26/11/'07 - Greenback Looks To Rebound After Strong Black Friday

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Economic News

USD

High Liquidity is the name of the game after the Thanksgiving holiday, as traders are back in the market after low trading volumes, and high price movement. Last week we saw the EUR/USD continue to break all-time highs only to reverse sharply on Friday, leaving the EUR/USD floating at a distance of 100 pips below those highs. Risk appetite returned to the Asian markets after better-than-expected Black Friday sales suggested that U.S. consumer spending would remain solid towards the end of the year. ShopperTrak RCT Corp, who tracked sales at about 50,000 U.S. retail outlets, reported that combined sales on Friday and Saturday rose 7.2% on a y/y basis, while total sales on Black Friday rose by 8.3% y/y. We need to understand that during this period, for the Europeans, America is one big discount bin, thanks to the current weak dollar that slid this week to another record low against the EUR. As a result, tourists are spending thousands to travel to the United States to snag blockbuster bargains on everything from iPods to designer clothes and handbags. This situation is injecting funds into the US economy with no manipulation activity which gives hope to the falling greenback. The aforementioned foreign economics' sources noted that shopping behavior is one of the majors' remedies of the US economy to fight and deal with the credit crunch which was caused by the subprime mortgages crisis. It still appears that the worst is still ahead of us and the USD may weaken even more, which will make the US exporters delightful and the importers more worried especially if they are paying with a foreign currency.

EUR

The EUR posted new lifetime highs against the USD in holiday thinned trade on Friday, pushing beyond 1.4900 to post an intraday high of 1.4968 as the USD index made a sustained break of 75.00. The Euro reversed in overnight trade however, with investors pushing it back below 1.4900 The EUR did hit record highs against the USD, but was unable to sustain such levels as ECB Governing Council member Ordonez said that he saw a greater-than-expected economic slowdown in the Euro zone and that there was not enough data to dispel uncertainty about the effects of the financial market turmoil. Overall the EUR/USD traded with a low of 1.4775 and a high of 1.4930 before closing the day at 1.4830. ECB President Trichet and various ECB officials are scheduled to speak today and we expect that they will continue to speak about the potential economic slowdown which could threaten the EUR economy and may cause a reduction in the EUR currency against the majors today. Euroland PMIs returned with mixed results for the month of November. The advance PMI results for November showed a partial rebound in manufacturing but a renewed decline in services, which combined to pull the composite PMI down to its lowest in over two years. This is consistent with the less up-beat message from other business surveys, suggesting that Euro strength, high oil prices, a shaky banking sector and concerns about the US economy are all taking their toll on European business confidence.

UK GDP growth was revised down a tick from 0.8% to 0.7%, as we expected, although 0.7% growth is still considered to be above the long term trend growth rate (2.5% yr). Also, the details in the report showed private consumption spending unexpectedly accelerating to 1.0% in Q3, its fastest pace for the year so far. The report does not unequivocally support for the case for a near-term rate cut from the Bank of England. Bank mortgage approvals fell to just 44.1k in October, which according to the British Bankers' Association was the lowest on record. Full industry figures will be published by the BoE next week. Generally, it seems that the major currencies (the EUR especially) versus the USD are still seeking the equilibration point that local economies would be able to deal with. To avoid the recession which is being threatened in those economies according to economic status we can clearly determine that the US economy is gloomier compared to the Euro zone which only strengthens the assumption that we are ahead of another EUR strengthening before the greenback will recover.

JPY

The JPY enjoyed a market holiday on Friday causing thin trading conditions during the Asian session. The JPY initially weakened as risk appetite returned to Asian markets. The USD/JPY was choppy as it found buyers early after Asian equities opened strong. Sellers pushed the JPY crosses lower after reports that China would invest some of its foreign exchange reserves in Japanese stocks. The news that China would invest in Japan has some interesting implications which may be reflected on today's trading session, as a JPY strengthening is more likely to take place. Recently, global equities have been positively correlated to the JPY crosses because of risk reduction. Leveraged portfolios that are both long equities and JPY crosses, must sell if either goes down to generate liquidity. However, if China invests in Japan, this could cause a negative correlation between equities and the JPY crosses as China must buy JPY in order to buy Japanese stocks. Japan's benchmark Nikkei stock index climbed more than 2.0% on the news. A Chinese official told the Nikkei business daily that it would begin investing in Japanese shares 'soon' without giving a firm time frame. The China Business daily reported that China's sovereign wealth fund (CIC) is to join Baosteel, Shougang Group and Angang Group to make a bid for Rio Tinto, adding that the group's offer could be valued at around $200B. Rio Tinto's share price spiked up about 8% on the news, and managed to hang on to gains after thw CIC denied the press speculation. China's Steel Association added that it had not heard of plans to bid for Rio Tinto. Most analysts agree that regulatory issues make a CIC bid for Rio Tinto quite unlikely. We expect to see the JPY strengthen against the majors and maintain its positive momentum against the USD.


Technical News

EUR/USD

After touching the unbelievable all time high of 1.4950 on Friday, the pair is calming down a bit, and is correcting to the 1.4800 level. The bearish momentum on the 4 hour chart is expected to continue today, with a high possibility of an additional bullish break this week. The bearish consolidation will accumulate the momentum.

GBP/USD

The cable is in the middle of a corrective move after bottoming out at 2.0350. It is forming a bullish channel on the daily chart. The momentum is moderate, and a breach through the 2.0700 will validate the next move to 2.0800.

USD/JPY

The intensive bearish avalanche continues with full strength, and it appears that nothing is likely to stop it in the short run. The hourlies are fully supportive of the bearish move, and a breach through the 108.20 will unleash an additional drop probably into the 107.50 levels. Going short appears to be quite preferable.

USD/CHF

The pair established a strong support at the 1.0900 level, after failing to break through that level on Friday. There seems to be a local correction, and we might see the 1.1150 level again before the pair will resume the bearish trend. Selling on high key levels might be preferable today.


The Wild Card

Crude Oil

The 98.00 barrier was not breached overnight, and Crude Oil is making another move up. The momentum on the 4 hour chart is high and the daily charts are starting to follow. This could be a great entry point for Forex traders to enter the bullish move on great price.