A delayed reaction to Friday’s non-farm payrolls report as well as the market’s expectation for today’s FOMC minutes, has taken the US dollar higher against every major currency today. Today’s FOMC minutes will conclude the September 18th monetary policy meeting, where the U.S central bank lowered both the Fed funds and discount rate by 0.5% each. The credit market has relatively stabilized since the rate cut and there have been no new outbursts in the financial sector. After the last appreciation of the USD, the FED is not likely to cut rates again. We need to remember that weak USD fuels growth in the U.S economy. In fact, recent economic data including non-farm payrolls could give the Fed the luxury of waiting until December before lowering interest rates again. Towards the end of the week, our focus will turn to trade, inflation and consumer spending. The weakness of the US dollar should help to narrow the trade deficit while boosting inflation. Consumer spending is the biggest potential market mover this week (it is not due out until Friday). The strength of payrolls in September and the upward revision to retail sales in August suggest that retail sales could be stronger than the market is currently expecting. Overall, it seems to be shaping up to be a dollar positive week.
The Euro is slipping back towards 1.40 on the back of a smaller than expected rise in German factory orders as well as mixed commentary from ECB and IMF officials. Despite the German Economics Minister’s comment that he is not losing sleep over the current level of the EUR this morning, recent economic data indicates that as much as some officials may try to deny it, the strength of the currency is indeed having an impact on the economy. French calls for central bank intervention to cut the costs borne by European exports failed to sway Germany’s finance minister, Peer Steinbr�ck, who insisted publicly Monday that he loved “a strong euro.” But before a meeting of finance ministers from the 13 countries that use the EUR, Pedro Solbes of Spain underlined concerns about recent volatility that are shared across much of southern Europe. After saying that exchange rates should reflect economic fundamentals, he insisted that efforts to correct the EUR/USD relationship should “not only be made by the Europeans, but by all the parties concerned,” according to news agencies. Buffeted by the impact of the subprime mortgage crisis in the United States and facing a projected economic slowdown, concern is growing that Europe is paying the price for problems created elsewhere especially in the U.S. EU ministers are expected to agree today to move ahead next year with a study that could lead to requirements for more disclosure of debt-default risks, as well as revisions on how assets valued. The proposed changes were suggested at an informal meeting of finance ministers in Porto, Portugal, last month following the losses in the U.S. subprime mortgage market. Nevertheless, pressure is growing and the employers’ federation BusinessEurope last week complained about the effect on exporters of the euro’s high rate against the yen. It added that by crossing $1.40, the euro exchange rate had reached a “pain threshold” for European companies which are seeking a way to minimize their losses . Even in Germany, where a strong currency is seen as a sign of political and economic success, the economics minister, Michael Glos, expressed a sharply different view to that of Steinbr�ck. “The weaker USD is making us very worried,” he said Monday after a speech before the International Iron & Steel Institute in Berlin, “especially if it grows weaker still.”
The Japanese market was closed for a public holiday in Japan yesterday, so there was no economic data released. Today we have the Eco Watchers index but it is not expected to be market mover. The big event this week is the BoE interest rate decision, yet even that may not cause any significant movements in the JPY since there is only a 3 percent change for a quarter point rate hike. Should the stock market resume its rise, we could see fresh gains in carry trades. The dollar could extend its gains against the JPY given the bullishness of last week’s non-farm payrolls release when carry trades seemed like an attractive long term investment.
On the 4 Hour chart we notice that the bearish trend is running ahead. The volatility increased and the EUR/USD is in a consolidation after it has broken the 1.4100 resistance level. The price should continue to move downwards in a range of 1.4050 to 1.4000. As it seems, the bearish pressure will continue to gather momentum as well today.
On the 4 Hour chart, a bullish rising wedge is forming which may imply a continuation of an additional bullish move. It’s recommended to time the entrance to the market with short term charts. 2.0300 seem like a strong entry point. At the moment GBP/USD is traded around the 2.0330 /2.0340 range. The volatility is quite low and we should expect the bullish pressure to continue. 2.0400 is now a strong resistance
The USD/JPY broke the 117.60 resistance and the downtrend is supported by 1 Hour exponential moving averages. The volatility is low and the Bollinger bands are tightened. We should expect to see the bearish configuration continue. The 4 Hour Elliott pattern implies that the USD/JPY will continue to gather momentum. The target price might be 118.00
Bollinger bands are widened on the daily chart suggesting increased volatility. The daily chart is bearish while the hourlies are bullish. So the preferred strategy may be to go short on 4 hour highs.
The Wild Card
Crude Oil [/B]
The daily and the hourly charts both indicate a strong bearish trend. The slow stochastic is crossing with a positive slope. However the momentum and RSI are both indicating under bought levels, so we may see a reversal in the near future. For today the crude oil should continue on its steady slide down. Therefore, Forex traders may find a short position on crude oil very attractive today since there will be a clear opportunity for profit taking.