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Friday, 27 Jun 2008
Will the USD Turn To a Bullish Direction
The Greenback saw yesterday a bearish trend versus the major currencies. When the Fed failed to convince that it would lift the interest rate before the end of the Year and despite a revised GDP that showed a slight improvement in the economy, which provided data that the country may have avoided a recession.
When keeping the Federal Funds Rate at 2% during Wednesday's meeting the Fed expressed their worries about inflation signaling a future increment rate will be only probably over the next months. However the GDP grow by 1% revealing that the first quarter results of a growing but delicate economy. The economy is still impacted by a housing recession, credit and financial crisis which affects people and businesses a like to resist spending and investment. Also yesterday the existing home sales showed an increase of the 2.0% in May reaching an annual rate of 4.99 millions units from the 4.89 million units in April. This happened thanks to a fall in prices resulting in more attractive buys. In other effecting news on the USD Oil prices climbed 5 USD heading to an all time record of 140 USD. This high was reached after reports that Libya may reduce Oil production, because of an “oversupplied market”. In addition official comments by OPEC members that prices will reach the 170 USD this summer did not help to calm the market. Additionally the price of gold climbed over $20 during yesterday's trading session.
Looking ahead today we have several economic indicators expected to be released from the US. Among them we await the monthly reading of the Core PCE Price Index with an estimated 0.2% price increase for all domestic personal consumption. The Personal Spending with a rate that is expected to rise by 0.7%. The Personal Income which should rise to 0.3%. The Revised Michigan Sentiment that is expected to come in at 56.8. Traders will need to consider whether Wednesday's Fed concerns and yesterday's gold and crude oil prices will define today's trend or the good news from yesterday and today will determine the trend.
Yesterday, the EUR saw bearish trend against most of the major currencies. However when placed versus the USD, the Euro hit a near 3-week high. Though the EUR was bearish against the Yen it has reached a record high against a weakened Yen. The 15-nation currency climbed up v. the USD to $1.5750 from $1.5664 in trading yesterday. And the EUR against the JPY declined from 169.11 to 168.29 including the daily high of 169.44. This high is the highest price for this currency pair since the introduction of the European currency. In the news yesterday the German May Import Index was up 2.4% pointing to an increase in inflation in the biggest euro zone's economy as result of higher prices for crude oil and other petroleum products. M3 Money Supply was no different than the previous publication at 10.5%. These indicators are inconsequential it is more likely that news from the EUR counterpart has derive yesterday's trends.
Today, we await several events on the Euro Zone economic calendar. The German Prelim CPI, which measures a rate of inflation. Analysts predict a reduction in the German Prelim CPI this month; therefore forecast the index to come in at 0.3%, from the previous 0.6%. The Current Account will come in morning the last reading at had was at -15.3B. The Consumer Confidence indicator is expected to decline to -16. Last but not least is a speech by ECB President Jean-Claude Trichet at the Seminar of Central Banks in the East Asia-Pacific Region. High volatility is expected during his speech. These events might fuel the continuation of the EUR bearish momentum.
The JPY saw yesterday a bullish trend versus the major currencies. The Yen against the USD gained more than 1% when closing at 106.68. The Asian currency against the Euro reached a record low at 169.44. Nevertheless the Yen was bullish v. the Euro and closed at 168.29. Yesterday many indicators were release from the second-largest economy and were the must likely culprit for the Yen's bullishness. The Tokyo Core CPI rose to 1.3% from 0.9%. The National Core CPI rose to 1.5% from 0.9%. The Overall Household Spending fell to -3.2% from the expected -2.0%. The Unemployment Rate did not change from 4.0%. This reveals to traders that corporate Japan is still reluctant to hire new staff because of concerned regarding profits. The Japan Industrial Output rose to 2.9% overcoming the prognostic of 2.5%. The Retail Sales pointer rose to 0.2%. This rise was triggered by the increase in fuel prices and a higher spending on food purchases by consumers.
There is no economic data expected to be released from Japan today. As the day is filled with important economic data to be released from the U.S. and an essential speech from ECB's President Trichet, the JPY's direction might be determined by its major currency momentum.
The negative slope of the hourly chart's Slow Stochastic indicates that a bearish trend is still intact. However, the freshly evolved cross under the 20 line of the hourly chart's Slow Stochastic implies that a bullish correction is quite imminent.
On the contrary, the daily chart shows that the pair still flows within quite a wide range with currently no clear signals. Preferable strategy might be going long with tight limits today.
The float within the narrowing bullish channel on the daily chart continues, as no significant breach has been made. The positive slope on the daily Slow Stochastic indicates the continuation of the bearish movement within the channel. Going long with tight stops appears to be the preferable strategy.
After showing a consistent bullish momentum for a while, the hourlies are showing signals of a falling correction. The bearish breach on the hourly chart has created strong downwards momentum that might eventually carry the pair to the next target price of 106.50. The daily Slow Stochastic is showing no crosses, which also indicate the continuation of the bearish trend. Going short appears to be preferable today.
The bearish trend continues with plenty of steam as the pair now floats around 1.0230. The Slow Stochastic of the hourlies indicates that there is still more room to run. The next target price might be 1.0200. Going short with tight stops seems like the right choice today.
The Wild Card
The bullish rally continues, and it appears that oil shows no signs of a halt. The hourly and the daily chart's oscillators are pointing up and the momentum might be even stronger. This is a good opportunity for forex traders to join in a strong trend that still has a steam in it.
|00:00||EUR||French 10-y Bond Auction||-||-||-|
|00:00||EUR||Spanish 10-y Bond Auction||-||-||-|
|00:00||GBP||MPC Rate Statement||-||-||-|
|02:30||AUD||RBA Deputy Gov Lowe Speaks||-||-||-|
|04:45||JPY||30-y Bond Auction||1.46|2.7||-||-|
|08:00||EUR||German Factory Orders||m/m||4.2%||-0.8%||-|
|13:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|13:00||GBP||Asset Purchase Facility||375B||375B||-|
|13:30||USD||Challenger Job Cuts||y/y||17.6%||-||-|
|13:45||EUR||Minimum Bid Rate||0.05%||0.05%||-|
|14:30||EUR||ECB Press Conference||-||-||-|
|14:30||USD||Revised Nonfarm Productivity||q/q||-1.8%||-2.2%||-|
|14:30||USD||Revised Unit Labor Costs||2.7%||3.1%||-|
|16:00||USD||FOMC Member Williams Speaks||-||-||-|