05/06/'07 - Fed Governor Warsh speaks today.
Economic News
USD
Yesterday, Monday, the dollar weakened due to weaker-than-expected factory orders in the United States. The EUR climbed to $1.3488 from $1.3443 on Friday after the U.S. Commerce Department reported orders to factories rose less than expected in April. Orders were up 0.3%. It was the weakest result in three months and less than half of the 0.8% increase that analysts expected. Markets are closely watching U.S. economic data for signs of future Federal Reserve interest rate decisions. The Fed has left its key interest rate unchanged at 5.25% over recent months, even as the European Central Bank has raised the cost of borrowing seven times since December 2005. Analysts expect the ECB to raise the rate to 4% when it meets Wednesday.
In other trading, the Canadian dollar continued its climb against the greenback after breaching 94 cents Friday for the first time in 30 years. The U.S. dollar bought 1.0588 Canadian dollars late Monday after hitting a low of 1.0547, however eventually the U.S. dollar bought 1.0618 Canadian dollars in the late Friday.
Analysts speculate that the Canadian currency will equal 1 U.S. dollar by year's end. The dollar also weakened against the Swiss franc, falling to 1.2235 from 1.2303.
Today the ISM Non-Manufacturing Index is due to be out and 55.3 figure is expected a slightly weaker figure from the last month's 56.0. Despite this, it seems that the greenback will keep its strengthening during the next 2 weeks or so.
EUR
After two days of releases on Thursday and Friday, yesterday proved more of a quiet day with very little of note being released. In the U.K. the May Construction PMI which came in lower at 58.0 and much below forecasts of 59.5 effects almost immediately on the market . Future business activity dipped to 71.8. While the numbers still show an expanding market the pullback following the softer house price numbers is bringing a hint that construction companies are slowing their expansion with the risk of a correction to the price bubble.
Inflation pressure is still in focus and some economists believe that an interest hike is inevitable. By hiking rates by 0.5% this coming Thursday, inflationary pressures might be forgotten, however the interest rate is unlikely to be changed by as much as 0.5% and likely not at all.
Euro-zone April PPI rose by 0.4% MoM and 2.4% YoY. This is slightly above forecasts of +0.3% and +2.3% respectively but with the annualized rate declining from 2.7% in March and retaining a downward path for the fourth consecutive month. The recent increase in oil prices clearly had an effect though the overall number still maintains a basically benign inflationary picture.
Even if inflation is under control the repeated comments from ECB board members remains hawkish with both Trichet and Weber commenting that Euro interest rates are still too low. Not that the market hasn't heard them before but it does make sure that everyone is agreed that the ECB will hike rates again this week to 4.0%.
Stateside April's Factory Orders were up by +0.3% MoM and Inventories by +0.5%. Forecasts had centered on numbers closer to +0.4% and +0.6% respectively. Orders excluding transport were up by a solid +0.7% and ex-defense by a lower +0.3%. Durable goods were reported as rising by +0.8%. The numbers are basically not too bad and while they are not about to excite the market they do tend to confirm the general strengthening in factory data.
JPY
Finally Fuji from Japan's MOF commented that he still sees Japan's corporate sector remaining solid and expects that confidence to spread into households at some point. However, there is one big 'but' to the scenario and that is the fact that consumers face an approximate rise in tax of 15% this year. FY 2006-2007 saw the revenue authorities providing a 10% rebate in tax while this year the adjustments in tax revenue between the national income tax and local inhabitants tax will increase national pension and health insurance payments that should amount to close to 5%. Corporate tax remains steady but profits are not being fed through to wages. It is difficult to imagine too much of a 'feel good' sensation spreading into households.
Today the Japanese May MOF Capital Expenditures Survey due to be out at 10.5% however it likely won't effect the market in any noticeable manner. The JPY still seemed to be traded at short range how ever the economy leaders in Japan are believing on the economy recovery of Japan.
Technical News
EUR/USD
On the 4 H chart we notice that the bullish trend is running out of steam and the short time scale charts are already showing a reversal signal. The Slow Stochastic is clearly overbought (crossing at 90) which only verifies our suspicions. Going short would seem to be preferable.
GBP/USD
On the 4 H we can see a bullish pennant which may imply a continuation of the bullish trend. RSI at 84 and Slow Stochastic cross at 92 only verify the overbought status.
Preferable strategy is to wait for a significant signal for going long so; traders, meanwhile, please hold your breath.
USD/JPY
In the last 10 days this pair has been traded in bullish channel (121.16 - 112.18) there is no signs of reversal yet, however a breach of the upper barrier may count as a verification of an upcoming bearish trend. Waiting for a positive signal would be the right thing to do.
USD/CHF
The 4 H chart implies of an upcoming reversal but not just yet, this pair is on its way to oversold territory while Slow Stochastic is crossing at (14). However, lack of technical patterns which is missing on these charts, prevents us of making recommendations.
The Wild Card
AUD/USD
This forex pair is clearly in overbought territory while RSI at 92 and Stochastic Slow is crossing on 86. The preferable strategy today would be going short. Forex traders have the opportunity of a great entry point for a swing trade. It looks as if the next price target is 0.8320.
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