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Forex Daily Analysis

08/11/'07 − ECB Interest Rate Statement, Crude Oil nears $100

Thu, Nov 8 2007, 11:28 GMT
by Lee More

ForexYard

Economic News
 
USD

Yesterday, U.S. stocks fell, erasing gains that were made since the Fed's Sept. 18th interest-rate cut, which accelerated a sell-off in the U.S. currency. The dollar slid even further after comments from senior Chinese officials stirred concerns about China's central bank shifting reserves away from the U.S. currency. As a result, the USD has been dragged down to its lowest point in 30 years against a basket of six rivals yesterday.

Meanwhile, the recession of the housing sector is progressing. Following the downdraft from the housing industry spreading to other sectors, traders increased wagers that the Fed will lower its benchmark interest rate to 4.25% by the end of the year. Futures contracts show that the odds of a 0.25% point rate cut at the central bank's Dec. 11 policy meeting are currently standing at 70%. There are also a lot of concerns about the health of the U.S. economy in general and the greenback seems to be losing its status as the major global currency.

Today the most significant forex trading news coming out of the US will be the Unemployment Claims. The figure is expected to be released at 320K, slightly better last month's mark of 281K. Later, at 15:00 GMT, Fed Chairman Bernanke is scheduled to speak about the economic outlook during his testimony in Washington DC. Bernanke is known for dropping clues during his speeches, as it is the FOMC's tenet to keep the public aware of their monetary policy before interest rates are changed. Heavy market volatility is often experienced during Bernanke's speeches. Recent price action in the EUR\USD suggests that the aggrandizement of the currency pair may not stop at least until the 1.50 level is breached. According to our internal data, positioning has not reached extremes, as traders continue to fade the move.

EUR

The EUR surged vs. the USD, on track for its biggest one-day percentage gain this year, sending European stocks down nearly 1%. The European currency hiked after Chinese officials suggested that their country should look to diversify its 1.4 trillion dollar currency reserves into stronger currencies and explicitly mentioned EUR, which sent the single currency flying to fresh record highs. Yesterday, the EUR raced to an all-time high of $1.4730, before retreating to $1.4627 in the late evening, still up 0.7% on the day. It's likely that the EUR will reach 1.50 against the USD, but whether or not this will happen soon will be dependent upon ECB President's Trichet comments at today's news conference regarding the interest rate statement. The European Central Bank has kept a 4% overnight lending rate for the last four policy meetings. The ECB is expected to announce today, that it will keep interest rates unchanged. The central bank's statement and the news conference, in which President Jean Claude Trichet will offer up the monetary policy's outlook on growth and inflation, could trigger a strong move from the high flying EUR. Failure from Trichet to show any displeasure with the EUR rally at today's press conference will most likely trigger a move to $1.50 per Euro.

JPY

For the past two weeks, the JPY had been trading in a range, but yesterday broke downward, closing in on a two month low. A sharp rise in risk aversion only exacerbated the greenback's downfall against the JPY, with the USD losing a substantial 200 pips to lows of 112.66 JPY. Growing uncertainty on the global economy, which faces rising losses from the credit crisis, was fed by higher oil prices, encouraging investors to unwind carry trades funded in JPY, thus boosting the Japanese currency. The impact of the high JPY is a substantial worry for the Japanese economy and if Crude Oil does rise as expected toward the $100/barrel level, this will lead to rising gas prices and start to really have an impact on the already dampening Japanese domestic demand.

Today, Japan's economic calendar gives us the release of Machine Tool Orders and the Eco Watchers Survey; neither of which should be particularly significant in moving the market. The JPY may push further upwards against the USD today following Fed Chairman's Bernanke speech.


Technical News
 
EUR/USD

After the touch at the all time high of 1.4735, the pair now consolidates at 1.4630 and appears to be heading to 1.4600. The momentum is very bullish on all fronts, especially on the 4 Hour chart, where we see a bullish cross forming, which will probably take the pair higher, back to the 1.4700 level. 

GBP/USD

The cable is in the midst of a very strong uptrend which peaked at 2.1060 yesterday. The hourly charts are showing that a certain correction is imminent, while the daily charts are showing an intensive bullish sentiment. It looks as if the 2.0900 level might be reached before the cable breaks an additional record level. 

USD/JPY

The ongoing wide range the pair has been going through in the past two months has been violently breached. The USD/JPY is steadily heading to 112.00 which is a key support level. A breach through the key level will validate a much deeper downtrend that might end at 111.00 on a weekly perspective. 

USD/CHF

The 1.1250 level failed to be breached yesterday, and was marked as a very strong support for the pair. The 4 hour chart is indicating a strong bearish momentum and dailies support the notion that we might see 1.2175 today. Looking for a good short entry point appears to be preferable today. 

 
The Wild Card
 
Crude Oil

The uptrend the Oil is going through at the moment is probably the strongest trend in world markets today and has massive implications on world wide economy. Forex traders have a fantastic opportunity to join a trend which is supported by much more than the technical indications we see in the hourly and the daily charts. A great entry point might be available at the moment as the pair now floats around the bottom section of the 4 hour channel and might be a great entry point for Oil's journey into the 100$ zone. 
 

Published on  Thu, Nov 8 2007, 11:33 GMT