[B]Economic News
USD
[/B]
Since the beginning of last week, the USD posted a modest rebound on expectations that this week’s U.S. economic data will help to determine the condition of the biggest economy. Last week’s US calendar showed a poor picture for future growth and inflation prospects, with Import Price Index going sharply higher and Consumer Confidence is at its lowest in 2 years. Following the string of that disappointing data, Fed’s Chairman Ben Bernanke offered a relatively pessimistic outlook for domestic growth and inflation prospects last Thursday, stating that the U.S. GDP expansion would slow considerably in the final quarter of this year. Bernanke also forecasted that inflation will remain elevated through the same period.
These trends leave the traders with the difficult prospects of slowing economic activity. Moreover, investors worry that financial institutions have not yet revealed the full impact of the turmoil triggered by the subprime crisis, fearing that more U.S. financial firms will be hit by credit market turmoil, which will subsequently influence the U.S. currency. High energy prices are also a key factor in the latest slowdown. With Crude Oil reaching almost $100 a barrel, consumers are forced to cut back on a very large spectrum of purchases.
Today, the U.S. market will be closed due to the Veterans Day Holiday but the rest of the week is expected to be quite full with economic events that will indicate whether Federal Reserve Chairman Ben Bernanke was right to be more worried about growth than inflation. The forecasts for October Retail Sales are low, currently standing at 0.2%. Later, Producer and Consumer Prices might surprise to the upside given the rise in food and energy prices. In addition, Pending Home Sales, the Empire State Manufacturing Survey and the Treasury International Capital flow report are also expected during the week.
[B]EUR[/B]
Last week was a very extreme week in Europe, as most of the European currencies were traded at record level, including the EUR which topped a new all time high 1.4745, and the GBP that touched 2.1150 which is a level we have not seen in more than 26 years. It was quite clear that the situation is mostly deriving from the ongoing crisis in the US market much more than EUR strength.
The most important piece of data expected to come from Europe today is the UK PPI Input and Output at 9:30 GMT. The Index measures the rate of inflation (i.e., the rate of price changes) experienced by manufacturers when purchasing goods and services. The expectations on the input release which is the important of the two are lower than last month’s 3.2% and now stand on 1.5%. The release might cause the GBP to continue it local correction against the crosses. Other than that the calendar is quite empty, and together with closed US markets, we should have a calm trading day with low volumes and liquidity.
[B]JPY[/B]
The JPY was the biggest beneficiary of the last week. Risk aversion has dominated and we’ve seen the carry trade unwind on credit-market concerns. The Japanese currency rose 11% against the USD since the end of June and has hit a 1.5 years high on Friday as fears of wider credit-related losses at U.S. financial firms dulled investor’s appetite for risk, the causing an unwinding of carry trades.
The JPY is now trading at 110.15 level and we estimate that if the Yen will break below 110.00 it would probably continue to 105.00 before heading up again. By now, falling house prices and high energy costs had pushed the U.S. consumer confidence to its lowest. Fear is predominant in the market that the worst is not behind. As a result, all risk is getting liquidated and the JPY benefits tremendously when the carry trades fail to return.
This week, the Japanese economic calendar will be relatively packed with major news events starting today with quarterly GDP. Later on Tuesday, an Interest Rate Announcement will be followed by the BOJ’s Governor Fukui Speech during which traders will look for clues on future monetary policy action. Wednesday will seal the string of Japanese macro data with an Industry Activity Index with the figure expected to release in negative territory at -1.0%. Apart from that, the JPY will also be determined by if there is any further write-down news from U.S. financial institutions. If there are more to come, then the yen has more chance to appreciate.
[B]Technical News[/B]
[B]EUR/USD[/B]
After topping at the all time of 1.4745, the pair now corrects to the 1.4640 level, and appears to be having some more bearish momentum. There is a bullish cross starting to form on the 4 hour chart and showing that the move up will probably resume shortly. The target price will probably be around 1.4710.
[B]GBP/USD[/B]
After a massive uptrend that took the cable to the 2.1150 level, the pair is now in the midst of a very aggressive corrective move. The hourly charts are showing that the trend still has momentum, and if the 2.0750 level will be breached a validation of a longer corrective move will occur. Selling the cable on the short run appears to be preferable.
[B]USD/JPY[/B]
The breach through the wide range is showing the full power of the bearish momentum. The pair is trading at the 110.00 levels, and another bearish move is quite imminent. All the indicators are showing that the bearish momentum has not yet said its last word, and a target price of 108.00 will no be a big surprise.
[B]USD/CHF[/B]
There is a very strong support level that the pair is establishing at the 1.1200 level. 3 consecutive doji bars on the 4 hour chart are showing that some kind of move is imminent. The aggressive bullish cross is showing that as for now the support level might hold, but further indication should be found in the hourlies as the smoke clears. As for now the hourlies are neutral.
[B]The Wild Card
Crude Oil[/B]
The oil has created a local low at 94.80 and is now gathering the momentum for the continuation of the journey up. The RSI on the 4 hour chart is floating at 50 which provides forex traders with a great entry point to join the bullish wagon. 96.00 appears to be a valid target price for the current move.