22/11/'07 - US Market Closed for Thanksgiving.
Economic News
USD
Yesterday, the USD posted a mixed performance ahead of today's Thanksgiving holiday in the US, remaining relatively unchanged against major currency counterparts. The greenback continued to hover around record lows against the EUR as expectations that further Federal Reserve interest rate cuts were reinforced by the Fed's projection that the U.S. economic growth will probably slow next year. Federal Funds futures now show that traders predict a 90% chance of a 25 basis point rate cut during the FOMC's December 11th meeting. Such clear interest rate expectations can only hurt the dollar further through short-term currency trading.
The sentiment regarding the U.S. dollar continues to worsen after the Fed stated that tighter credit conditions and high energy costs would likely slow the U.S. growth next year by between 1.8% and 2.5%, sharply below its previous forecast.
Today, all U.S. financial markets are closed due to the Thanksgiving. During the holiday, relatively narrow trading ranges are expected, while recent volatility shows that traders are willing to force major moves ahead of the typically illiquid Thanksgiving holiday. Trading volumes should remain increasingly thin and we believe that risks remain for a slowdown in price movements in the days ahead.
EUR
There was a significant pullback in European stocks yesterday. European shares staged their largest daily fall since the onset of the credit crisis in August. Crude Oil and EUR prices hit record highs yesterday, as local exporters were the ones most greatly affected by the price jump. The EUR hit a record high of $1.4870 against the USD before easing to $1.4833. Since the middle of August, the currency pair has appreciated 11% in total. The hawkishness of the ECB and the remarkable resilience of the European economy have contrasted sharply to the increasingly dovish bias of the Federal Reserve and deterioration in the US economy. By now, the FED is the only major central bank actually lowering interest rates while everyone else is either on hold or raising them. Thus, until the ECB lowers rates, the greenback's weakness could continue.
With the US markets closed today for the Thanksgiving holiday, the European currency looks to be in for a test, as plenty of EUR economic data is due to be released. This includes the EUR Current Account, the GBP quarterly Business Investment, the Euro zone Industrial New Orders and BOE Deputy Governor Lomax Speech, adjourning the trading session. With the greenback coming under fire in the last few weeks, there is still room for the EUR to reach new heights. We estimate that the 1.50 level still remains the next target for European currency.
JPY
The JPY surged to its highest level against the USD in more than 2 years yesterday, as investors pared back exposure to risky trades on worries about credit market losses and the health of the U.S. economy. The Japanese Yen hit a record high as global stocks weakened and Crude Oil pushed toward $100 a barrel. Japanese products are continuing to become more and more expensive in other countries. Losses in global credit-markets are fueling the JPY rise, while Japanese companies are continuing to struggle with slowing economic growth in the U.S., their largest market for exports. The Japanese government's efforts to revive the economy after more than a decade of inconsistent growth, does not seem to bear fruit.
Given the closed U.S. markets and a lack of data on the Japanese side as well, we can expect to see the JPY trading around the 109 level with a possibility of a slight depreciation against the USD.
Technical News
EUR/USD
A rising wedge structure is forming on the 4 hour chart as the pair now floats at 1.4818 - 1.4860. The 1.4818 level might be a good entry point for a long position. If that level is breached, a bearish correction move will be validated and might take the pair to the 1.4780 level.
GBP/USD
A bullish channel is establishing on the 4 hours chart, as the top barrier is located at 2.0731. It seems preferable to go long and wait for the upcoming reversal at 2.0717- 2.0731 and to consider entering short position.
USD/JPY
The 2 hour chart implies that the bullish trend is out of steam and has failed to break the 109.15 (Fibonacci 38.2%) barrier. The JPY will probably continue to strengthen; as the bearish momentum on the daily chart is extremely strong. Going short appears to be a preferable strategy today.
USD/CHF
After a failed attempt to breach through the 1.1000 level, the pair now consolidates around 1.1020. There are very intensive bullish crosses forming on both the 4 hours and the daily charts which indicates that we might see a correction on the local level. It looks as though we will see the pair touching the 1.1060 before dropping again and resuming the bearish course.
The Wild Card
Crude Oil
The bullish trend has returned with full power, and it appears that Oil will probably be heading to $100 a barrel quite shortly. All oscillators are very bullish and there is a great opportunity for forex traders to jump in the strong bullish trend before the $100 bonanza begins.
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