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Wednesday, 14 May 2008
Will the U.S. CPI Figures Support USD Recovery?
The USD strengthened throughout yesterday's trading and as a result of mostly positive economic releases; it saw a day long bullish trend. Although the USD did lose momentum on Monday, yesterday it gained strength against most of its rivals. Against the EUR, the greenback rose and led to a decline of the pair to a level of 1.5480 in late New York market trading. The main factor that led to the USD's rise was the better than expected Core Retail Sales figure.
Yesterday's batch of American economic announcements started with Fed Chairman Bernanke's speech. Bernanke said that the financial markets improved, but cautioned that the central bankers and the markets are still a long way from the point when they can say the credit crisis is near its end. Traders looking for hints about future Interest Rate cuts in his speech were disappointed as he did not discuss the Fed's next Interest Rate move. Right after his speech, a batch of economic data was released, highlighted by Core Retail Sales of 0.5% and Import Price Index of 1.8%, both higher than forecasted.
Further adding to the USD's bullish momentum was the lower than expected Business Inventories figure which is a good sign for the American economy. Retailers order more goods when they have depleted inventories. This creates more business for the wholesales, who in turn increase their orders to manufacturers.
Looking ahead to today, we have the Consumer Price Index due to be announced. Forecasts have the index at the same rate as last month which should not affect the USD's value very much. Following the CPI announcement, Fed Governor Kroszner speaks at the Federal Reserve Bank of Boston. Lastly, traders will wait to hear the Crude Oil Inventories and watch how that release will affect the very high Crude Oil price, which high a record of nearly $127 yesterday. Traders should not expect much volatility from the USD today as the news releases are expected to be steady, but any surprise will either keep up the bullish momentum or lead to negative momentum.
Yesterday, the EUR experienced mixed momentum as it lost against the USD, and gained against a majority of its other counterparts. No economic data was released from the Euro- Zone and the trading of the EUR was fueled by past feelings of traders.
The only economic news directly regarding the EUR was the Eurogroup meeting which was held yesterday. During this meeting, Eurogroup president Jean-Claude Juncker said that financial markets finally understand the G7's message last month on foreign exchange. Juncker did mention the inflation concern adding that soaring food and Crude Oil prices are supporting that concern. The French and German stock markets did rise yesterday simultaneous to the mild rise of the EUR. However, against the USD, the EUR could not withstand as the greenback received a boost from strong U.S. economic releases.
After a silent day in terms of Euro- Zone data releases, today should be more interesting. Scheduled for today are the releases of French Consumer Price Index and Euro Industrial Production. Traders should also pay attention to the press conference following the Council of Economics and Finance Ministers meeting, where various financial matters will be discussed. Another important announcement will be the Bank of England Inflation Report, which is important to the EUR's future because of England's close ties and geographic location to the Euro- Zone. The forecasts of the French CPI and Euro Industrial Production are expected to be lower than in the previous month, therefore traders should expect bearish momentum from the EUR.
Yesterday the JPY saw bearish trends versus most of its major counterparts, and especially the USD, which was boosted by positive news from the U.S. economic markets.
The economic data released from Japan yesterday beat out forecasts and was quite positive for the struggling JPY. The Corporate Goods Price Index was announced at 3.7%, 0.1% higher than forecasted. Japan's Current Account was measured at 2.1T, which is a lot higher than the previous 1.45T and even higher than the already high forecast of 1.95T. Nevertheless, the JPY drop went on fairly independent from any Japanese news releases as it continued to accumulate a bearish momentum vs. the USD.
Looking ahead to today, Core Machinery Orders is expected to be announced and compared to the previous release, a positive figure is expected. This may be the time investors being timing their positions and take advantage of the recent decline in the Yen's value.
The momentum created by the bullish breach through the channel has diminished and the pair now floats above the upper barrier of the channel. The daily RSI is showing fresh bullish momentum and it appears that testing the 1.5550 level is imminent.
The bearish momentum continues with full steam, as the cable now floats around 1.9430, which is the bottom barrier of the channel. The Slow Stochastic of the daily chart is showing that a breach through the bottom level will unleash a very strong additional bearish move with a target price of 1.9350. Going short appears to be the right move today.
There is a very clear bullish pattern on the daily chart after a local attempt to correct down has accumulated energy. The Slow Stochastic is showing a bullish cross which sharpens the notion that the trend is back. Going long appears to be the preferable choice today.
Range trading with no distinct breaking direction continues. The daily oscillators are floating in neutral territory, as the hourlies show a very moderate bullish heading. No chart shows a strong enough signal, and staying out of this one today might be wise.
The Wild Card
The daily chart is showing a very distinct pattern of a bearish flag which is on the verge of an additional bearish breakout. The Slow Stochastic confirms the bearish momentum and forex traders have a great opportunity to enter the market at a great entry price before the strong breach occurs.
|15:30||USD||Crude Oil Inventories||10.1M||4.2M||8.9M|
|19:00||USD||Federal Funds Rate||<0.25%||<0.25%||-|
|20:00||NZD||Official Cash Rate||3.50%||3.50%||-|
|20:00||NZD||RBNZ Rate Statement||-||-||-|
|23:00||AUD||CB Leading Index||m/m||-0.2%||-||-|
|EUR||German Prelim CPI||m/m||0.0%||-0.8%||-|
|00:00||EUR||Italian 10-y Bond Auction||1.89|1.3||-||-|
|08:55||EUR||German Unemployment Change||-27K||-9K||-|
|09:00||EUR||M3 Money Supply||y/y||3.1%||3.6%||-|
|11:00||GBP||CBI Realized Sales||61||-||-|
|15:00||USD||Pending Home Sales||m/m||0.8%||0.6%||-|