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Thursday, 18 Sep 2008
World Financial Leaders Attempting to Calm the Market
With Interest Rates being held steady in the US and Japan, European financial leaders implementing growth policies, and the decreasing global demand for energy, market stability appears to be the primary focus in the market. Bank failures and instability in the stock markets have stacked up to create today's economic bad guy, and governments are trying to fight them. In the meantime, trading seems to remain flat as volatility has not been as high as expected and risk appetite has decreased.
USD - US Housing Permits Hit 17-Year Low and Cause USD Downturn
The USD saw bearish trends against most of its major currency counterparts yesterday. Traders witnessed the USD fall 1.4% against the EUR and close around $1.4310. It also took a 2% dive against the sterling and the Swiss franc. The sporadic trading session seen yesterday was the result of the various reports emanating from the US government which did not help boost dollar confidence.
The most influential economic indicator coming from the States was the Building Permits figure. This indicator dropped more than expected in August to levels not seen in 17 years! This is a clear sign that the housing market has really taken a hit during this economic downturn and has yet to bottom out. Building permits for new home-starts in August were down 8.9% to an annual rate of 854,000 units from the 937,000 reported in July. In other news, the second major indicator released yesterday was the Current Account. This is a broad measure of total U.S. trade. It covers a range of numbers from goods and services to income transfers. The deficit in the Second Quarter equaled 5.1% of total gross domestic product (GDP), up from 5% in the first quarter. These indicators point out the already well-known fact that the American economy has weakened the USD.
Today, the sole indicator for the USD will be the Unemployment Claims figure, which is the number of individuals who filed for unemployment insurance for the first time during the past week. Analysts forecast it to drop from the previous 445K to 440K. Traders are advised to pay close attention to this indicator as a stronger-than-expected result may launch a bullish correction to the USD's weakness which started yesterday.
EUR - European Trade Figures Point to Recession
Yesterday, the EUR saw mixed results versus most of its currency pair counterparts. The 15-nation currency underwent a bullish trend against the USD, rose over 140 pips, and closed at 1.4310. This rise was stunted by a low volume in trading directly after the Euro broke through the key resistance level of 1.4250, causing some investors who had bet against the Euro-Zone currency to start buying EUR in order to prevent further losses.
The only financial indicator that was published from the Euro-Zone yesterday was the regional Trade Balance. The Euro-Zone swung to a deficit in external trade in July from a surplus a year earlier, and had a deeper trade gap in June than was previously reported. Exports rose 10% year-to-year in July, while imports rose 17%. Foreign trade has been a key engine for growth in the European economy in recent years, but the data yesterday suggested it could be a drag on growth in the Third Quarter, possibly tipping the economy into recession, which might then cause a deterioration of the 15-nation currency.
Today is expected to be a quiet news day from the Euro-Zone as there are no releases expected. The EUR's trends will be affected by its currency pairs' rallies. It seems as if both the USD and JPY are expected to undergo a volatile trading session today and their crosses with the EUR will probably also be affected. Traders should keep a close look on the news coming from the US and Japan as both will be the deciding factors in the Euro's movement today.
JPY - Japan Pushes for Less Market Turmoil
The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged vs. the EUR yesterday and closed its trading session at around the 150.00 level. The JPY experienced similar behavior against the GBP as the pair dropped from 0.7937 to 0.7894 by days end. The JPY also saw bullishness against the USD as it jumped over 100 pips and closed at 104.70.
Yesterday, the most important financial indicator that was published from the Japanese economy was the Overnight Call Rate, which, as expected, stayed unchanged at 0.50%. The Bank of Japan (BoJ) said in a press conference that it was on guard against market turmoil as it decided to leave Interest Rates unchanged. The decision to keep Japan's target Overnight Call Rate at 0.50%, which came after the US Federal Reserve also held its target Interest Rates steady, was arrived at by a unanimous vote.
As for today, the sole event that is scheduled from the Japanese economy is the BoJ Monthly Report. This indicator will likely have little effect on the market. Forex traders invested in JPY-related crosses should stay tuned to world stock market movement today as this information should determine the Yen's direction.
Oil - Weakened Stock Markets Convince Traders to Invest in Oil
The upsurge traders saw in the price of Crude Oil yesterday did not stop for some time as it reached as high as $97 towards the end of the trading session. A spike attributed to a market test of Crude Oil's downtrend as well as the recent flight of investors away from the decreasing value of stock markets which felt the heat from the US bailout of AIG and Lehman's collapse.
Commodities such as Crude Oil and Gold have historically been fall-back trades which help stabilize losses in light of weakening markets. When the strength of a currency such as the USD becomes weakened, traders begin buying these commodities to park their money somewhere more stable. This drives the price of these commodities higher. An event the market witnessed in July as the dollar's strength continued its tremendous fall, and forced the price of Oil to hit a record high.
Analysts are unsure about how good an investment Crude Oil will prove to be, however. The issue of supply has ceased to be an issue lately. This commodity's price seems to be completely focused on demand, which has done nothing but drop steadily since mid-July and is predicted by OPEC to go down even further in the coming months. Right now the price of Oil has settled around $95 and seems to be trading within a small range, a signal that this rally may be coming to a close and the price is about to continue its previous decline inline with falling demand.
After peaking at the 1.4390 level, the pair has halted its bullish momentum and is now trading around 1.4330. Currently, all oscillators on the 4-hour chart are pointing up, suggesting that another bullish session is expected. Going long appears to be the right choice today.
The cable extended its bullish inclination yesterday, and is now trading around the 1.8220 level. The RSI on the 4-hour chart is located at the 60 level, suggesting that the bullish move has more to go. Going long might be the right strategy.
There is a very distinct bearish channel forming on the 4-hour chart as the pair is now floating in its upper section. However, a bullish cross on the daily chart's Slow Stochastic indicated that a reversal is imminent. Going long with tight stops seems to be preferable.
The pair dropped 200 pips yesterday, and has consolidated around the 1.1000 level. And now, as all oscillators on the 4-hour chart are giving bearish signals, the pair seems ready to elongate its bearish move.
The Wild Card
Gold prices rose significantly yesterday and peaked at $890 an ounce. However, a bearish cross on the 4-hour chart's Slow Stochastic suggests that a bearish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.