US core retail sales in July surprised positively with an increase to 0.4% and additionally the retail sales from June experienced an upward correction to 0.3% instead of the previously stated -0.7%. Strong growth was recorded in the areas of entertainment electronics, (1.0%) and in the clothing industry (1.3%). Strong consumer spending last month sheds positive light on economic growth and might, combined with the positive development in the major financial markets today, reduce investors’ fear and open the possibility for a partial recovery of the USD this week.
Yesterday the Fed, as well as other major central banks, continued injecting funds into the financial markets in order to assure liquidity on the back of the sub prime credit problems. After this strong intervention the question remains open if the Fed will cut interest rates at the upcoming meeting on September 18th. With the Feds interest not to be ruled by actions on the stock market and the sentiment of moderate underlying growth, investors might wait vainly for the interest rate cut to come.
Today, we expect the July data for PPI and the US Trade Balance. Overall PPI is expected to rise from the previous -0.2% to 1.0%, indicating a slight increase in inflation. The Trade Balance is expected to increase by 1 billion to -61.0 billion, indicating an increase in the amount of imports to the US what can have a negative effect on the USD. More market moving news like CPI, Industrial Production, Housing stats and consumer sentiment are expected to be released in the coming days. For today, the USD is expected to be slightly bullish with decreased volatility in the USD crosses.
Yesterdays’ economic calendar was rather light with only the announcement of the German WPI, which rose to 0.4% from the previous 0.1%. Today, we will see the new figures for German GDP (6:00GMT) as well as CPI and Real Price Index (RPI) from Great Britain (8:30 GMT). German GDP is expected to fall by 0.1% from the previous value of 0.5%. Great Britain’s CPI is also expected to fall to a value of 2.3% from the previous 2.4% and RPI is expected to fall to 4.3% from the previous 4.4%. Negative figures may indicate a depreciation of the EUR among the majors in the current session.
As well as the Fed, did the ECB repeatedly stepped in today to lend money to European banks after the announcement of BNP Paribas to freeze redemptions of their investment funds last week, this way they could take pressure off of the banks which had to cope with skyrocketing overnight lending rates. After yesterdays improvement in the global equity markets volatility is expected to decrease and we should see a stabilization of the EUR which lost approximately 195 pips against the Dollar since last Thursday.
The JPY’s rally against the major currencies since Thursday last week when it gained approximately 150 Pips against the USD, 430 pips against the EUR, 220 Pips against the CHF, and 600 pips against the GBP might be over now. Due to recovery equity markets, a decrease in volatility as well as less implied risk in financial markets , the JPY well revert back to its familiar Carry Trade based activity whereby the Yen is increasingly sold in order to invest in higher interest yielding currencies.
The positive outcome of the Tertiary Industry Activity Index last night, which released at 1.0% above the expected value of -0.2% and above the previous value of -1.0%, showed yet again time that an interest hike in the August meeting of the BOJ would lack fundamental basis, with inflation being low despite recent signs of economical growth of the Japanese economy.
Daily and 4 H chart indicate an upcoming reversal when a bearish wedge structure is observed which seems to be out of energy however still has room to go . On the 4 H chart ,Slow Stochastic crossed at 10 which strengthens the fact that a reversal will occur today. We still seek the signs from the MACD that will determine timing for going long in this pair.
The daily chart implies that this forex trading pair still has room on the bearish side when Slow Stochastic show a negative slope and point to bearish territory . Hourlies are mixed however a double Doji may imply that range trading is expected in the upcoming hours . The support barrier of the bearish channel which is seen on the 4 H chart has now tested and in case of a breakout this pair is to test the 1.9977 ,however its more likely that a reversal will take place and thus going long seems to be preferable.
Dailies and hourly indicators are in neutral territory which indicates range trading today, traders need to pay attention to the bullish flag structure which is establishing on the 4 H chart and may signal an upcoming bullish trend however not yet completed. In case of completion this pair may head to 118.83 Fibonacci (61.8%) and then going long seems to be the preferable strategy.
On the 4 H chart a bullish pennant can be observed and it may imply of an upcoming bullish trend that may send this pair to consolidate at 1.2070 Fibonacci (76.4%). In case of breaking the 1.2070, this pair will head to 1.2113. Going long may be preferable.
[B]The Wild Card
Crude Oil [/B]
On the daily chart, we can see a descending triangle which is forming and it may indicate on an upcoming bearish trend . Currently, Crude Oil is testing the 71.63 USD per barrel which is an important Fibonacci level 38.2%,in case of a breakout we may see a reduction to a 70.14 USD per barrel which is the next Fibonacci retracement level (23.6%) this will provide Forex traders with a great opportunity to enter the market with a short position.