26/07/'07 - US Durable Goods Orders.
Economic News
USD
Yesterday we noticed the beginning of a dollar recovery against most of the major currencies after the publication of the Federal Reserve report. The dollar has extended its rebound from a record low against the Euro and a 26-year low versus the British pound. The Dollar has lost 1.3% versus the Euro and 2.2% against the pound this month. The dollar climbed broadly yesterday as investors shrugged off signs of housing sector weakness while U.S. Treasury debt prices were little changed. Yesterday the dollar rallied despite a report by the National Association of Realtors that sales of existing homes dropped 3.8% in June to the slowest rate in more than 4 years. It followed data from the Mortgage Bankers Association showing mortgage applications fell for the first time in four weeks to a five-month low The U.S. economy continued to expand at a moderate pace through June and early July with a weaker housing market offset by improvements in the commercial real estate and manufacturing sectors. Existing-homes sales hit a lower-than-expected 5.75 million unit annual rate while prices and inventories remained flat. Applications for new mortgages hit their lowest since mid-February as the demand for homes continues to slide. The inventory of homes for sale fell 4.2% to 4.196 million units at the end of June, which represents an 8.8 months' supply and matched the May supply. As a main note, yesterday data signaled to many analysts that the housing market still has a ways to fall. Higher interest rates, a weapon against inflation, can support a currency by offering investors higher returns on investments denominated in that currency. The Fed survey will be discussed at the central bank's next meeting on Aug. 7, when it is expected to hold the key interest rate at 5.25 percent, since June 2006. Today the data of the Durable Goods orders is going to be published. The forecast stands on 1.9%; this figure reflects a stage a strong recovery in June after plunging the month prior -2.4%. Forex markets may see substantial volatility on the announcement.
EUR
Yesterday the Euro fell against the Dollar by the largest amount in 2 months, putting an end to the currency pair's month long uptrend. Though the Euro has eased back from its July 24th record high of 1.3851, the currency is still up nearly 17% since the beginning of last year. The combination of hawkish rhetoric and seven 25 basis points interest rate hikes by the European Central Bank has driven the EUR/USD from 1.20 to 1.3850 in a little more than a year. The deterioration in Euro zone manufacturing PMI and the drop in the Belgian manufacturing survey suggests that German business sentiment could deteriorate. If that becomes true, the sell-off in the Euro could deepen. A break below 1.3697, may open the door for a move down to 1.3575. The central bank's commitment to continue to raise interest rates has helped to keep the Euro steady near its record highs.
The expectations ahead of the German business climate index are quite low. It a figure will be lower than the previous one, Euro may weaken today. Traders have accumulated excessive EUR long positions that will likely be reduced. Therefore we believe that the report may cause the EUR to strengthen.
JPY
Yesterday the yen retreated from a four-week high and snapped a four- day gain against the Euro, this year's longest rally, as a rebound in U.S. stocks encouraged investors to borrow in Japan's currency to buy higher-yielding assets elsewhere. The Japanese yen may extend losses as investors add to so- called carry trades, taking advantage of the lowest interest rate among industrialized nations. Japanese fund managers are expected to sell nearly 1 trillion yen ($8.3 billion) of foreign-currency trusts this month. The Bank of Japan is likely to hike interest rates only once more in the current fiscal year. Given widely held prospects for continued mild inflation. The BOJ has made it clear that it will skip raising rates in August after conducting its first rate hike in six years this month. The BOJ wants to confirm a downward revision to the CPI data in late August. If the downward bias is up to 0.3 percentage point, as expected, the current 0.6% year-on-year rise in the core CPI will be reduced to 0.3%. Estimated real interest rates would still be negative and thus support the economy as the 0.3% inflation rate would exceed the 0.25% target set by the BOJ. Japanese consumers are continuing to show a willingness to spend again after a downturn that lasted more than a decade. it appears to reflect a steady recovery trend and improved consumer sentiment. Subsequent implications for consumer spending and sentiment are relatively clear; a stable consumption tax may prove bullish for consumption through the medium term. Currently anemic consumer spending rates have definitely shown their impact on economic growth, keeping pressure on the Bank of Japan to limit monetary policy tightening in the absence of a pickup in expenditures.
Technical News
EUR/USD
On the 4 H chart we notice that the bearish trend is running a head. The volatility is very high and the EUR USD is not in a consolidation stage, especially after the pair has broken the 1.3800 support level. The price should continue to move downwards in a range of 1.3750to 1.3650. As it seems, the bearish pressure will continue to gather momentum on the EUR USD also today till the weekend.
GBP/USD
On the 4 H chart we notice that the bearish trend is running a head. The volatility is very high and the GBP USD is not in a consolidation faze, especially after the pair has broken the 2.0550 support level. 2.0520 seem like a strong entry point. The price should continue to move downwards in a range of 2.0520to 2.0420.The volatility is very high, and as it seems, the bearish pressure will continue to gather momentum on the GBP USD also today till the weekend.
USD/JPY
The USD/JPY broke 120.50 resistance. USD/JPY is in an uptrend supported by 1H exponential moving averages. The volatility is high. Bollinger bands are expanded. We should expect to see today a bullish configuration on the USD/JPY. 1H, 4H Elliott pattern implies that the USD/JPY will continue to gather momentum. The target is expected at 121.85
USD/CHF
The USD/CHF is in a bullish configuration. The volatility increases. USD/CHF swings around exponential moving averages (EMA 50 and 100). Bollinger bands are flat. 1H, 4H Elliott pattern implies a continuation of the bullish pressure. The target is expected at 1.2200
The Wild Card
Gold
After a 4 day downtrend, GOLD prices have been moving up. Forex traders may find themselves looking for a direction but without momentum, this will be difficult. Those
trading currency should be aware that going short now may be a good move, but need to watch the market closely since the reversal is waiting to gather enough energy before taking place.