[B]Economic News
USD [/B]
The USD fell to a record low vs. the EUR and was the weakest in 5 weeks against the JPY after the G7 failed to address the currency’s record decline at a meeting of finance officials on Friday. The EUR/USD flew to 1.4347, only to consolidate around 1.4310 later on.
Last week’s record lows of the USD were also triggered by a set of dismal statistics, raising expectations that the Federal Reserve will cut interest rates at the end of the month, further weakening the USD. The dollar’s drop could also extend during this coming week as the key economic data is likely to show further weakness in the U.S. housing market, deepening on the expectations for the future interest rate cut by the Fed.
Today, there is no significant economic news expected from the U.S markets apart from Fed Governor Kroszner’s and Chicago Fed President Evans’s speeches that may provide more clues regarding future monetary policy. In addition New Home Sales is due to be released later this week, with expectations currently standing at 770K, the lowest since May 1997. Existing home sales for September are set for release on Wednesday, with economists expecting an annualized rate of 5.25 million, 0.25 million less then in the previous month. It is difficult to see where the dollar strength will come from, until the expectations of further Fed rate cuts will not be deminish.
[B]EUR [/B]
The EUR continued on its record setting trend as it closed at a new all time high against the greenback on Friday. By late afternoon Friday trading in New York, the EUR reversed gains to trade 0.2% lower on the day at $1.4260, having hit an all time high of $1.4319 earlier. Meanwhile, European officials continue to be concerned about the EUR’s rise against the USD, since it raises the price of exports to the United States and to China. European Central Bank officials said food costs and record oil prices are fanning inflation pressures in Europe, suggesting they may support further interest-rate increases. The ECB has been on a tightening bias for some time, though some officials want it to cut rates to help push down the value of the EUR and boost European competitiveness.
This week’s European economic calendar is expected to be quite devoid of market moving events. Most price movement on the EUR pegged currencies will be derived mainly from the U.S events.
[B]JPY [/B]
The Japanese currency traded around the 114.05 level against the USD late last week and even touched $113.75, the lowest since Sept. 11. In fact, Yen’s strengthening was the clearest outcome of the G7 meeting, as not one of the Japanese Yen crosses have been able to escape the pressure of carry trade liquidation.
The JPY rose to 3 week highs vs. the USD and EUR, boosted by a sell-off in U.S. equities that has become more risk-averse after Caterpillar Inc. slashed its profit estimate and warned the housing downturn was spreading to other parts of the economy. The Japanese currency typically gets a boost in times of increased risk aversion since its low interest rates have funded the purchase of higher-yielding assets in carry trades.The movements in the U.S equity markets will continue to be a predominant driver of the Japanese Yen.
[B]
Technical News
EUR/USD [/B]
The pair is in a consolidation period around 1.4325 after the touch at the all time high of 1.4345. The momentum is very bullish as clearly displayed by the Hourly charts. The daily chart is showing RSI at the 50 level which indicates that we might see another all time breached quite shortly.
[B]GBP/USD [/B]
Both the daily and 4 H charts are bearish. This pair is deep in overbought territory as indicated by the RSI on the 4 H chart. Bollinger bands are tightened indicating decreased volatility. This pair is starting to head down and if the 2.0400 level is breached we could see a sustained bearish trend develop.
[B]USD/JPY [/B]
The pair is showing distinct bearish momentum and is currently trading around 113.80. The hourlies are very bearish and are supported by an equally bearish daily chart. It appears that the next target price should be around 113.50. A breach through that level would validate an additional bearish move.
[B]USD/CHF [/B]
The pair is testing the very strong and important support level of 1.1610. The 1 Hour chart is showing strong bearish momentum which is contradicted by the bullishness on the daily chart. Waiting for a breach through the 1.1600 level would allow traders to benefit from a stronger downtrend that would probably take the pair to the 1.1540 level.
[B]The Wild Card
Crude Oil [/B]
After a breach of the all time high, Oil corrected to the 86.00 level and is now regaining the strong bullish momentum. The daily chart is showing a very bullish stochastic signal which provides Forex a great opportunity to get into a trend that will probably bring the Oil to a new testing of record highs.