The dollar posted its biggest losses through the past week after the Fed dropped its benchmark rate to 4.75%, mainly due to the biggest housing slump which threatens to weaken the U.S economy. The USD fell to a record low against the EUR and tested the lowest levels since 1976 vs. the CAD on speculation that the Federal Reserve will continue to reduce U.S. interest rates. The housing crisis is not over and the Fed is likely to lower interest rates again before the end of the year as the economy comes to a standstill. This week, the USD may extend its losses as reports are expected to show declines in Home Sales, Durable Goods, and Consumer Confidence. The expectations for the Existing Home Sales release currently stand at 5.50M, slightly down from the previous month’s figure of 5.75M. On Wednesday, the Durable Goods Orders figure is expected to be released in negative territory at -3.5%, while the core figure is expected to be released at -0.8% which would be a significant drop from last month’s figure 3.7%. The consumer data, which includes Consumer Confidence, Personal Spending and Personal Income, is also expected to weaken. On Friday, the Chicago Purchasing Managers’ Index will provide traders with a picture of the health of manufacturing in the Midwest and will also be a benchmark for near future trading sentiments.
Although the calendar seems full of major events, it is unlikely that any one event will be aggressive enough to create a shift in market behavior, as the negative momentum on the USD appears to be stronger than ever.
A surprisingly aggressive Federal Reserve rate cut last Tuesday helped the EUR to reach its all time high against the USD. The European currency has reached the 1.40 level at the end of the last week and is now steadily floating above 1.41. The EUR was also stronger versus the JPY, trading 0.8% higher, testing the 163.00 level. Last week’s Euro-zone data showed that the European private sector’s growth slowed to a 2 year low in September as major European indicators descended, making any further interest rate hike this year by the ECB unlikely. Signs of instability continued to flow as last week’s Service sector PMI in the Euro zone dropped from 58.0 to 54.0, while manufacturing PMI fell from 54.3 to 53.2.
This week is expected to be relatively light on market moving news from the Euro-zone; therefore most price movement on EUR pegged currencies will be derived mainly from the U.S. markets.
Last week, we saw the Japanese economy slowly sliding into its natural place in the carry trades global system, which is a slow and consistent weakening process. The JPY declined against all the Majors as a decline in borrowing costs and an advance in stocks spurred risk appetite and gave a boost to the carry trade. The Japanese Yen has sold off significantly over the past week dropping 0.7% against the USD and 1.6%, to a 162.64 level, per EUR.
Yesterday, Yasuo Fukuda was elected LDP president in Japan which will formally be introduced as the new PM tomorrow in the Lower House. This was widely expected and there has been no market reaction. The bulk of Japanese data due out this week will be on Thursday, which is when we will see labor market, consumer spending, and inflation data. Most of these numbers are expected to be relatively weak and not likely to help the Japanese Yen.
The strong momentum continues as another all time high of 1.4125 was breached. The pair now consolidates around 1.4110 with a clear intention to continue the uptrend. The hourlies are very bullish, and the dailies are showing the third consecutive bearish cross. Going long might be preferable in the short run.
The cable is showing a stable up trend that was initiated at 1.9900. The hourlies are showing more room to run and are pointing 2.0350 as the next destination in this specific move. A breach through that level will validate a much stronger move with a potential to reach 2.0450 and above.
The pair has been trading in a wide range in the past three weeks and showed no distinct direction. The hourlies are showing moderate bearish signals, whereas the dailies are showing a strong bearish move in the making. 114.00 appears to be the next target price.
After four attempts to breach through the 1.1700 the daily slow stochastic and RSI are showing stronger bullish signals. A bullish cross is forming on the 4 hour chart which indicates that a moderate correction move is quite inevitable. Going long with tight stops might be preferable today.
The Wild Card
Crude Oil [/B]
The uptrend is showing no sign of a halt as the upwards channel remains stronger than ever. The Oil is floating on the bottom barrier of the channel which provides Forex traders with a good opportunity for a long entry point. Next target price is around 81.90.