07/08/'07 - U.S Interest Rate on Tap

[B]Economic News


Yesterday, USD hit a 15-year low against a basket of major currencies as traders speculate that the worst of the credit issues in the US does not seem to be over yet. Equities, bond yields and the US dollar are all higher today indicating that the markets are collectively hoping for some reassurance from the Federal Reserve tomorrow. The turmoil in the mortgage market has everyone worried that the worst has yet to come, but if the Fed still feels that the economy will ‘continue to expand at a moderate pace over the coming quarters,’ and the upside risks to inflation is a bigger problem than the downside risk to growth, then the rest of us may be able to relax as well.

Crude oil took a plunge of 4.5% as the credit problems in the US have many seeing it as affecting economic growth thus demand for oil from the world’s largest consumer. Oil fell by US$3.58 to US$71.17 a barrel.

The USD index (USDX), a gauge of the greenback’s value against six major currencies slipped to a low below 80 which has not been seen since 1992.however on contrary the Dow Jones rebounded sharply, rising 286pts (2.2%), while the NASDAQ strengthened by 36pts (1.4%).

Today’a main focus expected to be the Interest rate statement, when the Fed is not expected to lower interest rates since the deflation pressures it may cause. However if analysts perspective were that no rate change will take place until 2008 ,well now according to equities and bonds yields status it is not unlikely for a rate cut taking place in the end of 4th quarter .

Today, cautionary comments from the Fed are very possible when actually at his semi-annual testimony on the economy and monetary policy, Fed Chairman Bernanke warned that things will get worse before they get better and indeed it has already gotten worse since then, the chances that the problems will become even more severe still exist and more likely that a deterioration will take place before the awaited recovery. In addition of the Interest rate announcement we have also the Non farm Productivity q/q which not expected to improve comparing to the 1% last quarter figure, and the Unit labor Costs q/q which no change is expected within this quarter figure.


The EUR was mixed against the USD as market shows signs of anxiety. According to European Central Bank, the strong Euro has helped cap inflationary pressures due to rising oil prices. Overall, the EUR\USD traded with a range of a low 1.3784 and a high of 1.3840 before closing the day at 1.3795 in the New York session.

Much stronger than expected German factory orders and demand for EUR/JPY has helped the EUR/USD hold steady despite a strong rally in US stocks and US bond yields. However the strong Euro seems to have only a limited impact on demand since orders increased 4.6 percent which compares to the market’s -0.6 percent forecast. This suggests that Tuesday’s industrial production numbers could also be firm. Trichet installed a strong bid tone in the currency last week when he held a surprise press conference to announce that they essentially plan on raising rates next month. In an environment where the US is on the verge of lowering rates, this has become very bullish for the Euro at the expense of the US dollar.


The JPY advanced to its highest level in more than 2 weeks against the USD as a slide in Asian stocks and the problematic US housing market encouraged traders to scale back investments in emerging markets funded by borrowing in Japan. The currency also rebounded from a record low against the Euro after Asian shares followed a decline in U.S. equities on concern of mortgage defaults which may cause investors to continue to flee riskier assets. With the sub-prime loan problem in the U.S. getting worst, the JPY’s weakening trend has reached its end. The (JPY) was mixed against the greenback and remained little changed from the previous close in the absence of market moving data from either country. Overall, the USDJPY traded with a range of a low 117.19 and a high of 119.10 before closing the day at 118.91 in the New York session.

[B]Technical News


The forex trading 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 we may 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.


The pair is going through a choppy session in the past few days, and gives mixed signals on the hourly level. The daily chart is still showing a bearish formation, and it looks as if the pair is heading 2.0200 again. A preferable strategy might be to wait for the hourlies to unwind before going short.


The downtrend is continuing, creating a bearish sentiment on daily charts. The Hourly chart support the negative notion and are setting a target price of 117.00 The pair is still trading within the boundaries of the upward channel on the daily chart, and if the 116.50 will be breached, than the reverse move is affirmed.


The pair is floating in a low range similar to the one in December. The 1.1950 level is established as an almost impossible level to break. The dailies are showing bullish signals, and the dailies support the bullish notion. It might be preferable to buy on dips, as the bullish sentiment is quite strong.

[B]The Wild Card


There is an upcoming reversal which Forex traders might use for profit taking in the upcoming days. On the daily chart, the 5 Eliot waves pattern is shown and the A B C wave’s formation might bring silver to 13.00 however it might touch 13.40 first.