There was no real currency-market moving news released yesterday from the U.S markets as the greenback lost some ground against the EUR and the GBP, while strengthening slightly versus the JPY touching the 115.95 level.
Markets began stabilizing on Tuesday after Fed Chairman Ben Bernanke assured he would use all available tools to break the fallout from the U.S. mortgage crisis, after the sub-prime situation continues to be problematic. Yesterday, Lehman Global Investment Bank backed by mortgages became the first company on Wall Street to close its sub-prime lending unit causing its 1,200 employees to lose their jobs. In addition, according to data from the Mortgage Bankers Association, home loan applications fell 5.5% last week, the biggest decline in almost three months. As the sub-prime situation continues to deteriorate, the likelihood of a Federal Reserve rate cut of 0.5% is increasing, and may occur even before the September 18’th FOMC meeting.
Today will be very light on market moving news from the U.S markets as the only news coming out of the US will be the Unemployment Claims index. The figure is expected to be released at 315K which is a slight improvement from last month’s figure of 322K. It looks as if the USD should continue to trade in a tight range, as no significant move is expected to occur.
Yesterday, the EUR gained some strength against the USD but also had its best day against the JPY in nearly four years. The EUR\JPY climbed 1.2% to the 157.00 level, where against the USD; the EUR extended gains and climbed up $1.3534. According to ECB president Jean-Claude Trichet, the European Central Bank remains devoted to the “strong vigilance on inflation” policy. In fact, that phrase has signaled each of the eight rate increases since late 2005. It looks like a rate hike in the September ECB meeting is very probable. Due to the ongoing liquidity shortage, the ECB stated that it would add 40 billion EUR in 91-day funds to the European money market today and added that the operation was a “technical measure”. Yesterday, there was no significant news coming out of Europe except for the British CBI Industrial Trends Orders. The indicator was released at 9 points, beating expectations of -4, hence supporting a currently ongoing bullish trend of the GBP. There’ll be no significant economic news released in the EUR today apart from the GBP Business Investment. The expectations for that indicator release are currently standing at 2.0%, which is significantly higher than last month’s figure of -0.6%. If the economic news from the GBP will release inline with market expectations, we should see the GBP resurrection continue, thus pushing the EUR up.
Last week, the JPY posted its biggest increase against the EUR since March 2000 as the sub-prime mortgage crisis spread through global credit markets. The JPY trades at 156.91 against the EUR, after dropping 1.4% yesterday, the most significant drop since June 2004. The JPY traded at 115.33 against the USD after falling 0.8% yesterday, the highest in two months. Today the BoJ kept rates unchanged at 0.50% as expected. The markets are showing some tentative signs of a return to normality after the release and the market may return to carry trades, with equities stabilizing after the aggressive carry trade unwinding in the last 2 weeks. Bottom line is that the JPY seems to be getting back to normal as traders and hedge funds inject carry trades positions into the market which strengthen the high yielding currencies against the JPY.
The pair is trading at 1.3540 which is the 38.5% Fibonacci level of the 1.3850/1.3370 move and the level is established as a key resistance level. If a breach through this level will occur we might see a bullish move that will take the pair to the 1.3640 level.
The cable is trading in a bullish channel as the slow stochastic on the 1 Hour chart indicates that there is still room for more. On the 4 Hour and the daily charts the oscillators show that some kind of a correction might be imminent. The overbought short range status indicates that it would be preferable to wait for a stronger signal on the dailies before taking a position
There is a bearish cross forming on the 4 Hour chart, which could indicate that a small correction move might occur before the bullish trend continues. The daily charts are bullish, with more room to run. A preferable strategy for position traders might be to go long, as for day traders it might be to go short
There is a stable consolidation at the 1.2060 level for the fifth consecutive day. The daily charts are showing a triple doji formation, and are now in neutral territory. The 4 Hour chart support the neutral signals. The extremely neutral status of the pair indicates that a violent move is imminent, and could be in any direction. A recommended strategy might be to wait for a clear signal before entering the market.
[B]The Wild Card
The bearish trend continues with full steam and Oil is now traded at 69.50. The daily chart and the hourly studies show that there is still more room to run. The 4 Hour RSI is floating at 50 which provides Forex traders with a great opportunity to get in the trend at a high bearish momentum.