11/07/'07 - ECB President Trichet to speak today.
Economic News
USD
Yesterday, the greenback went on a downward freefall as it reached a new record low against the EUR and the sterling. The USD slipped to 1.3785 against the EUR, which is its lowest level against the European currency since it's debut in 1999, before stabilizing at the 1.3735 mark. The USD also fell to the 2.0290 level versus the sterling, the drop was exacerbated by the stronger than expected British Retail Sales figure. The dollar weakness can be attributed mainly to investor's worries about the troubled US housing sector and that any positive outlook is set to go down the tubes. Investors' worries hit a crescendo yesterday as a result of the news that the S&P were planning on downgrading $12 B of US subprime mortgage bonds and to make matters worse there was $5 B of bond downgrades from the worlds' leading company for credit ratings called Moody's. Subprime mortgage loans are those made to people with questionable debt repayment records and this news of downgrading such large amounts of subprime mortgage bonds left investors questioning whether there is any light left at the end of the tunnel for the US housing sector. The other factor that was a major contributor to the greenback's tumble was the discouraging growth forecasts from key U.S. retailers and homebuilders. In addition Fed Chairman Bernanke did not mention in his speech yesterday anything specific about the future course of interest rates and he did not reiterate the central bank's mission of fighting inflation.
Today is relatively light on news without any significant data releases from Europe and the US so we should see the greenback consolidate slightly before once again being pulled into the bear's claws as the dollar's dwindling interest rate advantage over the EUR coupled with the problems in the US housing sector is putting a stranglehold on the greenback.
EUR
In Eurozone news yesterday, French industrial production for the month of May rose by less than expected to 0.4% m/m, and declined by more than expected to -0.3% y/y. Manufacturing production also rose by less than expected to 0.1% m/m and declined by more than expected to -0.8% y/y. The decline in industrial production was the result of a contraction in the auto industry, which declined to -2.1% in May from 1.2% in April. However, yesterday's weak data was not significant enough to have any sort of impact on the EUR, but nevertheless there was plenty of volatility and some sharp movements in the market as the EUR strengthened against most of the majors particularly against the USD on the back of investors concerns over the US economy.
The European Central Bank is going to hike rates at least two more times this year and U.S. bond yields are falling, giving no incentive for large global investors to hold dollars so there is nothing to hold back the EUR bullish rampage. Today is relatively light on currency trading news so the EUR will range trade for extended periods at its current record levels and it should continue on a steady rise from now on instead of the sharp increases that we saw yesterday.
JPY
In yesterday's news, Japan's current account surplus rose for the 5th straight month releasing at 2.23T, beating the expected figure of 1.99T. The main reason for the strong rise in the current account surplus over recent months was the fact that returns on overseas investments have climbed very sharply. The consensus seems to be that yesterday's current account data solidified expectations that the Bank of Japan could raise interest rates as early as August. In other news yesterday the Corporate Goods Price Index, which measures the rate of inflation experienced by corporations when purchasing goods, released slightly higher than expected at 2.3% beating the expected figure of 2.2%. The JPY went on a long overdue rally yesterday particularly versus the greenback as it rose from a low of 123.41 to 120.95. The current JPY strength can be mainly attributed to the drop in bond yields and US stocks which are causing carry trades to unwind. Today the JPY will continue it's resurrection as investors will be hesitant to employ the carry trade strategy due to the current US economic concerns and as a result of the carry trade unwind we should see the JPY surge further forward.
Tomorrow we may see some more JPY volatility as the BoJ will announce its benchmark interest rate which is expected to remain unchanged at 0.5%. However investors will focus their attention on BoJ Governor Fukui's speech for some indication of a future rate hike.
Technical News
EUR/USD
The daily chart implies on gathering new energies for another all time record high, however on the 4 H chart an upcoming reversal is expected when Slow Stochastic have a negative divergence, we are expecting this pair to test the 1.3708 level Fibonacci level (76.4%) before the next record will be determined.
GBP/USD
The extreme bullish trend seems to still have steam in it as the daily chart reflects another GBP strengthening . Slow Stochastic crossed at 44 implying on the strength of the GBP and maintain our speculations of another strengthening in the long term. On the 4 H chart we will might see a mild correction which will test the 2.0231 Fibonacci level (76.4%) thereafter, then going long may be preferable .
USD/JPY
The daily chart is clearly bearish with still much room left ahead Slow Stochastic has negative divergence which will carry this pair to test the 120.91 Fibonacci (50%) in the upcoming days. On the 4 H chart it can be observed that today this pair will test the 121.60 before continuing his bearish movement. Today ,going long might be preferable.
USD/CHF
On the 4 H chart an upcoming reversal is expected when Slow stochastic crossed at 13 which is clearly in oversold territory. However we think that the USD will still maintain its weakness against the CHF and might test the 1.1980 in the upcoming weeks when the weekly chart is clearly bearish. Going short for long term may be the preferable strategy.
The Wild Card
USD/CAD
On the 4 H chart 3 bullish waves have been observed and the third wave has not completed yet and there is still much room left for it. We expect this forex pair to test the 1.0604 Fibonacci (76.4%) level . In case of a breakout this pair will consolidate at 1.0651 . Today ,going long seems to be the preferable strategy.