There were several important releases last week relevant to currency trading, especially from the struggling housing sector, that demonstrated once again the housing crisis is nowhere near over. Existing Home Sales came out weak at 5.75M, and New Home Sales disappointed at 834K. To add some fuel to the negative news fire, Core Durable Goods entered negative territory of -0.5%. The flow of weak news from the US continued on Friday as the Annualized GDP came in lower than expected 2.7% despite consensus expectations for 3.4%.
It is quite interesting to see that on top of everything else, the US stock market is weakening, as the Dow Jones dropped another 400 points, yet on the other hand, we clearly see a USD recuperation, that is slowly shaping into a rally. The Greenback is gaining strength against most majors, as the EUR/USD is now trading at 1.3640, and the GBP/USD is trading at 2.0240 after peaking at an unbelievable level of 2.0600. The main reason for that is that traders are putting their trust in the Greenback once again, as external investment is increasing, and traders are hedging risky funds with the US Currency.
This week will be quite full of important news releases, as apart of the Nonfarm Payrolls release on Friday, we also expect Core PCE, the Chicago PMI, and the ISM Manufacturing, and Non Manufacturing Indices. It looks as if price movement will be quite high, and there is a high probability of an additional positive move for the Greenback.
Last week showed the first signals of the beginning of the end of the positive rally for European currencies. The EUR lost 200 pips against the USD, and the GBP lost more than 400 pips. With the lack of significant news it looked as if the European market was ignoring the US stock market crash, and the flow of negative news that came from the US. Traders are now heading south, especially with the EUR, as it is clear to all that an abnormally strong EUR and high levels of inflation, are not good in the long run, and the ECB is aware of this, as inflation is probably the most important issue in the monetary policy. This week will be quite low on news events, besides the release of the UK rate Decision, and the Euro-Zone Rate Decision on Thursday. Both rates are expected to remain unchanged, as it is highly probable that no surprises will be seen from that. Most of the focus this week will not come from Europe, as the US calendar is very full with highly important news.
The most intense reaction to the fall of the US stock market would be the massive unwinding of the carry trades. The JPY is growing strong against all crosses, and indeed the only pair that did not see the USD situation improving was the USD/JPY. The news releases from last Thursday showed negative fundamental sentiment as the Core Tokyo CPI and the Retail Sales were both released weaker than expected. Today the Manufacturing PMI will be released, but will probably not generate too much volatility, and is the only bit of mildly important information that will come from the Japanese market this week. It looks as if the unwinding of the carry trades will continue, at least until Friday, where a clearer direction will be determined with the release of the Nonfarm Payrolls, in the US.
The pair is now floating around 1.3640, as the overall sentiment is quite bearish. The daily chart is showing that there is still more room to run and the hourlies are sending mixed signals. 1.3600 is now a major support that if breached will create a further move down, and confirm 1.3550 as the next target price.
After a breach through the very important 2.0300 level, the signals are more bearish than ever. There is a delicate bullish cross on the 4 Hour chart that might take the pair to a moderate correction, but the pair looks as if it is safely heading south. Next target price appears to be 2.0150.
There is a local consolidation around 118.50, after a massive rally down. The daily chart is showing a slowdown in bearishness, and the 4 Hour chart is confirming that although the direction is down, the momentum is not as strong as before. A preferable strategy might be to wait for a clearer signal from the daily charts before establishing a position.
The pair started a moderate uptrend last week that ended with range movement of 150 pips. Both daily and hourly charts show bullish sentiments, and a distinct positive momentum. If the 1.2100 level will be breached, the move up will be confirmed, and we might see the pair return to the 1.2250 levels.
[B]The Wild Card
Crude Oil [/B]
There is a very distinct upwards channel forming on the 4 Hour chart, and it is now floating on the upper barrier of the channel. Oil seems to be having difficulties breaking through the 76.90, which provides Forex traders with a great opportunity to go short at a great entry price, and enjoy the strong resistance level.