05/07/'07 - GBP & EUR Interest Rate Statements

[B]Economic News


Yesterday the USD experienced mixed results against its major counterparts as it gained some lost ground against the sterling and the JPY but fell back versus the EUR. There were no data releases from the US yesterday as the country celebrated Independence Day so traders were already looking ahead to today’s release of the ISM Non-Manufacturing data and Friday’s release of the US Unemployment Rate for the month June. The other news expected today is the Unemployment Claims which is usually not a market moving report and it will receive even less attention today as traders will focus their attention towards Friday’s monthly employment report. The ISM Non -Manufacturing Index, which measures the health of a county’s services sector, is expected to release lower than last month but if it surprises on the upside it may well provide some reprieve for the fledgling dollar.

However the direction which the dollar will take in the near future may very well depend on economic events occurring outside the US such as the release of key interest rate decisions from the European Central Bank and the Bank of England. Traders will also be shifting most of their attention to the speech by the ECB President Trichet for an indication of when the European economy can expect a future rate hike. The greenback should stay on its bearish path in the near future but with Independence Day in the US and the keenly watched US Non-Farm Payrolls Report due out on Friday investors were hesitant to drop the dollar lower for now. However the greenback will remain under pressure all across the board as the financial markets uncertainty is increasing and signs are developing of spill-over effects from the troubled subprime markets.


Yesterday the EUR extended its gains against the majors, it traded steady at 1.3621 against the greenback which was slightly below Monday’s two month peak of 1.3638 but still within sight of April’s record high of 1.3682. The European currency also rose to 167.00 verses the JPY heading back towards Tuesday’s record of 167.19. In Eurozone news the Services PMI figure, which measures the activity level of purchasing managers in the services sector, released inline with expectations at 58.3 while the German Services PMI figure surprised on the upside releasing at 58.9, beating the expected figure of 58.1. However from an economic perspective not all was rosy for the EUR as the Retail Sales figure for May logged an unexpected decline releasing in negative territory at -0.5%. This negative data was not enough to pullback the bullish EUR run as traders shifted their attention towards today’s interest rate statement by the ECB. The current market sentiment is that the ECB President Trichet will reinforce expectations of a future rate hike while keeping the present rate on hold at 4.0 %. If Trichet’s speech is interpreted as hawkish it will bolster the EUR and we could see it once again target the record high against the greenback. So today we should see some volatility and the EUR will continue on its bullish surge as the ECB is widely expected to be hawkish and many investors believe that we may well see another rate hike in September to 4.25 %.

Elsewhere in Europe today the British Interest Rate Statement will be released and it is widely expected to increase to 5.75 % from the current rate of 5.5%. The GBP is maintaining its leader status amongst the majors with regards to outperformance particularly against the generally weaker dollar and the British currency should continue to move higher today particularly ahead of the BoE meeting.


Yesterday the JPY lost some ground against the greenback but it had a brief rally reaching the 122.27 mark before slipping back and stabilizing at the 122.60 level. There were no significant data released from Japan yesterday but earlier today in the Asian trading session the Japanese Leading Index, which measures a country’s overall economic health, released below expectations at 30.0%. This weak data caused the JPY to further extend its losses. The JPY has been under sustained pressure in recent times as a result of the Bank of Japans 0.5 % policy rate, which is the lowest among the majors, and the central bank’s repeated pledge to raise rates only gradually. Traders said strength in global stock markets was supporting investors to hold on to their risky positions like carry trades, in which low-yielding currencies such as the yen are borrowed to fund investments in higher-yielding currencies and this is the main driver of the JPY’s bearish slide. Without any significant news to be released from Japan for the rest of the week and with carry trades still the name of the game with no indication of unwinding in the near future the JPY will continue to trade on a slippery slope.

[B]Technical News[/B]


On the 4 H chart we notice that the bullish trend is running ahead. The volatility is increasing. The price should continue to move upwards in a range of 1.3550 to 1.3650. As it stands, the bullish pressure will continue to gather momentum on the EUR USD pair today as well.


On the 4 H chart, a rising wedge (bullish) is forming which may imply a continuation of the bullish momentum, it is recommended to time the entrance into market with short term charts, 2.0120 seems like a strong entry point. At the moment GPB USD is being traded around 2.0100 to 2.0180 range. The volatility is high and we should expect to see today bullish pressure on the GBP. The uptrend should continue to the 2.0200 resistance level.


The USD JPY broke the 122.70 support level. USD JPY is in an uptrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands are tightened. We should expect to see today a continuation of the bullish configuration correction for this pair. 1H, 4H Elliott patterns imply that the USD JPY will continue to gather momentum. The target is expected at 123.19 for today, but it is recommended to take in consideration for the long run the weakness of the Japanese currency against the American Dollar for the future positions.


The USD CHF is in a bearish configuration. The volatility is decreasing. USD CHF is moving without a trend and swings around exponential moving averages (EMA 50 and 100). Bollinger bands are tightened. 1H, 4H Elliott pattern imply a continuation of the bearish pressure. The target is expected at 1.2100

The Wild Card


On the 4 H chart, a rising wedge (bullish) is forming which may imply a continuation of the bullish momentum, 0.6745 seems like a strong entry point. At the moment EUR GBP is being traded around 0.6730 to 0.6780 range. The volatility is high and forex traders should also expect to see today bullish pressure on the EUR GBP. The uptrend should continue to the 0.6769 resistance level.