
The pair is showing consistent bearish momentum for a while now and today is no difference. Although the signal is not strong the pair might have a local target at 1.000, which might make it feasible for forex traders to go short with tight stops.
The Wild Card
After peaking at the record 988 price level yesterday, this commodity seems to consolidate around the 975 level again. However, the upcoming cross on the daily Slow Stochastic is showing that the bearish trend will probably resume quite shortly. This could be a great opportunity for
forex traders to take a position before the technical signal is fully unraveled.
|14:30||USD||Crude Oil Inventories||1.4M||2.1M||-|
|17:01||USD||10-y Bond Auction||2.80|2.5||*||-|
|18:00||USD||Federal Budget Balance||-10.4B||-223.2B||-|
|20:00||NZD||Official Cash Rate||2.50%||2.75%||-|
|20:00||NZD||RBNZ Press Conference||*||*||*|
|20:00||NZD||RBNZ Rate Statement||*||*||*|
|20:00||AUD||RBNZ Monetary Policy Statement||*||*||*|
|23:50||JPY||Core Machinery Orders||m/m||-15.7%||7.3%||-|
|00:00||AUD||MI Inflation Expectations||2.3%||*||-|
|00:01||GBP||BoE Quarterly Bulletin||*||*||*|
|00:01||GBP||RICS House Price Balance||53%||52%||-|
|01:10||NZD||RBNZ Gov Wheeler Speaks||*||*||*|
|09:00||EUR||ECB Monthly Bulletin||*||*||*|