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Thursday, 17 Jul 2008
Will US Building Permits Confirm Housing Deterioration?
The USD had a strong trading day against its currency crosses yesterday. The USD's rally was supported by a batch of better than forecasted economic releases and a hawkish speech by Fed Chairman, Bernake. The USD also took advantage of the falling Crude Oil prices which traded at around $134 a barrel yesterday. After trading at around 1.60 on Tuesday, the EUR/USD fell to the low of 1.58 as the USD gained momentum. The USD/JPY rose from around 104.00 to trade above 105.00 in yesterday's market following the releases from the U.S.
The USD took advantage of a batch of positive economic data that was released yesterday. Both the Core CPI and general CPI beat forecasts and kept an increasing trend compared to last month's results. The Capacity Utilization Rate, which measures the percentage of available resources being utilized by manufacturers, mines, and utilities, and the Industrial Production, both beat expectations with their results announced simultaneously. The icing on the cake in terms of economic data was the Crude Oil Inventories, which were measured at 3.0 million, compared to negative value last week, which further dropped the Crude Oil price as well. Around this time, Fed Chariman Bernake gave the semiannual monetary policy testimony before the House Committee on Financial Services, in Washington DC. In his words, Bernake said a "top priority" for the central bank is to bring inflation to an acceptable level. He helped the greenback's rally by easing traders' worries as he said that he believes mortgage giants Fannie Mae and Freddie Mac are in "no danger of failing".
There are more significant economic data releases for the USD today, however it seems like this time the momentum might shift to a bearish trend. The impactful Building Permits and Housing Starts are expected to slightly drop as traders are still waiting for a sign of a breakout from Housing Crisis. The Unemployment Claims are expected to significantly increase by 34K this week. It will be up to FOMC Member Kroszner, who is due to speak at the Interagency Minority Depository Institutions National Conference, in Chicago, to save the greenback from a weak trading day ahead. Kroszner's speech and the Philadelphia Fed Manufacturing Index, which is the only release which is expected to rise, will be the only indicators that might save the USD from a bearish trading day.
The EUR lost ground versus its major rivals yesterday, most notably losing more than 100 points against the USD. While the USD, GBP and CHF were supported by mostly better than forecasted economic data, the EUR's economic releases were all very steady and were valued at their forecast figures. The CPI's from France, Germany and the whole Euro-Zone were all measured very close to their previous figures and no there was no surprise to push the EUR ahead of its currency crosses. The French CPI was even lower than its previous measuring and the worry of very slow economic growth in the Euro-Zone is becoming more realistic. It also seems like in general the Crude Oil and EUR have matching trends, so as the Crude Oil prices fell sharply yesterday, so did the EUR.
There is only one significant economic data release expected today from the Euro-Zone. The morning will start off with the Italian Trade Balance which is expected to slightly rise, but stay in the negative zone. Against the USD, traders might no foresee a direction as both currencies might have bearish trends, but against all the other crosses, the EUR could lose even more grounds as no impactful surprises are expected in today's trading.
As expected, the JPY's trading trends were caused by its counterparts' momentum shifts yesterday. There was no economic data released from Japan yesterday and the trading was based on the USD's bullish momentum and the EUR's bearish momentum. The USD/JPY cross dropped in the morning to the low 104.00's before the USD's news were announced, but after the releases, the cross was traded above that 105.00 range. The low Crude Oil prices did not help the weak JPY and it seems like investors are very worried about a significant economic slowdown in Japan caused by the high material costs.
The only economic release in Japan today will be the Monetary Policy Meeting Minutes. Although the meeting was held about a month ago, this will be the traders' first opportunity to sense the Japanese financial issues and plans. One should doubt very optimistic minutes and they will probably focus on the plans by the BoJ to fix the current issues and revive the Japanese economy. The release of the minutes will be followed by a speech by BOJ Governor Shirakawa, that will seal off the trading day.
Oil prices tumbled yesterday, putting prices on track for a dizzying drop of more than $10 in just 2 days of volatile trading. The Crude Oil prices for August delivery were down $4.27 at $134.47 a barrel shortly before trading closed on the New York Mercantile Exchange, after earlier sinking as low as $132. Prices fell $6.44 Tuesday in the biggest one-day drop in dollar terms since the Gulf War.
The Energy Information Administration reported that U.S. crude oil supplies rose by 3 million barrels, or 1%, last week. That is the opposite of the 3 million barrel draw analysts surveyed by energy research firm expected. US Gasoline supplies also leapt unexpectedly. Yesterday's Wall Street rally on banks also contributed to the Oil price drop. U.S. stocks jumped after strong results at Wells Fargo (Home Mortgage giant) fueled a powerful rally in the battered banking sector. Optimism over Wells Fargo's earnings helped lift the USD against the EUR as the bank offered investors a glimpse of stability in the hard-hit U.S. financial system. Further USD gains came after Bernanke told lawmakers that currency intervention is "something that should be done only rarely, but there may be conditions in which markets are disorderly where some temporary action may be justified." All that, in addition to an unexpected leap in U.S. Crude Supplies - led Oil prices to fall sharply.
The bearish channel on the 4 hour chart remains in tact, as the pair is now floating on the bottom barrier. A bearish cross on the daily chart's Slow Stochastic confirms that the direction is indeed down. Going short appears to be preferable.
After the recent local bullish correction has been halted, the cable is now floating in neutral territory. A fresh bullish cross on the 4 hour chart's Slow Stochastic indicates the continuation of the bullish move; however, all other oscillators are showing mixed results. Waiting for a clearer signal on the hourlies before entering the market might be the smart move today.
There is a very distinct bearish channel forming on the daily chart, as the pair is now floating on the bottom barrier of it. A break beyond the 104.50 level will validate the ongoing of the bearish move. Traders should wait for the breach before swinging in.
The range trading continues, as the pair shows no distinct price direction. However, a fresh bullish cross on the daily chart's Slow Stochastic, accompanied by positive signals on the 4 hour chart's Accelerator\Decelerator suggests the beginning of a bullish move. Going long with tight stops seems to be a good strategy today.
The Wild Card
The bearish move that embarked yesterday appears to have more steam in it, as the RSI on the daily chart has crossed the 70 line, indicating that the market is overbought. This is a great opportunity for forex traders to enter a very promising trend.
|08:00||CHF||UBS Consumption Indicator||1.41||-||-|
|08:00||EUR||German Import Prices||0.3%||-0.3%||-|
|10:30||GBP||Second Estimate GDP||q/q||0.7%||0.7%||-|
|10:30||GBP||Prelim Business Investment||3.3%||2.3%||-|
|10:30||GBP||Index of Services 3m/3m||0.8%||0.7%||-|
|12:00||GBP||CBI Realized Sales||28||31||-|
|14:30||USD||Core Durable Goods Orders||m/m||-0.1%||0.5%||-|
|14:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:30||USD||Durable Goods Orders m/m||m/m||-1.1%||-0.4%||-|
|15:55||USD||Revised UoM Consumer Sentiment||89.4||90.2||-|
|15:55||USD||Revised UoM Inflation Expectations||2.6%||-|
|16:00||USD||New Home Sales||467K||471K||-|
|16:00||USD||Pending Home Sales||m/m||0.3%||0.9%||-|
|16:30||USD||Crude Oil Inventories||2.6M||-|
|18:00||USD||Natural Gas Storage||-17B||-|