Daily Analysis - Dollar Strength Set to Continue Ahead of Light News Week

[B]Economic News[/B]

It has been a very good week for the greenback as most of the news releases that came out of the US were stronger than expected. The labor market is showing slow improvement and so is the Consumer Confidence which was released on Friday and sealed the week with a higher than expected figure of 88.7. Friday’s events caused the USD to finish the trading week at a very high position all across the board especially against the JPY which touched a 3 month high and should keep on climbing throughout the week. The US calendar is almost empty this week as the only news releases worth mentioning would be Durable Goods, New Home Sales and Existing Home Sales on Thursday and Friday. It looks as if the Greenback will continue on its journey and slowly strengthen, as no major interference is expected to come in the shape of a market moving news event.


The most interesting event in the European market last week came from the UK market as the UK Retail Sales came in at a much lower than expected negative rate of -0.1% after it was widely expected to come in at 0.6%. This caused the GBP/USD to have a very volatile trading day as it plummeted to the 1.9700 levels, and then recovered in an impressive move up when China declared that it is widening the trading band for the Yuan, increasing reserve requirements and raising interest rates, which caused the USD to gain momentum all across the board.

The UK market will also be in focus this week, as the BOE Minutes and the UK GDP are expected to be released, and together with German IFO are expected to be the highlights of an otherwise quiet week regarding European news releases.


The JPY weakening rally continued last week as the GDP came in lower than expected at 0.6% with a consensus of 0.7%. The Tertiary Industry Activity Index concluded the week with a sharp fall into negative territory of -2.2% and sent the JPY to a 3 month high of 121.20 against the USD. The Chinese announcement regarding the interest rate hike affected the USD/JPY with a similar price action to the GBP/USD which caused it to fall sharply and recuperate immediately, proving that the JPY weakening effect and the carry trades are still relevant and are stronger than the effect the Chinese market had on the JPY. Next week there are two major events expected to come from the Japanese market, the Core CPI, and the Trade Balance. It is expected to be a very calm trading week as all the international economic calendars are almost empty and recent momentums are expected to continue with no sharp price volatility on major currencies.

[B]Technical News[/B]


The pair is consolidating around 1.3513 as the hourlies are dwelling in neutral territories. The daily studies show that the pair is in the middle of a correction move and that the bearish move might have the momentum to take the pair down back to the 1.3450 levels.


The pair is in the middle of a sharp downtrend, and is forming two very distinct bearish patterns. The first is a downward channel in the daily chart, and the second is a double top formation on the 1 hour chart. Both are indicating that there is still steam in the rally, and the pair is targeting 1.9650.


The daily studies are very bullish, as the pair shows no signals of slowing down. The hourlies are also very bullish, and although it is approaching overbought levels, it looks as if the trend will continue. A small correction might occur in the short run, but the big picture is up.


The pair has made a very impressive move from 1.2000 to 1.2270 in three weeks. The daily charts are bullish, as the 4 hour chart shows a very clear up channel, and the pair is now touching the upper level. This indicates that a correction down will occur before a further move up will take the pair to the 1.2340 levels.

[B]The Wild Card


The pair is constantly breaking record lows, and has recently broken the 1.0900 level.This gives forex traders the opportunity to jump in the most massive downtrend in the market today, and benefit from the move before more solid support will be established.