11/'09/'07 - US Trade Bakance, Fed Chairman Speaks

[B]Economic News

USD [/B]

The last week’s unexpected weakness in the labor market caused the USD to slump to a 15-year low against six of its most actively traded peers. Yesterday the USD was traded at 1.3808 against the EUR, which is only 0.4% below a record low of the 1.3852 reached in July 24th. The latest weak employment figures proved once again that the housing crisis hasn’t been affecting the real estate sector only, but has expanded and now influences other markets as well. Given the circumstances, the Fed is highly expected to lower its benchmark rate by quarter of a point to 5% next week. Moreover, Federal Reserve Chairman Ben S. Bernanke, driven by the first drop in employment in four years, may even be forced to cut interest rates twice, reaching the 4.75% level in the fourth quarter of this year. There was no significant data released from the U.S yesterday, apart from a Consumer Credit index, which was released at a lower than expected figure of 7.5B, dragging the USD deeper into the bear’s cave. Today, the most significant news coming out of the US will be the Trade Balance. The figure is expected to be released in negative territory at -59.0B, slightly lower than the previous month. Also today, the Fed’s Chairman Bernanke will deliver a speech in Berlin where he is expected to drop clues on current monetary issues. Heavy market volatility is often experienced during Bernanke’s speeches and today may not be different.

[B]EUR [/B]

The European Central Bank, the Bank of England and the Bank of Japan held off from raising interest rates at their latest policy meetings as they awaited a clearer reading on how the economy was likely to cope with the turbulence. The GBP fell against the EUR and the global financial market turmoil will prevent the Bank of England from adding to three interest-rate increases this year, reducing the currency’s yield advantage. Analysts claim that the EUR will maintain its strengthening against the USD and 1.4000 appears to be very close. The bottom line, the EUR seems to be an attractive investment alternative especially against the USD. There are two major news events expected to come from Europe today, the first one is the UK Trade Balance which is expected to maintain the -6.3B level, and the second one is the ECB President Trichet’s Speech which will elaborate further on ECB future monetary policy.


The Japanese yen has appreciated over the past two months as risk aversion has led carry trades to unwind. The last week’s unexpected weakness in the U.S labor market caused Asian equities to drop and triggered investors to sell high-yielding assets, thus further boosting the Yen. The USD/JPY dropped to a low of 112.60 and the GBP/JPY to 228.27 yesterday. There was no significant economic data released from Japan yesterday apart from the Core Machinery Orders with the headline figure releasing at 17.0%, beating expectations of 5.2%. Today is also expected to be void of data. Much of the forex trading market’s attention will be focused on how the USD will move. Japanese markets are worried that the deterioration of the U.S. economy is worse than they had expected. The main fear is that the demand for Japanese exports could weaken as the U.S. economy. With carry trades unwinding, the JPY should continue to range trade at its high levels and we should see JPY fluctuations being dollar centered today.

[B]Technical News [/B]


On the 4 Hour chart, a rising wedge is forming which may imply a continuation of the bullish trend. It is recommended to time the entrance to the market with short term charts as 1.3758 seems like a strong entry point. At the moment the EUR/USD is trading around the 1.3720/1.3840 range.


There is a very channel forming on the 4 Hour chart, as the pair now floats on the bottom level of it. The RSI and Slow stochastic are supporting the bullish notion, and we should see the uptrend continue at a steady pace. The next target price should be around 2.0310.


USD/JPY is in a downtrend supported by 1Hour exponential moving averages. The volatility is low and the Bollinger bands are tightened. We should expect to see a bearish configuration. The 1H, 4H Elliott pattern implies that the USD/JPY will continue to gather momentum. Traders should pay attention to the fact that the dailies are still bearish, and there is still more room to run on a longer time scale. The target is expected at 113.20.


The USD/CHF is in a bearish configuration. The volatility decreases as the pair moves without a trend and swings around exponential moving average (EMA 50 and 100).the Bollinger bands are tightened and the 1H, 4H Elliott pattern implies a continuation of the bearish pressure. The target price should be around 1.1810.

The Wild Card

Gold [/B]

Gold broke the 703.10 resistance level and is in an uptrend supported by 1H exponential moving averages. The volatility is low and the Bollinger bands are tightened. We should expect to see a bullish configuration. 1H, 4H Elliott pattern implies that the Gold should gather momentum today, which provides those trading forex with a great opportunity to go long. The target is expected at around 710.