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Tuesday, 15 Jul 2008
Will the EUR/USD Cross the 1.600 Level?
It seems as if the US housing troubles have just started. Wall Street extended its slump into yet another week Monday, as investors worried that even a safety net set up for mortgage financiers Fannie Mae and Freddie Mac wont' head off further troubles in the financial markets. Worries over Fannie Mae and Freddie Mac led to a volatile session in which the Dow dipped below the 11,000 mark for the first time in about 2 years.
Investors' latest unease about the banking sector comes in a week when many financial names are to issue quarterly reports - many of which will likely include sizable write-downs of souring mortgage debt. While combining that information with US housing figures due out on Thursday, we may definitely expect the Building Permits and the Housing Starts figures to deteriorate, closing much lower than forecasted.
The Greenback saw mixed results yesterday against its major currency rivals as the absence of any fundamental data left the USD movement in the hands of market speculators. The EUR/USD fell from 1.5961 to 1.5864 during the short period after U.S. Treasury Secretary Henry Paulson announced a rescue plan with tighter mortgage regulations for the failing mortgage lending giants Freddie Mac and Fannie Mae. However, it didn't take long though for the USD to take a hit as US Stock markets sank over the poor economic outlook and the EUR/USD closed the day over 1.59 again.
The approval of new mortgage lending rules by the Fed is focused at forcing lenders to revaluate whether borrowers can repay the loans they take out, while limiting those who can take loans in general. The move comes not long after the Fed was given more power to control the broader spectrum of the US economy. For many analysts the USD recovery will depend on whether the Fed initiatives were enough to calm investors' worries over the poor state of the country's biggest lending firms. Any improvement in their credit spreads and shares may help the dollar regain some strength.
Today should be vital in mapping the short-term movement in the USD as traders should expect a batch of mixed US data. Core Retail Sales and Retails Sales are both expected to see small gains meaning that US investors' confidence is still not all together broken. The expected 1% increase in Core Retail Sales and 0.5% rise in overall Retail Sales will show that despite rising energy prices and a faltering credit and housing sector, tax rebates are being spent. Today's Producer Price Index looks to stay unchanged and could help contribute to any positive movement in the USD. Still though, these events will likely be overshadowed by Fed Chairman, Ben Bernanke speech. The Fed chairman is expected to testify before the Senate Committee on Banking, Housing, and Urban Affairs issues in Washington DC; A hawkish statement and mostly unchanged rhetoric can be expected from Bernanke, however he will likely come under significant scrutiny to discuss the current state of the US economy and whether or not the steps to bail out Freddie and Fannie will really help he US economic outlook and. Expect his remarks to contribute once again to a highly volatile trading day in the Forex market.
The EUR finished yesterday's trading session with mixed results as it escaped mid-day bearish trends versus the major currencies. Poor economic data coming from the Euro Zone and the emergency plan of the Fed to restore investor confidence, contributed enormously to set the trend direction of the 15 nation currency.
The only economic data for the Euro Zone (EZ) we had yesterday was Industrial Production which fell by 1.9% in May from April in comparison to the 0.6% during the same period last year. The result wasn't surprising as the EZ has shown a decrease in efficiency and production for quite a while. Yesterday's drop, the sharpest in over 20 years, proved that it is still an issue. Since 2007 production of durable and non-durable consumer goods has declined by 5.2% and 3.2% respectively, causing a decrease in Industrial Production numbers. The ECB will continue to play tug o' war with inflationary worries and overall production numbers, as the high value of the currency has begun to affect broader aspects of the EZ economy.
On tap from the Euro Zone today, we will see the publication of German ZEW Economic Sentiment. The indicator measures institutional investor sentiment and more specifically reflects the difference between the share of investors that are optimistic and the share of investors that are pessimistic. It's forecasted to dercrease to a mark of -55.5 largely on the back of pessimistic expectations due to the recent rate hike and poor economic data in the recent future from Germany and the rest of the EZ. Also on tap for today is the monthly ZEW Economic Sentiment for the whole of the EZ, also forecasting a heavier pessimist sentiment as the mark is expected to lose over 3 points to -56.0. Though the outlook of the USD is far worse, the EUR could experience some bearishness versus the other currencies today on the back of poor fundamental news. As the EUR/USD approaches record highs, the psychological level of 1.60 combined with positive US data could prevent the pair from hitting news highs.
During yesterday's trading session, the Yen saw volatile movement versus most of the major currencies, while most of the day was spent making gains. Like the EUR, the JPY fell against the USD following the announcement from the US regarding the Fed's emergency credit plan. Still though, concern in Japan regarding the economy and currency is high as growth continues to deteriorate alongside consumer confidence. As we look ahead to today's BoJ press conference we can expect to hear some worrisome tones. The BoJ kept a hold on the interest rate at 0.50% early this morning, and as we await the monthly report it is likely to present a downgraded outlook for the economy. Sponsored primarily by surging crude oil prices and the crisis in the credits markets, the JPY is treading on very thin ice. The recent economic data from Japan suggests that the Japanese economy is entering a recession, however the BoJ does not have much it can do to pull the Asian giant out of it at this point.
Today, a batch of data is expected from the Japanese economy; as stated earlier the overnight call rate remained unchanged at 0.5%, as we await the BoJ monthly report and BoJ press conference. Traders should follow today's news with extra caution, as the news should generate higher volatility than usual for the JPY. Most importantly, JPY traders should keep their eyes glued to any changes in the Dow Jones as the index has been the primary catalyst in regards to JPY movement.
Yesterday, Oil prices were steady on mixed supply concerns. Crude futures swung near 145 U.S. dollars a barrel Monday on mixed news of global supply concerns and USD tradings. Price action staged between 142.49 dollars per barrel and 146.37 dollars during the trading session.
U.S. President Bush lifted an executive ban on offshore oil drilling on Monday and urged the U.S. Congress to act as well in a bid to cool the high energy prices. However, analysts do not believe that such a move will ease the tight global crude supplies in the short term, because it would take months or years to get actual output from new fields even if the bans were removed.
The pair is in the middle of a very strong uptrend, and is testing fresh highs on a daily basis. The very important key resistant level of 1.5930 has been breached and the pair is likely to continue is bullish trend. Next target price might be around 1.6000.
There is a very accurate bullish channel forming on the 4 hour chart, as the cable now floats in the upper barrier of it. The Slow Stochastic on the 4 hour chart shows that there is still more room to run and that going long is probably the best choice today.
The 4 hour chart is showing that the pair is still floating within its bearish channel. However, the RSI on the hourlies has crossed the 30 line, indicating that the market is oversold. The Slow Stochastic is also showing a fresh bullish cross, suggesting that a bullish trend is imminent. Going long with tight stops appears to be preferable.
The 4 hour chart shows that the bearish channel still remains intact, as the pair is now floating in the middle of it. Both the RSI and the Slow Stochastic on the 4 hour chart are pointing towards bearish grounds, and no correction appears to be in sight. Going short seems to be a good strategy today.
The Wild Card
The daily chart shows that the pair is in the middle of a sharp bullish corrective move, as all oscillators are pointing up, indicating a very strong bullish momentum. This is a great opportunity for forex traders to join in a very strong trend that still has a lot of steam in it.
|00:00||JPY||Monetary Policy Statement||-||-||-|
|00:00||JPY||BoJ Press Conference||-||-||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.6%||2.5%||-|
|00:30||JPY||National Core CPI||y/y||3.1%||3.0%||-|
|01:05||GBP||GfK Consumer Confidence||-1||0||-|
|01:30||AUD||Private Sector Credit||m/m||0.4%||0.4%||-|
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|