12/07/'07 - BOJ Interest Rates & US Trade Balance.
Economic News
USD
Yesterday,
currency trading was mixed in the Forex market and it was a very significant trading day for the American dollar. The dollar hit a new record low against the 13 nation currency, when the Euro picked at 1.3784. The GBP hit a new high against the American dollar since June 1981, when it rose to 2.0362 per dollar, a rise of 3 %. The Federal Reserve's daily index of the dollar against a group of seven major currencies fell to a record low on Wednesday. Some of the main reasons which have caused the dollar's sell-off on Tuesday are: First, the fact that the Federal Reserve is maintaining a steady interest rate and many other central banks are continuing to raise rates, the US currency has become less attractive to international investors. This helps to explain why the dollar has fallen to multi-decade lows against the British pound and the Canadian, Australian and New Zealand dollars. Second, a $17 billion cut of debt related to risky mortgages, much of its subprime loans are extended to borrowers with poor credit histories that tend to have higher interest rates. Subprime borrowers have missed a lot more payments on loans amid higher interest rates and a slowdown in the U.S. economy. As it seems, we should expect the continuation of the weakness of American dollar in the following weeks, due to the negative expectations in the US mortgage and housing markets.
EUR
Yesterday at 14.00 GMT the ECB president, Jean-Claude Trichet spoke. The remarks that Trichet mentioned during the conference were similar to those which were mentioned at the beginning of the month, in which the European Central Bank will keep watch over and monitor closely price developments in the countries that share the common European currency, to leave the European central bank key interest rate unchanged, at 4 %, and to take action to ensure inflation remains on target. The European central bank aims maintaining inflation at a level of 2 % over the medium term, it will keep free from political interference and will continue to adjust interest rates in order to keep inflation in check. inflation in the Euro zone could rise in the future above the central bank's 2 % reference value due to higher energy prices, bolstering expectations that the ECB will raise interest rates again later this year. The Euro started surging strongly against the dollar since Tuesday, breaking through the $1.37 mark for the first time since it started trading in 1999, as concerns about the U.S. economy were fueled by discouraging growth forecasts from key retailers and homebuilders. The higher Euro makes goods from the 13-nation currency zone more expensive for customers abroad, or cuts into manufacturers' profits if they try to keep the U.S. dollar price of products constant. However, the European Central Bank downplayed those concerns earlier this week. The ECB noted that more than 50 % of Euro-zone countries' exports go to other Euro-zone members and so are not vulnerable to currency fluctuations. The Euro has strongly contributed to the growth of the 13-nation currency zone but on the other hand the stronger Euro makes visits to Europe more expensive for travelers from elsewhere and makes shopping trips to the U.S. more appealing to Europeans. The latest downturn in the dollar against the Euro could may very well have further room to run, according to analysts.
JPY
The JPY fell against all of the 16 most active currencies yesterday, as concerns abated that a weakening U.S. housing market will cause investors to shun risky assets, suggesting that investors could be unwinding carry trades, in which they borrow the low-yielding yen to invest in higher-yielding assets. The extent of financial market volatility over the coming days will dictate whether the yen strengthens further, but it is likely that margin traders will soon return to sell the yen. The JPY may fall versus the dollar and Euro for a second straight day. Investors now look forward to the monetary policy announcement by the Bank of Japan followed by the press conference held by its governor Toshihiko Fukui. Though it is widely expected that the Bank of Japan will hold the target rate at 0.5% this time, the lowest among major economies. many traders believe that Fukui will signal a hike in the August meeting. The Standard & Poor's 500 index of shares rose by 0.6 % as investors continued buying risky assets such as equities. The index fell 1.4 % the day before after the ratings cut. Japanese corporate bankruptcies rose 32.4 % in June from a year earlier, the ninth straight month for the number of business failures to rise, a private research agency said Wednesday. Corporate failures totaled 985 cases last month, compared with 744 cases registered in June in 2006.Debts left behind by insolvent companies fell 12.2 percent from a year ago to 336.43 billion yen ($2.76 billion).All industries registered a rise in bankruptcies compared to the same month a year earlier, with the construction and retail industries recording their highest number of business failures since April 2005.In the first half of the year, 5,394 bankruptcies were registered, up 16.6 % from the same period a year earlier. Debts fell to 2.573 trillion yen ($21.09 billion), down 8.3 % compared to the first half of 2006.
Different major banks still believe that for the mid term it would be recommended to sell dollars and to buy yen. The dollar is likely to remain under pressure until credit concerns either ease or spread to non US markets.
Technical News
EUR/USD
The 4 H chart implies of an upcoming bullish trend which may break the 1.3800 level and to determine a new high all time record when Slow Stochastic with negative divergence and sailing to oversold territory signal the upcoming reversal , however this trend may to occur either tomorrow or on Monday.
GBP/USD
Today range trading is expected and we might see a mild strengthening of the GBP when the daily chart is bullish however near overbought territory . The 4 H chart is consolidating between 2.0306 - 2.0359 and momentum is 100.816 which is neutral . After the upcoming trend which will be mild, we are expecting a reversal which might be significant and even take this pair to 2.0200 - 2.0220.
USD/JPY
Daily chart is bearish however we expect a mild weakening of the USD today and mainly we will see this pair hovering at 121.93 - 122.50. In case of breaching the 121.93 Fibonacci (61.8%) this pair may test the 121.81 Fibonacci (50%) ,however unlikely to happen. The 4 H Slow Stochastic is clearly overbought when crossed at 87 and having negative divergence nevertheless Momentum at 99.1693 verifies that the upcoming reversal won't be significant.
USD/CHF
Daily is bearish however not for long which means that today and tomorrow the general movement might be downwards nevertheless we are expecting the upcoming reversal next week to be extreme when Momentum reaches 97.9713 and has negative divergence signaling that the reversal trend will be significant. Today the 4 H chart implies of a continuation of the bearish trend to 1.2013 which will be the first barrier this actual trend will meet, in case a break out this pair will try to break the 1.2000 .
The Wild Card
GBP/CAD
On the 4 H chart it can be observed that we are in the middle of a bearish trend that might end in testing the 2.1351 which is the local support and in case of a breakout to test the 2.1328 which is a Fibonacci (61.8%) retracment level. forex traders may use this situation for taking profit and to wait for the reversal which we assume will take place by Monday .