[B]Economic News
USD [/B]
U.S. stock prices declined yesterday as investors worried that rising mortgage defaults and credit market losses would have a drag on the economy. Analysts estimate that the biggest slump in real estate since 1991, turmoil in financial markets, and higher energy prices will probably slow the U.S. economy’s growth rate to 1.5% during the 4th quarter of this year.
There is still a lot of fear because of the fact that this credit contagion is continuing to widen out, further supporting speculations that more Federal Reserve interest rate cuts are imminent. Futures on the Chicago Board of Trade show traders began speculating that the Fed will lower its target rate on Dec. 11. Traders estimate an 80% chance that rates will be cut to 4.25% at that meeting.
Meanwhile, the USD remained relatively unchanged following an uneventful return from the US Thanksgiving holiday weekend. The lack of economic data gave little directional bias to start the week’s currency trading, but a busy US calendar certainly promises a pickup in volatility in the week ahead. Trading in coming days could well be driven by the housing data upon which the whole USD argument rests at the moment. If housing continues to deteriorate, it will put relentless pressure on the Fed to cut rates in December, as the EUR/USD is expected to hit the 1.500 barrier. As for today, traders are expecting the National Home Price Index to be released at 14:00 GMT. The forecast for the index is a slight decrease from -4.4% to -5.0%. Later today, the US Consumer Confidence data due to be released and is also expected to show relatively weak figures.
[B]EUR [/B]
Worries about the U.S. economy and expectations for repeated Federal Reserve rate cuts are still preventing the U.S. dollar from accelerating vs. the EUR. Yesterday, in late afternoon New York trading, the EUR was up 0.2% at $1.4858, just within sight of the all-time high of $1.4966 set on Friday. We still suggest that from a fundamental perspective, the EUR/USD exchange rate is likely to breach the key psychological level of 1.50, which may even be this week. This, of cause, will depend on upcoming fundamental data, mainly from the U.S. markets. Once the EUR makes a sustained break through $1.50, the Forex market should be wetting its appetite for trade up to $1.55/EUR. European officials have increasingly expressed concern about the Euro’s rapid rise and the potential drag on exporters. ECB Governing Council member Nout Wellink said yesterday that although the Euro’s rise against the USD was not of “immediate concern”, any further ascent would be “fairly worrying.”
Meanwhile, the focus has been on the re-emergence of money market strains, with the ECB announcing measures to mitigate liquidity pressures. Yesterday, the European Central Bank sought to calm stressed money markets by promising banks extra money to help them cope with a possible year-end cash squeeze. There is not much on the Euro-zone calendar today, but Germany has IFO Business Climate Index due for release which is expected to be slightly weaker than its previous number.
[B]JPY [/B]
Japanese stocks accelerated their advance yesterday, boosting hopes for new demand for the under performing market. The JPY strengthened against a basket of currencies as investors were prompted to diversify away from risky carry trades. The USD extended losses, falling to a fresh 2 1/2 year low against the JPY on Monday, as U.S. stock prices declined on credit market worries and expectations for repeated Federal Reserve rate cuts.
Looking ahead to today there is no major news expected to come from Japan apart from the Retail Sales, which are expected to be slightly better then the previous month’s figure. The direction of the JPY may also depend on the performance of equity markets and their impact on carry trades. Key U.S. and European data release may cause some movement in the Japanese currency. Holding any existing long positions would be wise, as any fluctuation should be beneficial. The bulk of Japanese data is due out on Thursday, this is when we will see the Manufacturing PMI, Core CPI and the Core Tokyo CPI. Most of these numbers are expected to be relatively strong and likely to help the Japanese Yen.
[B]
Technical News
EUR/USD [/B]
A 1,2,3 wave structure is being established on the 4 Hour chart which suggests that this pair will test the 1.4900 Fibonacci level. If this level will breach, the next target price is 1.4940, if not this pair is expected to test the 1.4750 resistance level.
[B]GBP/USD [/B]
There is a mild bearish channel on the 4 Hour chart that may imply an upcoming bullish trend; however this trend might take place later this week when the first target price is located at 2.0600. In case of a breakout, the next barrier will be located at 2.0720.
[B]USD/JPY [/B]
The daily chart is showing a continuing bearish trend and we may see this pair consolidate at 107.20 within the next 2 days. Today, a bearish channel is establishing on the 4 hour chart which indicates the continuation of the current bearish trend and could break the 107.80 level. Going short seems like the preferable strategy.
[B]USD/CHF [/B]
The pair established a strong support at the 1.0900 level, after failing to break through that level on Friday. There seems to be a local correction, and we might see the 1.1150 level again before the pair will resume the bearish trend. Selling on high key levels might be preferable today.
[B]
The Wild Card
Crude Oil [/B]
An upcoming bullish trend is expected as a reversal took place after it failed to break the 96.80 support level. There is a falling wedge structure on the 4 H chart which only strengthens the assumption that a bullish trend will take place. Forex traders have a good entry point to get into the the market and to leverage their profits.