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Friday, 11 Jul 2008
Will the USD Defy Market Wisdom and Become Bullish
Yesterday, The Greenback experienced mixed results versus a basket of its currency rivals. Despite a notable fall in initial jobless claims, which descended to 346k in the week ending in July 5, from 404k the previous week. Thursday, the U.S. dollar fell to a one-week low versus the euro and slipped against the yen as well during morning trading in New York.
In the beginning of the trading session, the favorable data of the U.S jobless claims helped the USD sustain gains. The Dollar vs. EUR descended to 1.5699 from 1.5710 and against the Yen, it climbed to 107.41 from a previously 107.25. However, most of the gains were erased when resurgence credit worries appeared again after the two largest U.S. mortgage funders' shares, Fannie Mae and Freddie Mac tumbled on capital concerns. Also, Fed's Bernanke in a speech at Congress asked to consider more regulatory authority over the markets. In his statement, Bernanke requested passing legislation that will extend the regulators' authority to oversee investment bank holding companies to follow and supervise the financial markets. Moreover, this is the second time he has mentions this type of action should be taken on this issue this week, his insistent view could be interpreted as an urgent demand for change.
On tap today, all eyes will be on the Trade Balance which will be announced at 12:30 GMT. Economists predict a deficit of 62.5B with a decrease of 1.6B from June's deficit of 60.9B. Also today, we have the Import Price Index that measures the change in inflation for imported goods; it is expected to come in 2.0%. Another important release is the Preliminary Michigan Sentiment, which has been declining over the last two months and is expected to slightly fall again this month to 55.5. Traders should take advantage of today's announcements as it seems like the USD will derive its trends based upon the actual value of the Trade Balance.
Yesterday, the EUR experienced a rising trend against most of its currency rivals. The EUR rose 0.2% to 1.5778, reaching a one week high at 1.5800 versus the USD. The 15 nation currency soared against the Yen to 169.16 from 168.29 in early trading. As part of the economic readings from yesterday, the Italian industrial production fell 1.4% in May. The French Industrial Production came out with a disapointing -2.6% as well, after a positive value of 1.5% in April.
Also yesterday, the European Central Bank said that the current interest rates at 4.25% will help achieve the reduction of the inflation level that existed when the interest rates were 4%. They said that they expect a drastic diminution to 2% before moderating in 2009, and with this they Central Bank will be able to ensure medium term price stability. Closing the bulletin, ECB president Trichet, held a hawkish toned speech and pointed out that there won't be room for complacency and that the ECB will act firmly to bring back the inflation over the planned terms.
Looking ahead today, the only economic event coming from the Euro-Zone is the German Wholesale Price Index, which measures the rate of inflation experienced at the wholesale level and is expected to trim down to 1.0%, from the previous value of 1.4% in May. This should happen despite price increases of Crude Oil and refined gasoline. Traders should keep their eyes open for developments from the U.S. These developments should be the main indicator in determining the EUR's direction today.
Yesterday, the Yen experience bearish trends during trading hours versus its major currency pairs. Against the USD, the Yen experienced a volatile section, trespassing the 107.00 barrier to later consolidate in a range between 106.25 and 107.75. The JPY saw a sharp decline, falling to a two week low against the EUR, reaching 169.16. A shadow of pessimism is maintained by the Japanese government who expects to maintain its vision that the economy will remain stuck in doldrums for a fifth straight month in July. Over the last month, the official reports announced that economic recovery appears to be pausing and weak moments have been seen recently.
As for today, we have only two events from the Japanese markets. We have the Industrial Production, which is expected to be maintained at the same value of 2.9%. In addition, the Japanese Household Confidence will be released and is expected to slightly fall to 31.5. These results might further harm the JPY's trading trend.
Crude Oil -
Yesterday's trading session was very volatile for Oil. The Crude has firstly resumed climb, crossing the $142 a barrel. The main reason for that price growth must have been global news arriving from the Middle East, claiming that Iran has test-fired 9 missiles warning that it was ready to retaliate for any attack over its nuclear projects.
However, China's Crude Oil imports expansion slows as prices go up. China is the world's second largest energy consumer. China recorded slower Crude Oil imports last month since tax rebates failed to counterbalance higher costs. Imports climbed by 3% to 14.57 million metric tons in June, or 3.55 million barrels a day, according to an announcement by the Customs General Administration of China, yesterday.
Given a slowdown in Chinese and the US consumptions, investors should expect a lower equilibrium in the futures market and then in the spot market.
The EUR/USD pair has made an aggressive bullish move within the flat channel of the daily forex chart and is now approaching strong support. The hourly EUR/USD chart is showing a local consolidation around the 1.5770 level. The positive slope on the 4 hour chart's Slow Stochastic is also indicating that moderate bullish momentum. Buying on dips could be a good strategy today.
The 4 hour and the daily GBP/USD charts indicating that the bullish trend has not yet said its last word as this currency pair is in the midst of a strong upward trend. However the hourly forex chart's indicators are pointing down. A preferable strategy might be waiting for a clearer signal on the hourlies.
The pair has been range trading for the past few days. All oscillators on the hourlies and the 4 hour USD/JPY charts are quite neutral, while no distinct direction is seen on the horizon. However, there is a bearish cross on the daily chart's Slow Stochastic, implying that a bearish correction is imminent.
The Slow Stochastic on the daily forex chart is heading downwards. The 4 hour chart's Slow Stochastic also supports that notion. Yet, the forex technical indicators on the hourlies imply a local bullish correction. Thus going short with tight stops appears to be preferable.
The Wild Card
It seems that the bullish momentum is back again as the Crude Oil is heading up with plenty of room to run. All of the technical oscillators on the hourly and the daily Crude Oil charts are giving a bullish signals and this commodity may target the $144 price level today. This gives forex traders a great opportunity to rejoin the market at an excellent entry price.
|01:00||GBP||30-y Bond Auction||2.86|1.6||-||-|
|01:30||AUD||AIG Construction Index||47.8||-||-|
|06:30||AUD||RBA Rate Statement||-||-||-|
|08:00||EUR||German Industrial Production||m/m||0.9%||0.1%||-|
|08:45||EUR||French Gov Budget Balance||-59.8B||-||-|
|08:45||EUR||French Trade Balance||-3.0B||-3.3B||-|
|09:00||CHF||Foreign Currency Reserves||517.5B||0.2%||-|
|16:00||GBP||NIESR GDP Estimate||0.6%||-||-|
|16:00||USD||IBD/TIPP Economic Optimism||48.1||-||-|