25/02/'08 - Existing Home Sales On Tap

Economic News

USD

The last few weeks have been characterized by Dollar negativity and even despite small gains last week look forward for future downwards pressure on the USD. A major concern has become the severity of the problems in the US economy and how the Fed can solve such issues to bring some stability to the failing dollar. Last week's data from virtually every economic sector in the US reflected the growing instability in what once was the benchmark of global economies.

The Fed's main intervention has been its monumental cuts in US interest rates, as they have been sliced 225bp over the last 7 months. Today's Existing Home Sales index should give us a good measure of how well it has worked. With lower interest rates, the housing market should expect to see a boost; however expectations have the index down 1.8% to 4.8M. Some felt the rate cuts would spur on new buyers in the market, specifically low income buyers who wouldn't necessarily be looking as hard if it weren't for the combination of low prices and low interest rates.

With the dollar already at dangerously low levels versus the major currencies to start the week, any more negative data will likely drive the dollar to record lows versus the EUR and a handful of others. Remarkably, the greenback has pulled itself out of such holes in the recent past, climbing from record setting lows to the EUR to storm back under 1.45. With the week set to see forecasted drops in Durable goods, GDP, Chicago PMI, personal income and spending as well as what will likely be negative comments from several Fed Governors, the dollar looks set to make a slight bearish push before Fed Chairman Ben Bernanke's Wednesday remarks. Generally Bernanke does enough to reassure dollar investors to push the legendary currency back up to more respectable levels, regardless of the overall negative outlook on today's US economy. Look for a falling dollar before pressure from Commodities prices drives the greenback up before weeks end.

EUR

The EUR finds itself in excellent position this week to make historic gains versus all of its major currency rivals, namely the US dollar. EUR/USD begins the week well over 1.48, as we wait what is being forecasted as a strong Euro-zone economic news week. Amidst the deceleration of global economies, the Euro-zone has managed to string together a set of positive data, allowing it to make extra strides versus its most competitive rivals. Last Friday's early release of growing Manufacturing and Service PMI should be enough to push the European currency into bullish trends throughout the week.

Today at 18:50 GMT, we expect a speech by European Central Bank (ECB) President Jean-Claude Trichet, at the New Year's Reception for Asia-Pacific, in Frankfurt. He will more likely than not, map out what we already assume to be a strong week for the EUR. Trichet's hawkish monetary policy has not changed and has allowed a continuation of EUR strength in the currency market. Investors should expect consistent bullish movement from the EUR across the board this week, as no change in policy and or interest rate should be expected in the near future.

This week we will continue to see what is forecasted already as positive data from the retail sector, namely sales and PMI. Unemployment and CPI numbers, followed by the German IFO report will shape the list of significant economic events from the Euro-zone this week. With slowing markets and under achieving US economic data, the bullish EUR will be a force to be reckoned with.

JPY

The trading week opened today, with a decrease in the JPY against 15 of the 16 most actively traded currencies. A large part of this is due to the resumption of carry trading due to rising stock prices around the world. Investor returns to higher-yielding assets funded with loans from the Japan restarted itself on Friday of last week. As commodities and stock prices charge upwards, the JPY will should see acceleration in the bearish trend.

The week ahead we expect a set of key Japanese data, a rarity in the often dominating European/American relevance of economic data. Retail Sales, Industrial CPI and Overall Housing spending highlight a busy week for the JPY. Still though, with the rising volatility seen toward the end of last week, expect the JPY to make most of its movement in response to US economic data, as has been the case over the last several weeks.

Today we can expect annual CSPI numbers at roughly 23:50 GMT, though it should contribute significantly to JPY movement, expect the JPY to recover from its bearish opening to the week.


Technical News

EUR/USD

The bullish channel continues with strong momentum as the pair now floats around 1.4828. The slow stochastic on the 4 hour chart is floating around 50 which indicates that the bearish signal is in place. The RSI is forming back into bullish formation and supports the general notion. Next target price might be 1.4883.

GBP/USD

The cable is going through choppy sessions within a wide range with no distinct direction in the past two weeks. A fresh bearish signal can be seen on the 4 hour chart, and together with a bearish cross on the daily slow stochastic, the bearish momentum is quite strong. Going short appears to be favorable today.

USD/JPY

After a short period of time that the pair peaked at the 108.40 zone, we see that a consolidation in a tight range is the name of the game again. The local momentum within the channel appears to be bearish, and it appears that a touch in the 106.50 zone might be close. Selling on highs might be a good choice today.

USD/CHF

The pair is entering a bearish formation on the daily chart as the RSI floats near 50 with a bearish slope. The 4 hour slow stochastic supports the bearish notion and points at an upcoming test of 1.0800, possibly by Wednesday. If that level will be breached we will see a stronger bearish move that might take the pair to the 1.0720 zone.


The Wild Card

Gold

Gold is floating at record highs with diminishing momentum as clearly indicated by the daily chart. The 4 hour chart is showing on an upcoming bearish cross which strengthens the notion that a corrective move is quite imminent. This could be a great opportunity for Forex traders to get into a bearish move at record highs.

