21/01/'08 - US Holiday, Martin Luther King Day.

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Economic News

USD

The greenback made a local correction against the EUR and the CHF on Friday, and appears to be continuing what it started at the opening of this week's trading session. The EURUSD now trades around 1.4530 and the USD/CHF went up by 150 pips to the 1.1050 area. Although on the local level things look pretty positive for the USD, most traders believe that this is merely a technical correction that would probably end towards next week's rate statement. On Friday, President Bush announced plans for a stimulus package that would put a small chunk of change into the pockets of American taxpayers. President Bush proposed a series of short-term tax cuts which will provide a boost for the struggling U.S. economy. The president did not give details of his plan but mentioned it would include tax breaks for businesses and individuals worth at least 1% of the nation's GDP, or approximately $140 billion to $150 billion. Although having some optimistic data in the U.S. economy, the U.S. economy tribulations appear to remain severe, and on the basis of this fact many traders expect the Fed to cut a further 50 basis points at its next meeting on Jan. 29-30, as bad news is expected to come from the house prices and investment banking losses. Today, the US markets will be closed for Martin Luther King Day, and no major news events are expected to come from the area. Low volatility is expected in Dollar crosses, and it looks like most of the price movement will come from Europe which will also be quite light with news.

EUR

Last week, the EUR declined to a three-week low versus the dollar on speculation that the economy of the 15-nation region will slow, leading the European Central Bank to a possible rate cut in the future. The EUR weakened against 15 of the 16 most- active currencies and at the same time it has decreased to a four-month low against the Japanese yen.

ECB council member Yves Mersch said on Jan. 16 that policy makers should use caution as risks to economic growth increase. A day later, Mersch said officials didn't discuss the option of an interest-rate cut at their meeting last month, when the central bank kept the rate at 4%.

Today's European calendar will be relatively empty aside from the Swiss PPI which is due at 8:15 GMT and has a forecast of 0.2% and a previous figure of 0.3. It looks as if the EUR will continue the weakening move up to a certain point, and will then regain the positive momentum back to the level where the expected US rate cut will be relatively encapsulated in market prices.

JPY

Last week the Japanese currency reached its highest peak versus the U.S. dollar since May 2005. The Japanese currency got stronger versus all of the 16 most- active currencies as the U.S. manufacturing index decreased to a six-year low.

The BoJ will probably keep interest rates on hold this week. Governor Toshihiko Fukui will leave the benchmark overnight lending rate at 0.5% on Jan. 22. The BoJ will publish its monthly assessment of the economy and a review of the twice- yearly outlook at 3 p.m. and Fukui will speak at a news briefing at 3:30 p.m.

Fukui repeated last week that rates need to be increased progressively on condition that the economy expands as projected. He mentioned that by keeping interest rates low for an extended period could make growth unsound. In addition, Japan's Nikkei 225 Average recovered from an early dive to end 0.6% higher, lifted by expectations that Bush will propose measures to boost the declining U.S. economy and thus bolster consumption thereby aiding the Japanese export market. It looks as if the JPY will continue its relatively strong bullish move, and if the Japanese rate will remain unchanged for an additional month, we might see carry trades resume at a moderate rate if the US equity will allow the move with a certain strengthening period.


Technical News

EUR/USD

The pair is in the middle of a very strong bearish move ever since it peaked at 1.4900, and is now traded at 1.4530. The daily cross on the slow stochastic indicates that the momentum is close to a finish, and the hourly chart supports that notion. 1.4500 will be a very strong support level that if breached will validate a stronger move into the 1.4400 levels quite quickly.

GBP/USD

The cable continues its nonstop bearish journey overlooking every possible support level and shows no sign of a stop. All oscillators are very bearish and the trend appears to have much more room to run even on the daily level. Being on the short side appears to be a wiser move this week.

USD/JPY

After reaching the 106.00 level, the pair has marked a very strong support at the level and is showing difficulties breaking it locally. If that support will sustain an additional attempt, we might see a very strong bullish correction move that might take the pair to the 108.20 level as a first step. Traders should pay close attention to that level as it holds high profit potential.

USD/CHF

The bearish move the pair is going through appears to have diminishing momentum, and lacks the ability to make a significant breach beyond the 1.0800 level. The hourly studies show mixed signals, and the daily chart is indicating a mild bearish direction. Waiting for a clearer signal on that pair appears to be a good decision today.


The Wild Card

Crude Oil

There is a very strong downwards channel pattern forming on the 4 hour chart as Oil now floats at the upper level. After a failed attempt to break the upper barrier, Oil is regaining some bearish momentum which provides forex traders with a great opportunity to enjoy a trend that might have a target price of 88.50.