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Monday, 21 Apr 2008
Will The USD Continue to Recover?
Last Friday, the greenback gained against most of its major rivals on the back of the strong data from all the U.S economic sectors last week. Despite the lack of data on Friday itself, the USD recovery was assisted by the better-than-expected Empire State Business Conditions Index release and a falling trend of the Unemployment Claims figure. As a result, Friday was the best day for the USD, however short lived it was.
Later on this week's economic calendar is quite full with events that could keep the USD bullish momentum. March's Core Durable Goods Orders report, which is expected to be released on Thursday, is forecasted to show a higher level of purchase orders. If indeed the final figure meets the expectations, we could also expect a negative trend in the next Unemployment Claims report released also on the same day.
Friday's Consumer Sentiment figure is forecasted to reflect an improvement in the U.S economy for the short term.
On the other hand, USD buyers may be concerned of the building sector data. This Tuesday's Existing Home Sales and the House Price indices are both expected to show a fall in the building sector. As a sector directly affected by the credit crisis, this week's building sector data could supply us many figures about the success of the FOMC decisions and how thy will vote on April the 30th .
Although markets have grown more optimistic about the U.S. economy in recent days, investors do not seem to believe that the present financial turmoil is coming to an end. Concerns about the U.S. economy still remain high.
Dollar trading should stay calm today until the release of Existing Home Sales, where we will likely see volatile behavior. We also recommend traders to follow other important data releases during this week in order to get supplied with figures that may show which direction the greenback is more likely to be dragged on.
Last Friday, the EUR reached all time high of 1.5980 but later dropped below 1.58. The European currency depreciation came as a result of the surprisingly weak inflation and manufacturing data from the European financial markets. However, later on, with March's German PPI report release, the EUR gained back some of its losses locking the trading session at the rate of 1.5810 USD for one single EUR.
Germany, which is considered to be the strongest economy in Europe, but continues to concern the ECB. The economic data from Germany and its inflation in particular, is playing a role on the European manufacturing sector. Last Friday's German PPI, the indicator that measures the rate of inflation, printed a higher-than-expected figure of 0.7%.
The Interest Rate differential between the U.S and Europe has been continuously widening over the last few months and it is expected to widen further at the next FOMC meeting, making the EUR the most favorable currency amongst investors, as it offers a higher yield and lower risk.
Today, all attention will be focused on ECB President Trichets' speech at 21:30 GMT. Traders expect Trichet to speak widely about the ECB policy for the short term and to supply traders with more explanations about the EUR behavior. Overall, the ECB president's speech may not affect today's trading sharply. We expect the EUR/USD to move between bulling and bearing, as traders exercise caution ahead of tomorrow's U.S PPI data.
The JPY depreciated against the greenback in Friday on the release of strong U.S. inflation and manufacturing data last week. Many of Friday's JPY losses were caused by carry traders.
The current uncertainty in the global financial markets is causing all the high yielding currencies to depreciate sharply and we should see the JPY continue its bullish momentum as risk seeking investors run for the hills. The Japanese economy is showing moderate growth and it is finally beginning to experience some positive inflation, so this could be a good launching pad for a future rate hike from the BoJ. In the meantime a rate hike remains unlikely due to possible deflationary pressures and there will need to be sustained expansion before the BoJ can consider a rate hike.
Yesterday, the only data released from Japan was March's Tertiary Industry Activity Index, the measures the change in spending for services. The report printed at -1.7%, showing a weaker spending by half of the nation's workers, which are employed in the service industry.
There was no important economic news coming out of Japan during the previous week, and today is also devoid of data. We should see the JPY continue on its bearish path due to the strengthening trend of the USD. Forex traders should keep an eye on the economic events around the world, as today could prove to be another very volatile day for the Japanese currency.
After a sharp drop of more than 200 pips on Friday, the pair is showing fresh bullish momentum, and it is now floating around 1.5830. The Slow Stochastic of the 4 hour chart is showing moderate bullish momentum, and the RSI confirms that the direction is indeed up. If the pair breached the 1.5850 level, the trend will be fully validated and another move is expected. Going long appears to be preferable.
The narrowing channel on the daily chart has been breached, and the cable now rides the bullish momentum created in that move. Both the Slow Stochastic and the RSI are pointing on the continuation of the bullish trend, as the hourlies are contradicting with a possibility of a local bearish correction. Buying on dips might be a good choice today.
There is a very distinct bullish channel forming on the daily chart, as the pair now floats at the middle of it. All oscillators are showing bullish momentum, and the Bollinger Bands are getting tighter which indicate an additional upcoming bullish move. The next target price of 104.60 appears to be valid.
Friday's attempt to breach through the 1.0300 has failed and left the pair with no more bullish momentum. The flat channel continues on the daily chart, as the hourlies are showing fresh bearish momentum, and a possible corrective move towards 1.0100. Waiting for a clearer sign before entering the market might be the smart move today.
The Wild Card
There has been a very strong breach through the bottom barrier of the channel which is forming on the daily chart. The bearish move has completed a full bar beyond the barrier, and the bearish move is now accumulating steam. Forex traders have a great chance of swing into what appears to be a very strong technical pattern. The next target price might be 910.00.
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||0.1%|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||0.7%|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|