14/06/'07 - The Swiss Interest Rate and US PPI

[B]Economic News [/B]


Yesterday, the most important news coming out of the US was retail sales with the headline figure releasing at 1.4% and the core figure at 1.3%, beating expectations of 0.6% and 0.7% respectively. Investors viewed this positive news as a signal of an increase in US economic growth and the greenback rallied to a 4-1/2-year high against the low yielding yen, touching the 122.48 level against the Japanese currency. The EUR and the sterling both fell 0.1% on the day against the dollar. The greenback also rose to a four-month high of 1.2469 Swiss francs, up for its fifth consecutive session before surrendering some gains to trade at 1.2449 francs. However, the dollar’s gains were limited by a drop in 10-year US treasury yields which fell from five year highs even though many investors are certain that the US is unlikely to cut rates in the future. Also yesterday, the much anticipated Treasury Currency Report stopped short of labeling China as a currency manipulator which could have triggered sanctions under US law. These sanctions could have put some selling pressure on the greenback.

Today all attention will be focused on the Producer Price Index (PPI) which is expected to come in at 0.6%, which is slightly lower than last month’s figure of 0.7%. The dollar seems to have lost a little bit of steam as its recent gains have left little room for further strengthening, as was reiterated yesterday by the minor impact of surprisingly strong retail sales. So today, the USD should continue to range trade at current levels and may even retreat slightly, however if the PPI figure springs a major surprise on the upside then we may see the dollar extend its recent gains against the majors.


Yesterday, most of the focus was on the UK markets as the Average Earnings Index was released at a lower than expected 4.0% which pushed the GBP down a bit and together with strong US Retail sales, also pushed the EUR a bit south. The EUR showed some strength yesterday as it bounced back from the drop back to 1.3311 levels, showing that the next move down might not be imminent.

Today, the European calendar will begin with the Quarterly Swiss National Bank (SNB) Governing Board meeting which sets the nation’s short term interest rate (i.e., “three-month libor”). Shortly after the meeting they release a statement that contains the decided rate, a brief commentary of the economic conditions that effected their decision, and most importantly, clues regarding the outcome of future meetings. The interest rate is widely expected to be hiked by 0.25% to 2.5%. Later on we have the UK Retail Sales which is expected to come out of the negative territory of -0.1% and jump 0.3% which might boost the GBP up a little. The Euro-Zone Consumer Price Index (CPI) is also expected to be released with wide expectations of a slightly lower figure of 0.4% and a previous 0.6% release. It looks as if the big price movement potential will come from the GBP and the CHF today, probably more than the EUR.

[B]JPY [/B]

It looks as if nothing can really stop the massive JPY selling due to carry trades. It was thought by many analysts that this week might be softer after the positive Japanese Current Account release which came out higher than expected at 2.3 Trillion, but traders are ignoring the economic sentiment. The picture looks pretty clear for the remaining of this trading week as BOJ Governor Fukui will be speaking tonight at a press conference in Tokyo following the Monetary Policy Committee (MPC) interest rate announcement. The Japanese Interest Rate are most probably going to be left unchanged at 0.5% which means that besides the obvious volatility at Governors Fukui’s speech we should be seeing the normal JPY movement, and the continuation of carry trades that might take the USD/JPY to break the 123.00 levels.

[B]Technical News [/B]


After touching the 1.3270 low yesterday, and bouncing back to the 1.3310 level the pair sends out mixed signals. The daily studies show moderate bullishness. The hourlies are floating at neutral territory, which means that a preferable strategy for the short run might be to wait for the hourlies for a specific signal.


A sharp drop brought the pair to test 1.9675 and then bounce back to a consolidation around the 1.9710 levels. There isn’t a strong hourly bias, yet the dailies are pushing the pair down to the 1.9640 levels.


The pair is going up with no intention to stop in the short run. The trend is very strong and is supported by bullish daily studies and alternating hourlies which set the pace of the trend. It looks as if the next barrier is 123.30, which is most likely to be touched today.


The pair is in the midst of a very strong uptrend which started at the 1.2150 level. There is a bearish cross starting to form on the daily chart, indicating that the trend’s momentum is slowly diminishing and we might see a strong resistance forming at the 1.2500 level. If this barrier is breached the trend will regain new momentum and run forward.

[B]The Wild Card [/B]


The pair is floating on record levels for the past 4 days, and there is a distinct bearish pattern forming on the slow stochastic of the 4 Hour chart. It looks as if the momentum is running out, and the next resistance level will not be breached, which means the pair is about to make a correction move down. This provides forex traders with the opportunity of a great entry point for a short position.