Last week was characterized by a relatively empty US forex trading news calendar aside from the interest rate statement that was left unchanged. But the biggest event of last week was no doubt the declaration of BNP Paribas bank, that all withdrawals are now frozen, and there shall be almost no liquidity in the European market. This indicates that the Sub-Prime crisis in the US is starting to be a much more global problem, as it is now bursting in full scale in Europe as well. The BNP statement caused the EUR/USD to fall down more than 150 pips, it appears that the fall was originated from EUR weakness far more than USD strength, yet it marked a bullish trading day for the USD all across the board.
As for this week, the US calendar will be quite full with major events, starting today with the US Retail Sales which is very important as it makes up a large portion of consumer spending, is a major driver of the economy, and has a sizable impact on GDP. Traders pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and usually delivers interesting trading sessions. Today’s release is expected to come out at 0.3% after hitting negative territory of -0.9% last month. The Core Retail Sales figure is also expected to come higher than last month -0.4%, and be released at 0.3%. If the figures will indeed come out this positive, we might see the greenback showing strong performance over the course of this week, especially with the heavy US calendar that is packed with events such as the US PPI, CPI, Trade Balance, and the Empire State Business Conditions Index.
The foreign exchange market reacted calmly on Friday as the Federal Reserve, European Central Bank, and Bank of Japan injected more than USD300 billion of cash into the financial system in order to allow financial markets to continue and function properly.
The three central banks of the leading economies acted instantly and injected the funds in order to ensure that market participants can continue to trade and prices will remain stable. In addition worldwide banks began to be acquainted with the deteriorating sub prime mortgage policies that now threaten the world’s leading economies.
The EUR also suffered from the drop in global financial markets as we mentioned above however the stability was seen only after the ECB added 61.05 billion Euros in liquidity to financial markets.
Generally, traders are holding their breath regarding the latest developments in the world’s economies, as the sub prime crisis is hovering above and threatening the market with a colossal collapsing. Traders need to be cautious with their bonds and yield investments and should be considering the Forex market as a defense mechanism for their investment.
The JPY held steady against the majors, floating around the 118.00-level versus the USD and 162.00 against the EUR. Earlier in the session, data released showed softer than expected second quarter GDP Deflator, at -0.3% y/y and 0.1% q/q compared to a -0.4% and 0.2% forecast. Capital expenditures were in line with forecasts, up 1.2% in Q2, while private sector-consumption increased by 0.4% which may contribute to the recently strengthening Japanese economy. The June current account surplus was softer than consensus estimates, up by 48.4% to 1.5203 trillion yen, missing calls for a rise of 57.0% to 1.6090 trillion yen. Japan’s Minister of Economy Ota supported the strength of the economy, saying the recovery remained intact, Ota added that he would carefully intend to monitor the oil prices and the US economy, bolding the fact that he is concerned from the impact of sub prime issues on the real economy. He also mentioned that the end of deflation was in sight but still not over yet. The Bank of Japan will deliberate policy on August 23rd, and is not expected to change rates. We do not anticipate the BoJ to hike rates until early 2008; it seems that the Japanese economy is back on track.
The pair is floating in a wide range of 250 pips since the beginning of July, and the trend looks to continue. The daily chart is showing moderate bearish sentiment, and the hourlies support this. 1.3600 is now the key support level, and if breached will probably deliver a clear sign that the EUR bearishness has begun, and the move down is now validated.
After losing more than 400 pips in the last two weeks, the bearish sentiment continues. The daily charts are showing that there is still more room to run and the hourlies are showing a light oversold status. A preferable strategy might be to look for a good short entry point.
The massive downtrend continues with full steam, as clearly demonstrated by the slow stochastic and RSI on the daily chart. The momentum is still very high and shows no signs of a stop. Next target price would be 117.20 and if it will be breached than it will probably validate the moves’ length to the 116.00 levels.
The daily chart indicates a clear downwards channel, and the pair is now floating at the upper level. A break through the 1.2010 level will validate a channel breach and will unleash a massive bullish move. If the pair will be shy of the break, a moderate bearish movement is expected.
The Wild Card
Crude Oil [/B]
After a 800 pip fall in the last 14 days, Oil shows its first signs of a reversal. The slow stochastic shows a bullish cross, and the RSI indicates that the momentum is strong. This provides Forex traders with a great opportunity to get in a reversal move in a relatively early stage and generate high profit potential. Forex traders with a great opportunity to enter a short position on a very stable strong move. Next target price should be around 71.00.