[B]Economic News
USD [/B]
Continued speculation about the further slowdown in the US economy proved to be detrimental yesterday, as a large number of world markets plunged. Shortly following remarks by President George W. Bush about plans to bolster the US economy with tax breaks, markets around the world began to sink, at an alarmingly fast pace. Markets in Asia, Europe and other key regions saw sharp drops, some of which came close to all-time record lows. Markets could not withstand growing concerns that a US recession will lead to a string of recessionary issues around the globe. Investors saw the greenback make significant gains, mostly against its European counterpart, dropping under 1.45, something that had not been seen since the very end of 2007. The dollar was able to sustain positive movement due to the absence of the US stock market as the Martin Luther King Jr. Holiday was celebrated yestarday. Although it did escape the initial brunt of losses, the US stock markets should see heavy losses today, as Dow futures dropped 4.5 %. If indications stay as planned, there will be a similar drop in actual indices today.
Today’s economic calendar contains no really important US news events. At 13:00 GMT, US Treasury Secretary Henry Paulson will speak in Washington D.C. followed by the 15:00 GMT release of the Richmond Fed Index. Most eyes will be on how stock exchanges in the US will react to yesterday’s abysmal day, and if Asian and European markets can turn yesterday’s misfortunes around.
Initial pressure from economic policy makers in the US to force a more constructive solution succeeded, as Fed Chairman Ben Bernanke’s request for a stimulus package looks as if it will be granted by the Bush administration. The question for many is if it will be able to withstand mounting pressure on the US economy and the dollar. Look for the dollar to continue to make gains once again today, as we await the opening of the US stock market.
[B]EUR [/B]
European financial markets were hit hard yesterday, as growing fears of recession in the US took its toll on stock markets within the Eurozone. UK’s FTSE index dropped by over 5 % and the German DAX dropped over 7 %, its worst performance in six years. Free falling numbers like what was seen yesterday, had been absent since the 9/11.
Drops in the stock markets of Europe contributed to an even bigger drop in EUR strength, as it fell nearly 200 points. Yesterday’s economic data from Europe was limited, as German PPI was the only index released. PPI numbers came back lower than expected and added to the already tense conditions in the market place. While ECB President Jean Claude Trichet has been hawkish with economic policy during the last several months, recent dovish comments by a host of ECB officials only strengthened the drop in markets and currency yesterday.
Today’s economic calendar is absent of any Eurozone news, as investors brace themselves for what could be yet another record day of lows for the 13 nation currency.
[B]JPY [/B]
The JPY was the one currency that rallied against the USD boosted by risk aversion and plunging global stocks. No surprises from the Bank of Japan which unanimously voted for unchanged rates for the 12th consecutive month. Clearly the market has been marking forward the next anticipated hike from the BOJ further and further out and now most are not expecting a hike until next year. With central banks and finance ministers all admitting that forecasts have dashed by the stronger than expected impact of the subprime induced slowdown the outlook for Japanese exporters remains bleak. The BOJ has been adamant that Japan’s long, but extremely shallow, recovery is still in place. However, without the foundation of a healthy domestic economy the risks are high for Japan to return into a recession.
Today’s publication of year to year Supermarket Sales in Japan released at an abysmal -1.8% as compared with forecasts calling for a -0.4% release.
[B]Technical News
EUR/USD [/B]
The 15-nation currency is in a strong bearish momentum and losing strength versus the U.S. dollar, the daily chart is bearish, and the hourlies support the notion with a bearish cross above the 80 level on the slow stochastic. It appears that the pair is heading to the 1.4300 level.
[B]GBP/USD[/B]
After a short correction, the pair regains the bearish path and seems to be quite confident to reach the target point of 1.9300. The hourlies are quite bearish, as the dailies produce mixed signals. At the moment, GPB/USD is trading in the 1.9250 to 1.9500 range. The volatility is high and we should expect to see also today a continuation of bearish pressure on the cable.
[B]USD/JPY [/B]
A falling wedge structure is forming on the 4 hour chart, implying on the continuation of the current bearish trend as next target price is located at 104.37. Going short seems to be preferable.
[B]USD/CHF [/B]
The pair is still in the beginning of the uptrend correction initiated at 1.0858. Dailies are bullish, and the hourlies are a bit overbought. Buying on dips might be a preferable strategy.
[B]The Wild Card
Gold [/B]
There is a bearish channel forming on the daily chart, as gold is floating at the upper level of it. The slow stochastic has completed the cross above the 80 level, which validates the move as bearish. This provides forex traders with a great opportunity to enter a short position with strong bearish momentum.
