[B]Economic News
USD[/B]
Yesterday, the greenback continued to trade on a slippery slope and although it only lost some slight ground against the EUR, it did slip significantly against most of the other majors. Yesterday was relatively light on U.S data with the main event being the Consumer Confidence figure which released well below the expected 99.0 at 95.6. This additional piece of negative data only marginally increased the problems of the fragile greenback, which has been under immense pressure the entire week ahead of today’s release of the Fed’s Interest Rate Statement. The current widespread market expectation is that the Fed will slash its key interest rate by 0.25%. Therefore if the Fed disappoints investors by holding back a rate cut then it will risk upsetting the still-fragile markets and harming the economy. The rationale behind a rate cut by the Fed is too prevent the rising oil prices and falling home values from driving the U.S economy into a recession. Following the Interest Rate Announcement will be the Fed Statement which will be closely followed by investors who will be on the prowl for any hints on future monetary policy changes. It seems that the Fed would probably come out with an open-ended statement that will shy away from promising any future rate cuts. Since if the Fed hints towards future rate reductions then the greenback will head towards another freefall and it will also revive inflation concerns, which will be problematic for the U.S economy in the long run. In the beginning of October the majority of traders believed that the Fed will cut the interest rate by at least 0.75 % at its next meeting. However they scaled down their expectations to 0.25% on the back of the revised August payroll numbers, which now showed a gain instead of a decline. Nevertheless there has been fresh market turmoil over the last two weeks as there have been further signs of weakness in the housing sector combined with dismal earnings reports of major U.S banks and therefore this has again prompted some investors to believe that the rate cut will be greater than 0.25%.
There is another host of significant U.S data to be released today which includes the ADP Non-Farm Payrolls Report, the Annualized GDP and the Annualized GDP deflator figures. Although the Fed Interest Rate Announcement will be taking centre stage today, it will also be important to watch the ADP report which will give the market an indication of the all important NFP report that we can expect on Friday. The greenback should experience some sharp volatility today and if the interest rate is released inline with expectations then the greenback will continue to plummet before the recovery process can begin.
[B]EUR
[/B]
The EUR continued its bullish rampage against the greenback yesterday mainly being driven by investor expectations of a U.S rate cut today instead of actual EUR strength, as the European currency traded indifferently against most of the other majors. The widening growth differential and the tightening interest rate differential between Europe and the U.S has caused the EUR to trade in unknown territory against the greenback, breaking all time highs more than once in the last few weeks. Today, there is a string of data to be released from the Eurozone which includes the German Retail Sales, Consumer Confidence, CPI, Italian CPI and ending of with Eurozone Unemployment Rate. However these figures will be insignificant today as all eyes will be on the Interest Rate Announcement by the Fed and therefore most of the EUR volatility today will be pegged to the greenback.
The continuous strengthening of the Eurozone currency has been making it more difficult for European exporters to compete on the global market. This has been particularly felt in Germany which is heavily reliant on exports and since Germany is a key player in the Eurozone economy we should see some drawbacks on overall European growth begin to appear. Therefore the state of future growth and inflationary concerns will be key determinants in the ECB’s monetary stance, however for now, with regards to the direction the EUR against the greenback, the ball is in Bernanke’s court.
[B]JPY[/B]
Earlier today, during the Asian trading session, there was the release of the Japanese Average Cash Earnings. This figure measures the monthly change in the wages paid to jobholders and it released in negative territory at -0.5%, which was well below the expected figure of 0.2%. However the main news event to be released out of Japan earlier today was the BoJ’s interest Rate Statement, which remained unchanged at 0.5%. Deflation still remains as a real concern of the BoJ and until it reaches a favorable target level it is unlikely that the BoJ will be in a position to hike rates.
The Japanese interest rate release did not have any significant impact on the JPY as the market seems to be holding its breath ahead of today’s U.S interest rate announcement. Therefore the JPY managed to hold on to its recent gains and it may even push further upwards against the USD today if the Fed cuts the interest rate, which could also encourage a future carry trade unwind.
[B]Technical News
EUR/USD[/B]
Today, the 4 Hour chart implies on a possible recovery of the USD when both RSI (78) and Slow Stochastic (crossed at 82) are clearly in overbought territory. The 4 Doji bars imply on an upcoming move and it appears that going short might be preferable.
[B]GBP/USD[/B]
On the 4 H chart we can see the Slow Stochastic crossed at 88 which is clearly in overbought territory and we expect for an upcoming reversal which will lead to a bearish trend. Meanwhile there is still room left for another strengthening before the reversal will take place.
[B]USD/JPY[/B]
The pair is going through a choppy session in the past few days, and gives mixed signals on the hourly level. The daily chart is still showing a light bullish formation and it looks as if the pair is heading 116.00 again. A preferable strategy might be to wait for the hourlies to unwind before going long. Going short seems risky at this point.
[B]USD/CHF[/B]
A strong bullish configuration is forming on a 4 hour chart. The volatility has increased. Hourlies are showing that the pair moves without a clear trend and swings around exponential moving average (EMA 50 and 100).
[B]The Wild Card
Crude Oil[/B]
Oil is consolidating at 89.50 after it has been going up for more than three weeks from 80.50. The slow stochastic on the daily chart is showing a strong bearish cross, and together with inability of the oil to breach through the strong resistance it delivers a great opportunity for forex traders to go short at a great entry point.