14/01/'08 - Another Bearish Move For The Greenback

[fxyard1]

Economic News

USD

The Greenback started the week on the defensive side, as markets await upcoming inflation and retail sales data. Currency markets are also stressed for Fed chairman Bernanke's testimony which is expected on Thursday. It seems that the debate of whether the Feds are prepared to cut the rate aggressively has been answered, as the testimony by Fed chairman Bernanke insinuated a possible 0.5% cut. However, the statement might have a limited impact on currencies in that regard, due to an early morning market reaction which sent the dollar tumbling. Us equities have remained weak in recent days despite a possible 0.5% Fed rate cut which is almost fully priced in market prices. The greenback is highly vulnerable to disappointment, and if we will see a different rate cut that is not correlated to the market expectations we might see a major runaway and a massive actualization in the equity market. Currency markets largely ignored a blowout in the US trade deficit. The November trade report revealed surprising strength in goods imported, led by a price-induced 8.5% surge for industrial supplies. The export components revealed generally modest shortfalls following hefty gains through October. In addition the OPEC Secretary General El-Badri said that the price of oil will not collapse, even if there is a period of slower global growth. Spot gold once again saw some profit-taking ahead of $900/oz, as traders wait for this week's inflation report before deciding whether to push the commodity higher. Shanghai copper is higher on Friday's gains in the LME contract and weakness in the USD, as the metal continues to ignore concerns about slowing in the global growth.

EUR

The EUR reversed its earlier losses against the USD as the Trade Deficit widened more than expected for the month of November in the world's largest economy. Looking ahead, Industrial Production data is scheduled for release out of the EZ, with the forecast expecting to show 2.8%, a decline for the month of November (Prior: 3.8%) a better figure then expected may lead to an additional boost for the EUR against the majors and especially against the greenback and the British pound.

The GBP confirmed its fourth weekly decline versus the Euro, and second consecutive weekly decline against the greenback as traders continued to add to bets that the BoE will be forced to cut interest rates next month. On last measurement, markets are now pricing in an 88% possibility that the Central bank will loosen its monetary policy by 0.25% on the 7th of February. In other news, Manufacturing data did little to give any confidence to the pound as output decreased for the month of November fuelling the rate cut anticipations. In addition, we can note that the GBP was one of the worst performing currencies against the JPY in relation to the credit crunch pushing the GBPJPY to a low of 212.07. Looking ahead PPI data is due to be out today as traders expect to get a clearer picture of the manufacturing industry status in the UK.

JPY

The first Asia session of the week was a choppy one, as most Japanese traders were out on holiday. Liquidity issues fueled decent swings for most of the majors and the JPY crosses, while a lack of fundamental data for the session kept substantial moves at bay.

The JPY was one of the best performing currencies on Friday as signs of credit market losses worsening prompted investors to pare carry trades. As a result of significant carry trades being squared, the Japanese Yen was able to reverse its 0.4% decline versus the dollar as much of its pressure was relieved. Tomorrow, the month to month Core Machinery Orders is due to be out, as this indicator measures the total value of new orders placed with machine manufacturers, excluding orders for items with a volatile sales cycle, as a rising trend has a positive effect on the nation's currency. When manufacturers increase their purchasing of machinery it signals that the manufacturing industry is in an expansion phase. It seems that the JPY will maintain its positive momentum and will keep it's strengthening especially against the greenback and the cable.


Technical News

EUR/USD

After shooting up on Friday, the pair made an additional jump of 60 pips to the 1.4860 level. The daily chart is very bullish, and the RSI of the 4 hour chart supports the bullish notion. It appears that the next target price might be around 1.4920.

GBP/USD

The cable is in the middle of an extremely massive downtrend with very aggressive bearish momentum. There is a moderate cross on the daily chart that indicates a possible reversal that might become a more valid corrective move. It would be wise to stay out of this one until a stronger signal will be validated.

USD/JPY

The pair is currently in a strong bearish formation, and is slowly approaching the 108.00 level. The daily oscillators indicate that there is still more room to run and that if the 108.00 level will indeed be breached, we shall see the next move as valid. The 107.50 level will be a very strong support that needs to be carefully observed. In general, going short appears to be the way to go today.

USD/CHF

We have seen a very sharp move since the end of December, as the pair went down from 1.1550 to 1.0950 with very strong bearish momentum. The daily chart is showing no signs of a correction, and the hourlies support the bearish notion, at least for the next trading day. Going short might be favorable today.


The Wild Card

Gold

We saw a massive breach through the 900.00 level today. Gold is still traded within a bullish channel, as oscillators are as bullish as they can be. This could be a great opportunity for Forex traders to ride the break, with huge profit potential.