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FOREXYARD

26/02/'08 - US PPI and Consumer Confidence On Tap

Economic News

USD

The strong selling of USD was boosted yesterday after hopes that a possible rescue plan for 'Ambac Financial Group', the second largest U.S. bond insurer, would help limit the damage from the ongoing credit crisis. Also yesterday, the US Existing Home Sales for January fell to the lowest level in 9 years while prices slid for the 7th consecutive month, posing a threat to consumer spending; the largest part of the enormous US economy. By the end of the day, the USD remained range bound vs. the EUR, while appreciating the most against its' high-yielding counterparts, most notably the JPY. Economic data from the US now shows the effects of the worst housing recession in 25 years have spread into other areas of the economy. The Fed Bank of Philadelphia's general economic index fell this month to -24, the weakest reading in 7 years. With other major sectors such as Employment, the financial markets and business investment; the Fed now has more than just the housing market to contend with when making its monetary policy decision. Currently, the market is pricing at a 65% chance that the Fed will lower its Interest Rate by another 0.25%. Today, traders may expect to see an overall increase in volatility as the US economic calendar filled with eventful releases like the PPI, National Home Price Index as well as the Consumer Confidence data, later in the afternoon. We expect the USD to rally on the back of stronger inflation numbers but weaker consumer confidence could cap the currency's rise.

EUR

The EUR was little changed yesterday at 1.4821, taking a breather after hitting a three-week peak of roughly $1.4862 last Friday. The European markets rallied on hopes that 'Ambac', the embattled U.S. bond insurer, may soon announce a rescue package. 'Ambac', is currently facing billions of dollars of losses from guaranteeing repackaged subprime mortgages. The company is talking to banks and regulators about raising extra capital in order to retain its top credit ratings. With yet another fork in the road for invested US clients, the EUR continues to become a much safer and stable alternative for long term success. Today, investors will focus mainly on the German Ifo Business Climate as well as German Ifo Business Expectations indices for February. Traders will try to find clues on the health of the Euro-zone economy and its' interest rate outlook. The underlying impression remains that the European economy is slowing down and that at some point we could see interest rates in the Euro-zone decline. The hawkish stance by ECB President Trichet could be challenged if the ongoing trends continue. Today's economic news is particularly important for the EUR, and could be responsible for a key turning point in for the 15 Nation currency. It will be crucial for traders to identify how the preceding economic indicators from Europe and the US will affect the currency. Investors may expect another volatile trading session.

JPY

The JPY fell broadly yesterday as news over the U.S. bond insurance sector boosted stock prices and other risky assets. The JPY also fell after a report showed declines in the sales of Existing Homes in the U.S. slowed last month, signaling the housing slump may be closer to a bottom than ever before. The USD/JPY dropped to a session low of 108.21 before consolidating around the 108.00 level by the end of late Tokyo session.

Risk aversion has subsided and appetite among investors to borrow in JPY and invest in risky high-return investments is back in play. The Yen often suffers in times of rising risk appetite because investors borrow it at low Japanese interest rates to fund "carry trades" that invest in higher-yielding currencies and assets.

It appears that in the short term the JPY might suffer in this environment. There is no significant economic news coming out of Japan today. We should see the JPY continue on its bearish path. As for the long term, we need to keep in mind that March is the most volatile month for JPY and we'll take a more in-depth look into what this could mean for the JPY crosses as we approach the pivotal month. As the Japanese fiscal year nears its closing we should begin to get a clear picture of future trends.


Technical News

EUR/USD

The pair has been going through a consolidation phase after a very strong and consistent period of bullish momentum which was initiated near the 1.4450 level. The daily chart is showing its first bearish signals, and the 4 hour chart is floating in neutral territory. It appears that a correction move might be quite imminent with the first target price of 1.4720.

GBP/USD

The daily chart is showing a triple doji formation with a bearish cross on the slow stochastic. The 4 hour chart is already indicating escalating bearish momentum, with RSI and slow stochastic at a negative slope. It appears that going short might be preferable today.

USD/JPY

The pair has not yet made a significant move beyond the flat range it has been going through in the past month. Forex traders are anxiously waiting for any breaks to signal an upcoming strong trend, yet none are coming. All oscillators are quite neutral, and no distinct direction is seen on the horizon. It is advised to wait for a clear sign before entering the market.

USD/CHF

After going through a very choppy month, the pair finds local consolidation at the 1.0900 zone. The daily chart is showing some bearish momentum with negative slope on the slow stochastic, as the 4 hour chart is showing moderate bullish sentiment. It appears that selling on highs might be preferable.


The Wild Card

Gold

Gold is in the middle of a correction move that is now showing strong signs of support. It appears that it will not be able to breach through the 931.00 level which is a key Fibonacci level of the 854.70/953.20 move. The bullish cross on the hour chart is strengthening the notion that Forex traders might enjoy a great entry price for the upcoming bullish move.

Trade Oil & Gold today!

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FOREXYARD