03/12/'07 - Reversal on the way?!

[B]Economic News

USD[/B]

As we enter the month of December, it is safe to be said that the erratic month of November could get a run for its money. December is usually laced with all kinds of unique and volatile economic news, which drives global economies mad. The closing out of Q4, massive retailer expectations for holiday shopping, the ever so unpredictable US consumer base and to top it all off in 2007, the expected interest rate cuts by the Federal Reserve.

As the month of November closed on Friday, the greenback saw recognizable gains against its major currency counterparts as the Dow Jones shot up nearly 60 points at week end. Figures released from several US consumer reports last week showed that consumer and construction spending actually slowed during October, which would normally lead to somewhat of a letdown in dollar strength. The greenback now faces all new adversity as the December 11th date, expected by most to be the time of further slicing of interest rates looms heavily over the global market. Towards the end of last week Federal Reserve Chairman Ben Bernanke, came under some scrutiny regarding the differing opinions of his own Board of Governors regarding Government intervention in the latest round of uncertainty in the US economy. The discussion now has become not only if interest rates should be cut, but by how much. While most believe we will see another quarter point drop (much like that last month) there is now serious speculation of a half point drop. It will be a very strenuous waiting period for investors as they prepare for years end.

The world economic news calendar is jam packed this week, with important data from nearly every region and currency home. In the US, news regarding Consumer Sentiment, Average Hourly Earnings and a basket of Nonfarm data, as well as Unemployment figures are to be released. This will be preceded by today’s release of the ISM Manufacturing Index and Price figures, coupled with remarks about sub prime mortgages from Boston’s Fed President Eric Rosengren. It will be the first speech by an FOMC member in December, thus setting the tone for any new monetary policy on tap.

[B]EUR[/B]

November certainly ended on different terms than the rest of the month for the Euro. After seeing strong rallies throughout last month, the 13 nation currency found itself reeling against the dollar on Friday. European economists received quite a wakeup call, as the greenback proved that no matter how maligned the status of its economic outlook is, it is still the primary news maker in the global economy. Despite the strength of the Euro lately, the positive move in the Dow on Friday pushed it down under the 1.47 level to end the trading week.

Amidst the highest Euro-zone consumer spending numbers in 6 years, up 3% in November, consumer confidence faltered. The weakened growth numbers spurred investors to question again whether or not the ECB will have to hike interest rates, putting the ECB in the precarious situation of having to “wait and see” what goes on in the market this week. Today, ECB President Jean-Claude Trichet will address the Eurofi conference in Brussels, with a speech titled �Achieving the Integration of European Financial Markets in a Global Context�. Trichet will be a figure on the podium this week quite a bit, as most of the relevant European economic news this week, will come from his comments.

The significant question this week is whether or not the Euro will be able to avoid testing the 1.45 level and continue its strength while entering the closing month in 2007. Also it is important to circle Thursday December 6th on the calendar, as the European interest rate announcement is expected.

[B]JPY [/B]

As the first week of December starts, the JPY has been connected with the Moody Investors’ Service, as the credit giant is planning its biggest cuts since the subprime mortgage defaults unsettled financial markets. The JPY continued early this week what it had started at the end of November, gaining against the major 16 currencies, as carry trades were once again popular.

As the Asian trading week opened, BoJ Governor Fukui was adamant about his skepticism toward risks in overseas economies like the US. He went on to warn of the continued instability of global financial markets due to the ongoing subprime loan crisis. He was quoted as saying that “Given the continued rise of consumer spending and capital investment, albeit at a slower pace, we believe that the possibility is high that the US economy will eventually achieve a soft-landing and stable growth,” The Japanese also joined the ongoing sentiment felt by the US and EU that China must allow their fragile Yuan to appreciate quicker, in order to ease strain on its greenback reserves.

In the week’s Japanese economic calendar, we will see the release of GDP numbers as well as several industrial figures. Overnight the Capital Spending figures were released with better than expected results at -1.2%, from -2.5% while expectations had it at just under -5%.Amidst a volatile week of interest rate speculation from the US and EU, we will want to keep an eye on the JPY to determine how it will be “used” by investors.

[B]Technical News [/B]

[B]EUR/USD [/B]

The pair has been ranging in the past few days but it still gained no distinct direction. The daily studies are showing bearish signals and the hourlies are currently neutral. On the daily chart, observe a forming Eliot wave structure. A preferable strategy might be to wait for the hourlies to deliver a positive signal, and look for a good entry point for a short position.

[B]GBP/USD [/B]

After losing more than 500 pips during the last two weeks, the bearish sentiment seems to carry on. The daily charts are showing that there is still more room to run and the hourlies are showing a light oversold status. A preferable strategy might be to look for a good short entry point.

[B]USD/JPY [/B]

The uptrend for the pair could not be any clearer, and all studies indicate there is still more room to run. The pair now floats at the bottom of the upwards channel, indicating a further move up is coming up.

[B]USD/CHF [/B]

The Daily and the 4 Hour charts are implying a bullish trend continuation before a reversal will take place. In the long run, the pair is expected to test the 1.1300 Fibonacci level and in case of a breakout, the next target would be the 1.1340 Fibonacci level. It seems that going long will be a preferable strategy in the upcoming few days.

[B]The Wild Card

Silver [/B]

There is still a bearish configuration on the 4 Hour chart, indicating that the momentum is still down. The RSI is floating around 50, which supports the notion that there is still room to run. This provides Forex traders with a great opportunity to go short on a very solid downtrend.