[B]Economic News
USD[/B]
Yesterday, the most significant news to be released from the US, relevant to forex trading, were the ISM figures which both released slightly weaker than expected. This should have further bolstered expectations of an imminent rate cut by the Fed; however the market is tentative ahead of some key economic data releases later this week. Yesterday’s trading began slowly with the greenback pulling back some ground against the majors. Equities also began to rise moderately and this was reflected in an increase in the USDJPY pair. However the greenback experienced a whipsaw reaction on the back of the weak ISM data and it gradually slip to its current levels against the majors. Although the ISM was poor there was still relatively light movement as the market is waiting for further information in order to accurately asses the probability of a rate cut by the Fed.
Today there should be some sharp volatility as we are expecting the release of the Beige Book, which is a Fed survey based on anecdotal evidence. Usually the Beige Book is not the main driver of volatility but today its tone should cause sharp movements as the Fed is trying to dig into the real economy and this will provide the market with another strong indication of whether we will see the Fed cut rates in September. In other news today the ADP Non-farm Payrolls Report is expected to release at 82K, beating the expected figure of 48K. After having a relatively quiet two days of trading the market will come alive today with release of the ADP report and in particular with the release of the Beige Book. If the tone of the Beige Book springs a surprise then the greenback will once again tread in uncertain territory.
[B]EUR[/B]
The EUR has been steady all across the board but it did relinquish some ground to the greenback yesterday. However on the back of weak US data the EUR did manage to stage a small rally back against the greenback. In Eurozone news yesterday the GDP figure released inline with expectations at 0.3% indicating that growth in the resilient European economy has remained steady. Also the PPI figure released at 0.3 %, beating the expected figure of 0.1 %. The stronger than expected producer inflation figure supports a further rate hike by the ECB but the global liquidity problems that resulted from the US subprime crisis have forced the ECB to keep rates unchanged at least for September. In European news today we are expecting the Services PMI, German Services PMI and Retail Sales figures. None of these figures are expected to cause any sharp movements in the EUR and we expect this currency to range trade today ahead of tomorrow’s ECB interest rate decision. However the EUR may experience some sharp volatility against the greenback on the back of key economic US data releases, therefore any EUR volatility will be dollar centric.
Traders will be tentative ahead of tomorrow’s ECB interest rate decision which is expected to remain unchanged at 4.0 % but all eyes will be on ECB President Trichet’s speech that will follow this announcement for an indication of when the ECB is likely to hike rates. This speech will be the center of attention as the market sentiment that will develop from this with regards to Eurozone interest rate policy will be a key determinant of the future direction of the EUR.
[B]JPY[/B]
Yesterday was a good opportunity for investors to identify the strong correlation between carry trades and the equity markets, as the US equity markets experienced a moderate rise and the greenback gained on the JPY. Most of the JPY crosses were up yesterday indicating that carry trades are back in action, however it is still too early to determine whether they are here to stay. The JPY was also under pressure earlier in the week as a result of data that showed weaker capital spending in the second quarter. Many investors hence believe that the Bank of Japan may delay hiking its key benchmark rate, which is extremely low when compared to the global average, and this could place the JPY on a slippery slope. There is no market moving news from Japan for the rest of the week so the direction of the JPY will be mostly determined by carry trades but with the JPY failing to gain ground against the NZD yesterday it may still be premature to hop onto the carry trade Ferris wheel.
[B]Technical News[/B]
[B]EUR/USD[/B]
There is a bearish configuration forming on the 4 Hour chart. The volatility is high and the EUR/USD is not in a consolidation stage, especially after the pair has broken the 1.3555 support level. The price should continue to move downwards in the 1.3650-1.3530 range. As it seems, the bearish pressure will continue to gather momentum at least until the week end.
[B]GBP/USD[/B]
In the past few days the pair is going through a choppy session, and is giving mixed signal on the hourly level. The daily chart is showing massive bearish formation, and it looks as if the pair is heading 2.0000 again. A preferable strategy might be going short for the short run.
[B]USD/JPY[/B]
A bullish flag is forming on the 4 H chart which might take this pair to 123.73 Fibonacci (76.4%). Slow Stochastic shows a positive divergence which strengthens the possibility of an upcoming bullish trend.
[B]USD/CHF[/B]
The pair shows consolidation around the key level of 1.2010 which proves to be very significant level. A preferable strategy might be to wait for the oversold hourlies levels as traders should pay close attention to the 1.1990 level to unwind before taking a long position.
[B]
The Wild Card
Gold[/B]
Gold broke the 680.5 resistance level. Gold 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 bullish configuration. 1H, 4H Elliott pattern implies that the Gold should to gather momentum also today. The target is expected at 682.5. This provides Forex traders with a great opportunity to go long on a very healthy uptrend.