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Wednesday, 11 Jun 2008
Will the Greenback Continue Its Bullish Momentum?
Yesterday, the Greenback maintained its rally against most of its major currency counterparts following the hawkish comments from the Fed Chairman Bernanke about inflation worries and remarks that short-term interest-rates will likely jump this year. The EUR/USD has depreciated from 1.5650 down to 1.5441. The USD\JPY went up by 0.3% to reach 107.67, reaching a three month record.
The USD's rally continued despite the unfavorable Trade Balance outcome, which showed that the U.S monthly trade deficit has increased by 7.8% to $60.9 Billion in April, making it the largest increase since 2005. The poor figures came mainly as a result of the higher prices of imported oil and other petroleum products.
In his speech, Bernanke said that the worst of the financial crisis has gone and risks of a substantial downturn in the economy are vanishing, meaning that the Fed has halted its aggressive campaign of rate cuts and will soon begin to raise the interest rate in order to combat inflation fears which appear to be more perceptible due to high costs of energy, especially crude oil. Under the base of his comments, many analysts are signaling a sustained recovery of the U.S. currency that will continue over the medium and longer term.
Looking ahead to today we have the stock readings on Crude Oil and the speeches from FOCM members Donald Kohn and Randall Kroszner. Traders should follow their words regarding future policy on interest rates to be adopted by the Fed, as it is expected that the greenback will continue steady gains against its rivals.
The EUR retreated against the USD yesterday as a result of the comments made by the Fed chairman, while it remained stable against other currencies. With this result, the EUR has lost in the last two sessions 2% of its value. The EUR\USD was traded at 1.5441, down 1.3% in late New York trading time on Monday.
In the meantime, the Euro gained some stability against others currencies with the help of good economy data coming from the Euro-Zone such as the French Industrial Production, which rose by 1.4% showing a recovery from the fall of 1% in March, and the Italian Industrial Production, which rose to 0.7%, and increased by 8% compared to last year.
As for today, there isn't much significant economic news coming from the Euro-Zone. The only influencing data will be the French CPI, which is expected to increase in 0.1% compared with its last reading of 0.3% on inflation rate. Traders should pay attention to it, as inflation has become a recently wild currency trigger, leading to a second degree the economic growth.
The JPY saw mixed results vs. its rival counterparts in yesterdays trading. Recently, the Japanese currency traded around the 107.00 level against the USD, reaching its lowest stage in 3 months. The significant drop of the Asian currency was provoked by comments from Fed members regarding the American inflation concerns.
Yesterday, Japan continued to post strong data as Q1 final GDP printed at 1%, better than expectations of 0.9%. CGPI came in at 4.7%, also better than the 4% forecasted. We saw the JPY crosses initially trade a bit lower, but come back higher after the initial reaction. These results show that due to an increase in corporate capital spending, the Japanese economy is growing at a faster speed than previously estimated. Japan continues to report higher inflation results which could spur the Bank of Japan to eventually increase rates, however not necessarily in the near future.
Looking forward, we have the Bank of Japan rate meeting later this week. Inflation continues to dominate the minds of central bankers and look for it to continue to be a driving force in currencies. Higher inflation could prompt higher Interest Rates but at the expense of slower economic growth. Balancing these two could prove to be difficult and make markets more volatile.
Today we don't expect any significant economic data coming from the Asian market. Forex traders should keep an eye on the economic events around the world, as today could prove to be another volatile day for the Japanese currency.
After a sharp drop of more than 350 pips since last Friday, the pair is now trading with mixed signals. The Slow Stochastic of the 4 hour chart is showing moderate bullish momentum, and the RSI confirms that the direction is indeed up. The daily chart is also supporting the bullish notion, however the Hourlies does not yet have a distinct direction. Forex traders are advised to wait for a clearer signs on the Hourlies before entering the market.
After the recent local bearish correction has been halted, the hourlies and the daily chart are currently showing that the pair floats with no distinct direction. The daily chart's RSI is floating near the 50 level and the Slow Stochastic also does not deliver any specific signs. Waiting for a clearer sign before entering the market might be the smart move today.
The bullish channel on the daily chart still remains intact, as the pair now floats on the bottom barrier. The momentum is bullish and still quite strong. The hourlies support the bullish notion, and it appears that the pair still has more room to run. Going long is a preferred strategy today.
The range trading continues without a distinct breaking direction. The daily chart is giving mixed signals and is mostly floating in neutral territory. The hourlies are showing a slight bearish corrective momentum, while moderate bulls still dominate the 4 hour chart. It appears that the possible next move might be a bearish one. In that case traders are advised to swing in after the breach.
The Wild Card
Gold is in the middle of a corrective move that is now showing strong signs of a moderate bullish trend. It appears that it might be able to breach through the 890.00 level which is a key resistance level. The bullish cross on the hourlies is strengthening the notion that forex traders might enjoy a nice entry price for the upcoming bullish move.
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||0.4%|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||0.1%|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|