Yesterday, USD Trading was flat against most currencies as equity markets seem to be stabilized. Analysts have cautioned investors with views that the credit crisis is far from ending and ensured that the USD will remain in a tight range against a number of currencies. In other news, US short- term rate futures were strongly higher yesterday as the cash federal funds rate dropped below the Federal Reserve’s target rate and short-dated yields for U.S government debt fell sharply. Today the USD will be affected by other currencies when no special news is due to be released, we however offer to watch carefully the Canadian Core Retail Sales and CPI which are mixed in their forecasts and a significant movement is expected to occur if figures surprise the market . Crude oil fell by $1.30 a barrel to $70.68; however, tomorrow Crude Oil Inventories is due to be out we might see a bit of a movement in this commodity instrument .
There is an interesting situation going on as Fed credibility is in focus. The U.S. senator Kent Conrad, who chairs the Senate’s budget panel, called for the resignation of voting Fed member Poole. Conrad said that Poole’s comment last week that only a ‘calamity’ would justify a Fed interest rate cut before a scheduled Sept. 18 meeting was ‘reckless’ and ‘irresponsible.’ Conrad’s comments come at a time when markets worry that the Fed discount rate cut on Friday may signal that their outlook has been flawed all along. The markets echoed Conrad’s concerns when reacting in mixed and indecisive movements. Treasury bills rallied on Monday, with the three-month yield posting its biggest one-day drop since the stock market crash of 1987, and some suggest that today’s movements in yields show that the Fed has failed to convince investors that sub prime losses will be contained and for now the sub prime crisis seems to pervade and threaten all of the US economy. Bottom line ,in spite of last week’s Greenback strengthening, traders still have the feeling that the US economy has a long way to go until this current crisis will vanish ,which means that in the long term the USD is expected to remain depreciated among the majors ,especially against the EUR.
The Euro ended the day unchanged against the US dollar as the currency trading market tries to figure out whether the European Central Bank will continue to press forward with raising interest rates next month. The guessing game will be helped by today’s German ZEW report, which tends to be one of the more market moving reports for the EUR. Given the turmoil in the financial markets, we expect analyst sentiment to be significantly deteriorates. As we mentioned earlier, due to lack of data today in the US calendar, the German ZEW is expected to be a bigger than usual market mover. Meanwhile over in Switzerland, producer and import prices were weaker than expected however no significant movements were observed on the CHF charts. The GBP traded on the back of currencies, while also benefiting from a return to risky carry trades and seems to have recovered after it’s last week sharp reduction.
Yesterdays’ GBP strengthening both against the USD and the EUR, was caused thanks to stronger economic data, when house prices, money supply, BBA mortgage approvals and public finances all came out stronger than expected.
This suggests that domestic demand remains robust while the housing market remains stable. This stability may be one of the main reasons why the Bank of England has not felt pressured to add liquidity into the financial markets. However the main discussion recently has been about the possibility that a mortgage crisis will take place also in Great Britain, since there is a similar mortgage policy as in the US and if the real estate market will experience a crisis or even just a revaluation we may see the same market reactions that took place in US, that may bode severely on the England economy and on the GBP currency. In addition, after the recent credit problems which occurred it may cause even a deeper crisis in England, however from our experience the BoE will react instantly if those kinds of signs will suddenly be seen .
The US dollar has begun to correct against the Japanese Yen. Still, the JPY remains firm and stable in its consistency against most of the majors. Yesterday, the Japanese Yen fell to 154.93 against the Euro from as high as 154.34 and 154.94 late yesterday. It also dropped to 115 against the dollar from as strong as 114.61 and 114.88.As we expect, the Japanese currency may give up early gains and drift lower against the dollar to 115.50 and 157 per Euro. Yesterday, the All Industries Activity Index was published in Japan. This index covers a broad range of economic activity including the tertiary index. Production in all sectors of the Japanese economy rose 0.2 % in June from May. The increase in the all industry activity index, only the fourth in the past 10 months, was spurred by the rise in the tertiary index as well as industrial output. Construction activity was the lone component that showed a contraction, -1.7% in June. The Bank of Japan added one trillion yen to its money markets today. This additional liquidity indicates that the BOJ will not have any intentions to raise interest rates during this week. In the meantime, the Yen crosses are driven less by interest rate expectations for Japan and more by the market’s overall risk appetite. As we can expect the further decrease in JPY crosses depends upon the Nikkei. On Sunday night the Nikkei respond very slowly to the recovery in the Dow, but after all, the Japanese stock market ended much lower than its intraday high. This situation shows that many traders still don’t believe that the worst is behind us and the consensus opinion is that the central banks will keep attempting to normalize the markets.
The pair is going through a choppy session in the past few days, and gives mixed signal on the hourly level. The daily chart is still showing a bullish formation and it looks as if the pair is heading 1.3600 again. A preferable strategy might be to wait for the hourlies to unwind before going long. Going short seems risky at this point.
The daily chart implies that this pair still has room on the bullish side, while Slow Stochastic shows a positive slope and points to bullish territory. We may expect the pair to test 2.0100 in the short term; therefore going long may be preferable.
The daily chart is clearly bullish with still much room left ahead. Slow Stochastic has a positive divergence which should carry this pair to test the 118.00 level in upcoming days. Hourlies also support the bullish notion; therefore buying on dips might be a preferable here.
The USD/CHF is still in a bullish configuration. The volatility has increased. Hourlies are showing that the pair moves without a clear trend and swings around exponential moving average (EMA 50 and 100). 4H Elliott pattern implies a continuation of the bearish pressure.
[B]The Wild Card
There is still a bearish configuration on the 4 Hour chart, indicating that the momentum is still down. The RSI is floating around 50, which supports the notion that there is still plenty of room to run. This provides Forex traders with a great opportunity to go short on a very solid downtrend.