27/06/'07 - US Durable Goods

[B]Economic News[/B]


Yesterday the USD continued on its bearish path but the decline seemed to be stabilizing ahead of the much anticipated 2-day Federal Reserve meeting which starts later on today. Traders have been profit taking ahead of the FOMC but were reluctant to drop the greenback much lower yesterday. The market seems to be holding steady ahead of the FOMC as disappointing US New Home Sales and Consumer Confidence data released yesterday only caused the dollar to dip briefly. New Home Sales released at 915 K, down from last month’s figure of 930 K and well below the forecasted figure of 922 K. Consumer Confidence came in at 103.9 which was below the expected figure of 105.5. The decline in consumer confidence and housing market may spark lower spending especially if the labor market weakens. Despite the negative data the markets reaction was limited as investors are now focusing their attention at the extent of the Feds concerns over inflationary pressures.

Today the most significant news coming out of the US will be the Durable Goods figures. The figure is expected to release in negative territory at -1.2% after being on the rise for three consecutive months. The core figure is expected to release at 0.2% which is a significant drop from last month’s figure 1.9%. The greenback should continue to range trade today particularly against the EUR and the markets reaction to the durable goods figures should be limited as attention begins to shift to the FOMC and Thursday’s interest rate announcement.


The EUR was range bound against the greenback despite recent poor economic data releases from the U.S In yesterdays news the Euro Zone Current Account came out significantly worse than expected, however it did not create any significant impact to move the markets any further. Today, the European market is void of any significant information and therefore any EUR volatility is likely to be pegged to the USD. Tomorrow more action is expected with the release of the German Unemployment Rate which is forecast to slightly improve compared to last month’s 47.3 figure. This figure measures the percentage of the total work force that is unemployed and actively seeking employment. A falling trend has a positive effect on the EUR currency because working people tend to spend more and consumer spending is a major driver of the economy. In case of a disappointing figure we might witness a minor weakening of the EUR against the majors. Also tomorrow, The Retail Purchasing Manager’s Index (PMI) will be released at 09:00 am GMT, this figure measures the activity level of purchasing managers in the retail sector with a figure above 50 indicating expansion. A rising trend will have a positive effect on the EUR however no change in this figure is expected. The bottom line today is that since the European market will be void of significant news the EUR will be affected by movement in the rest of the majors and it is expected to continue to range trade against the USD, however tomorrow we should see the EUR react to the significant European data releases.


Yesterday the JPY strengthened all across the board particularly against the USD after reports that the Japanese Ministry of Finance officials are beginning to voice concerns over the currency’s weakness. Japanese Finance Minister Koji Omi reportedly warned the markets against making ‘one-way’ bets, in an apparent reference to the recent massive popularity for carry trades which have caused the yen to keep on a sustained bearish path. Koji also said that he has been watching foreign exchange moves very closely and this remark was a further indication to the market that Japan is concerned about a further decline in the yen. Yesterday investors used the Ministers remarks coupled with the fact that the MoF has changed its currency stance as an excuse for profit taking. We believe that the JPY strengthening will be short lived as Japan is unlikely to raise its interest rates from 0.5% and the prevailing high interest rate differential between Japan and the rest of the leading economies will continue to encourage carry trades in the long term. Earlier today Japanese retail sales released at 0.1% beating expectations of -0.6%. This positive surprise coupled with Minister Koji’s remarks will continue to boost the yen and today we should see it maintain its bullish rampage.

[B]Technical News[/B]


The daily chart is failing to breach the upper barrier of the bearish channel and maintain the range trade which is limited to 1.3379 - 1.3466 Fibonacci levels. The 4 H chart is trying to break the 1.3435 Fibonacci level in its bearish trend and in case it fails to do so we expect range trading to be between the 1.3435 - 1.3471.


The daily chart is clearly bearish when in the last couple of days the GBP lost 50 pips of its value and it seems that in the long term this pair is going down. The first barrier is located at 1.9922 however this pair is expected to test the 1.9845 Fibonacci level. In the short term, range trading is expected between 1.9922 - 2.0015 .


On the daily chart we notice a bullish channel which was established on May the 8th and when the current bearish trend is trying to test the lower boundary 122.14, then we seek a reversal signal and if we find one, going long would be the preferable strategy.


The daily chart implies a bullish trend beginning as the Slow Stochastic is crossing at 11 which is clearly in over sold territory . In the long term it seems that testing the 1.2364 level is more likely to happen in the upcoming weeks however in the short term this pair is range trading in a tight channel 1.2259 - 1.2309 so buying on dips and selling on tops seems preferable.

[B]The Wild Card


On the daily chart ,a head & shoulder pattern is establishing however not yet completed and in case of completion we expect a bearish trend which will take this forex pair to the 98.62 Fibonacci level .

In the short term we are in the end of a bearish trend which still has some steam left and threatens to take this pair to 99.56 and brake this significant support level. We expect this pair to consolidate between 99.52 - 99.80 in the upcoming hours.