07/01/'08 - Is the US Heading for a Recession?
Economic News
USD
As we begin the second week of the New Year, the greenback will look to curb what has continued to be a weakening position against most of its major counterparts. Amidst a host of negative economic figures over the last few weeks, there is growing speculation that last years Federal interest rate cuts are sure to see the light of day once again. As the Federal Reserve managed to avoid recession upon the completion of 2007, the economic forecast in the US stays relatively grim. Friday saw the release of a set of important economic indicators from the US, most of which came back lower than initially weak expectations. This was highlighted by Non-Farm Payrolls dropping to 18K, far off the expected rate of 70K, which was already in itself, highly disappointing.
Political turmoil throughout the global village has not helped either. The political unrest following Pakistan directly affected the dollar and continues to do so, along with the escalating situation in Kenya. The greenback continues to drop against its most staunch rival, the Euro, as it broke the 1.47 barrier and continues to make its way toward 1.50. As problems within the various American stock exchanges continue, other more volatile currency pairs are also seeing gains against the greenback. The Dow recorded its worst week of trading in nearly 100 years, as it was continually hit with bad economic data. The unemployment rate also took saw a slight bump hitting 5.0%, up from its previous figure of 4.7%.
As we look ahead toward Presidential primaries, the US economy and in turn the dollar, will be the focus of tremendous scrutiny if it cannot recover from the failing credit and housing markets. A Thursday speech by Fed Chair Bernanke will precede Friday's release of the US Trade Balance, as we should have some indication by then about the timetable being used by the Fed regarding interest rate cuts. Tomorrow we will expect to see negative Pending Home Sales numbers as we enter Monday with no important economic events on tap.
EUR
The Euro continues to benefit from the faulty condition of the dollar. Besides the overwhelming strength and confidence being shown by the currency, the European economic forecast continues to release positive data. The hike in US unemployment was met by lows in German unemployment, and the same can be said for a host of economic data; Bad in the US, Good in Europe.
Investors look keen to keep up with the same trends as the 13 nation currency has shown only brief spells of weakness while we ease are way into '08. As the two major currencies continue to move in different directions, look for the European Central Bank to remain hawkish in dealing with it economic policy regarding currencies and interest rates.
With the deterioration of the Dow in recent weeks the European currency could thrive no matter what data is released from the region. Up against a significant share of its currency counterparts the EUR looks to perform very well in January.
As we creep toward the 1.50 EUR/USD rate, look for the 13-Nation currency to dominate, much the same as it has been doing in recent history.
Today, we will see unemployment rates, monthly PPI and Consumer Confidence figures from the EU, none of which should have any real bearing on the days trading.
JPY
The JPY finished off trading last week, lower than it started as investors looked across the water to Europe and the US to find more attractive returns on their money.
As the Japanese begin 2008, there looks to be no change in site for the interest rate and that could affect the volume of JPY being bought or held in the market. As trading closed out last week, the JPY found itself at just above 160.00 against the EUR and creeping back toward 109.00 against the dollar. Mutual funds have moved out of Japan toward foreign markets as the year begins, and we should continue to see the same, if no clear cut changes are made.
The Japanese are absent from any significant calendar events this week, as its main focus will be on behavior within the global stock exchanges and if investors will continue to trade with more high-yielding assets. It appears that most of the price moving will come from Europe and the US that also have a light calendar but have two rate statement and trade balance which might inject high price action that effect the JPY movement against the majors.
Technical News
EUR/USD
There is a tight opening channel forming on the 4 hour chart as the pair floats on the bottom barrier. Oscillators show that the momentum is bearish and a breach through 1.4700 will validate a bigger bearish move into the 1.4600 levels again.
GBP/USD
The cable is in the middle of a very intensive downtrend that started in the beginning of November and shows great momentum that on a bigger scale appears to have more room to run. In the shorter time frame a bullish cross on the 4 hour indicates that there might be a small correction before the bearish move resumes. Selling on highs appears to be preferable today.
USD/JPY
After failing to breach through the 107.00 barrier in November, the pair seems to be heading that way again, and has established that level as a very strong key support. The 4 hour indicators show that a test of 107.50 is quite imminent, and that the overall momentum is bearish. If the pair will manage to breach the 107.00 level, a much more intensive bearish move will initiate, and might take the pair to very deep places.
USD/CHF
The pair dipped to the 1.1000 level for a short while, and is now correcting back to the 1.1120 zone. There is an interesting channel on the 4 hour chart that indicates a stronger bullish move if the 1.1150 level will be breached. The daily chart is also a bit bullish, and the correction up appears to continue.
The Wild Card
Crude Oil
The very distinct upwards channel on the 4 hour chart has been breach violently at its bottom barrier. That means that Oil still has at least another 100 pips to cover the channel's height. This is a great opportunity for forex traders to enjoy a strong correction move, before the journey to $100 returns.
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