[B]Economic News
USD [/B]
The USD fell vs. the EUR on Wednesday after the previous day’s 0.25 point rate cut from the Federal Reserve disappointed investors hoping for more aggressive action to help the economy and credit markets. It actually looks as if the Fed delivered the bare minimum of what was possible. Some investors expected a larger reduction of a 0.5 point to stave off a recession. The Fed’s board also reduced the discount rate, covering direct loans to banks, by 0.25 point to 4.5%, half of what many economists predicted. In addition, a joint decision by the U.S. Federal Reserve and other major central banks to increase liquidity available to private institutions also helped to ease fears over the current credit market crisis. The Federal Reserve plans to reduce the “elevated” short-term funding pressures by injecting cash to banks through auctions and providing $24 billion in currency swaps.
This negative USD momentum was further exacerbated yesterday by the weaker than expected U.S. trade balance with the final figure of -57.8B.
Today’s the US calendar is expected to be more supportive of the USD. The most significant news coming out of the US will be the Retail Sales and the PPI. Both of these indicators are expected to fair better than in the previous month figures.
[B]EUR [/B]
The EUR made strong gains against some of the majors yesterday, particularly against the USD and the JPY. The EUR gained against the JPY as there was a resurgence of risk-appetite among investors thereby bringing the carry trade strategy back into action. The EUR rose from 1.4639 to 1.4748 against the greenback during the European trading session. This sharp rise against the USD was mainly driven by the negative sentiment surrounding the greenback in the aftermath of the disappointing 0.25% rate cut by the Fed. Many investors felt that a 0.5% discount rate cut, which is the rate that banks pay to borrow directly from the Fed, would have been more adequate in terms of alleviating the credit crisis. Therefore the EUR gained strongly yesterday as the dollar sell-off continued.
The main news yesterday was the Fed’s decision to make up to 24 Billion dollars available to the ECB in order to increase the supply of dollars in the Eurozone and help alleviate the current credit squeeze. Analysts still view the European economy as being robust, but the ECB has been struggling to balance inflation versus growth, nevertheless yesterday’s decided cash injection was seen as a positive sign for the Eurozone as it will provide credit relief . This will also set up a potential interest rate hike for the ECB, whose hands have been tied with regards to raising the interest rate at its last meeting because a rate hike would have caused further credit problems. There was more positive news for the Eurozone yesterday as Industrial Production released better-than-expected at 0.4%, thereby indicating an increase in the total value of output produced by factories, mines, and utilities.
Looking ahead to today, there is a string of news events to be released from the Eurozone and they are not expected to be market moving, however they will provide investors with another piece in the complex puzzle that is the state of the European economy. The greater outlook for the EUR remains bullish and yesterday’s strong momentum could push the EUR up further today but traders should be cautious of an intraday correction as the EUR has lost some steam since its peak yesterday.
[B]JPY[/B]
Amidst the release of the US Interest Statement yesterday, the Yen rose from a one-month low against the greenback. Speculation by investors was that growing losses in the credit market would trigger investors to shy away from high-yielding assets funded by Japanese loans.
The JPY posted a strong Wednesday as it gained versus 15 of the 16 most-actively traded currencies on the market, as the BoJ announced its attention to sufficiently fund its currency until years end, as its own exporters once again began to settle payments by way of the JPY.
As the JPY started yesterday’s trading day it was slowly weakening its position against its major counterparts until just around 14:00 GMT shortly after the US Trade Balance was released to relatively expected results, when it saw a significant drop. EURJPY quickly went from 164.00 to just over 165, GBPJPY climbed from 228.30 to 230.25. Finally, the USDJPY jumped from 111.44 to hit a one month low of 112.47. The JPY than turned around and posted steady gains for the rest of the trading day, recovering from what at the time was unexpected price change.
On tap today in the Japanese economic calendar is the release or the Tankan Large Manufacturers and Non-Manufacturers Indices. The figure is expected to show that business confidence regarding profit and credit is dwindling. Indices are expected to be released at 23:50 GMT.
[B]Technical News
EUR/USD [/B]
After a very choppy trading day yesterday, the pair now consolidates around 1.4710 as the volatility goes down. The daily chart is bullish as the RSI is floating at the 60 level, which indicates that the momentum is still up. The hourlies are showing mixed signals with a slight bullish tendency. Traders should wait for a clear signal on the hourly level before entering the market today.
[B]GBP/USD [/B]
The cable spiked to 2.0570 on yesterday’s peak point, and has been correcting to 2.0425 since. The momentum appears to be bearish on the hourlies and mildly bullish on the daily chart. It looks as if the next target price on the short run should be around 2.0400.
[B]USD/JPY [/B]
The bearish channel on the daily chart has been breached yesterday, and the direction appears to be up. Next target will be 112.00 and if breached will validate the final stage of the bullish move that might take it to the 113.00 levels. Going long appears to be preferable today.
[B]USD/CHF [/B]
The correction move that was initiated at 1.0900 continues with full momentum, as the daily chart is showing that there is still much more room to run. The bullish notion is supported by the 4 hour chart which shows the RSI at the 50 level and ads to the ongoing bullish move. Next target price might be around 1.1400.
[B]The Wild Card
Crude Oil
[/B]
The bullish move has returned with full power, as Crude Oil now consolidates around 94.00. All oscillators are in a bullish formation, and forex traders now have a great opportunity to re-enter the very expected move up again to the 99.00-100$ a barrel. Being on the buy side appears to be very lucrative in the near future.