[B]Economic News
USD[/B]
Yesterday the greenback weakened sharply all across the board on the back of the release of the FOMC Meeting Minutes. The greenback slipped to new all time low against the EUR touching the 1.4852 mark, as the minutes gave another strong indication to the market that the Fed will once again cut rates in order to prevent the U.S economy from slipping into recession. The Fed indicated that it expects U.S growth to slow to between 1.8 and 2.5%, which is much lower than previous forecasts. Therefore the Fed is now expected to cut rates by at least 0.25%, in order to stimulate growth by attempting to alleviate the housing and credit crisis.
However, the dollar selling began well before the FOMC Minutes with the release of weaker than expected Building Permits figure. This figure was forecasted to come in at 1.20M but it released at 1.18M, showing a sharp drop from last month’s figure of 1.26M. This downside surprise increased the pressure on the greenback as it indicated that the earlier rate cut by the fund is struggling to provide the housing slump with some reprieve and it raised concerns of curbing future economic growth. There was some positive news for the greenback as the Housing Starts figure released better than expected, but this was greatly overshadowed by the negative Building Permits figure and by the FOMC Minutes. The weakness of the dollar yesterday also caused commodities to become more appealing to investors and this shoved Crude Oil passed the key $99 mark. The rising price of oil coupled with the continued subprime crisis will put immense pressure on the U.S economy. However the weak dollar may cause exports to boom as U.S exporters become more competitive on the global market.
Looking ahead to today, the most important news to be released from the U.S will be Unemployment Claims, which is expected to release slightly weaker than last month and Consumer Sentiment, which is forecasted to remain unchanged. If these figures do not cause any major surprises then the greenback should consolidate today after dropping to record lows yesterday. However the dollar sentiment is still very bearish and this is not likely to change in the near future, particularly since many analysts believe that it is in the Fed’s interest to maintain a weak dollar.
[B]EUR [/B]
The EUR continued its bullish rampage against the greenback hitting another record high. Although the EUR has been a very resilient currency since its inception, yesterday’s new high was driven mainly by the negative sentiment surrounding the greenback as opposed to actual EUR robustness. The only news released from the Eurozone yesterday was the German PPI, which came in at a beating expectations figure of 0.4%. This was another positive sign for the EUR as Germany is one of the key players in the European economy. However the strong EUR may concern the ECB as Germany is heavily reliant on exports, but so far there have been no noticeable indications that the strong EUR is dampening growth. Today is also relatively light on Eurozone news as we are only expecting the Italian Retail Sales figure and it should not have any impact on the EUR. After yesterday’s sharp spike against the greenback, the EUR may retreat slightly today but with the negative dollar sentiment being so strong, it will target new highs against the fledgling U.S currency in the near term.
[B]JPY [/B]
Carry trades continued to unwind yesterday as the volatility of the currency markets is steadily raising the cost of hedging. Therefore since the carry trade strategy mainly involves borrowing from Japan where interest rates are low, the unwind has caused the JPY to gain significantly in recent weeks. The JPY continued to rise yesterday against the greenback after disappointing news put more pressure on the U.S currency. Also the JPY managed to maintain its bullish trend against the high yielding currencies as U.S subprime mortgages widened.
Earlier today, during the Asian trading session, the Japanese trade balance released slightly lower than the expected figure of 1.08T, at 1.07T. Also the All Industries Activity Index, which measures the change in spending for goods and services, released in negative territory at -1.6%. However this could not stop the JPY’s positive momentum which should continue in the near term on the back of increased risk aversion.
[B]Technical News
EUR/USD [/B]
After yesterday’s ascending triangle breakout shown on the 4 hour chart, brought this pair to an all time high of 1.4856, as an upcoming bearish trend is expected. This might send the pair to the 1.4775 (Fibonacci 76.4%) support level before gathering some new energy. Going short for the short term, seems to be preferable today.
[B]GBP/USD [/B]
Today, this pair may hover between 2.0695 - 2.0571 as an upcoming bearish trend is expected and the first target price is located at 2.0637 (Fibonacci 76.4%) support level. In case of a breakout this pair may test the 2.0572 (Fibonacci 50.0%) second support level. Going short seems to be preferable today.
[B]USD/JPY [/B]
The daily chart is showing a continuing bearish trend and we may see this pair consolidate at 107.70 within the next 5 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 109.00 level. Going short seems like the preferable strategy.
[B]USD/CHF [/B]
The 4 hour chart implies that an upcoming bullish trend is expected as the RSI and Momentum indicators are showing a positive slope, and the Slow Stochastic is crossed in oversold territory. Today, going long might be preferable.
[B]The Wild Card
Crude Oil
[/B]
An upcoming bearish trend is expected as the Slow Stochastic is crossing on overbought territory. It is supported by the RSI which is also hovering at overbought territory and with a negative slope offering a reevaluation to 97.45 USD per barrel. Forex traders should be patient and seek an attractive entry point for a long position somewhere below 97.45 USD.