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Increased market volatility is on today’s forecast with a significant news day ahead. Most importantly, the US economy will be publishing a string of reports concerning producer inflation (PPI), unemployment claims, retail sales, and crude oil inventories. The euro zone will also be releasing its CPI data.
Federal Reserve Board Chairman Ben Bernanke released a statement yesterday which hinted that the Fed may consider another round of monetary easing should the beleaguered economy continue to worsen. The news has delivered a significant impact on the value of the US dollar (USD) which was seen in decline for the first time since the middle of last week.
The EUR/USD was seen moving back towards 1.4100 yesterday while the GBP/USD inched just above 1.60. Data from the American economy was largely bullish, however, which may also have helped spark some risk-taking among investors, pulling additional capital away from the greenback. A reduction in the Federal budget deficit also added a modicum of confidence that the US is addressing its budget shortfalls.
Increased market volatility is on today’s forecast with a significant news day ahead. Most importantly, the US economy will be publishing a string of reports concerning producer inflation, unemployment claims, and retail sales.
Should today’s news foreshadow a dismal outlook, there is a possibility that more investment will get pushed back towards the safety of the greenback, driving USD values higher. The possibility also exists that a downturn in fundamental data will only reinforce Bernanke’s statement, leading to analysts to further anticipate another round of monetary easing by the Fed.
The euro (EUR) has been trading bearish these past several trading days on recent shifts in investor risk appetite. News that Italy is struggling has opened the door to additional bailouts being required across the euro zone, which ominous foreshadow a debt contagion dragging the region down with it. The EUR was able to get some relief yesterday after US Federal Reserve Board Chairman Ben Bernanke testified that the Fed may consider another round of monetary easing if economic conditions in the US don’t improve.
The news was positive for risk taking, as was much of the data released by the American economy prior to Bernanke’s testimony. The EUR moved above 1.41 against the USD before the market came to a close yesterday, but it continues to struggle against its regional currency counterparts, particularly the British pound sterling (GBP). With inflationary news on tap today, forex traders should receive ample data to fill in part of the growth outlook which is missing for the month of July.
Today’s market should be highly volatile and traders will want to be on guard as they traverse today’s investment landscape. The most impactful news of the day will come from the United States which is publishing a series of reports ranging from retail sales and unemployment claims to PPI and oil inventories. With France inactive today due to the observance of National Day, the euro zone may have relatively lower volume. However, the EUR does appear set to continue its gains against the dollar regardless of today’s data outcomes.
The New Zealand dollar (NZD) was seen trading with largely neutral results versus most other currencies yesterday following this morning’s less-than-surprising GDP report. As was reported this week, regional growth in the Pacific has been only mildly better than forecasts, and in several instances worse. The Australian dollar (AUD) was seen in decline for the past two weeks after several data sets revealed an economic slump was underway.
This week’s news has so far weakened the Kiwi and Aussie, fueled by poor fundamental data from the world’s leading economies and a general sentiment of risk aversion among investors. With this morning’s release of New Zealand’s GDP data, many were expecting the island nation to begin addressing its growth outlook. As the NZD gains from external factors affecting its value, primarily a boost in Chinese retail sales, investors begin to speculate what an interest rate hike might do should the Reserve Bank of New Zealand (RBNZ) choose to enact one in light of today’s GDP figure. So far, the Kiwi looks to be holding its ground amid the recent flurry of speculation about a downturn across the Pacific.
Crude Oil prices found support near $96 a barrel Wednesday as sentiment appeared to favor a mild growth in global industry alongside a potential uptick in demand for the black gold. Data releases out of the US and China yesterday were driving many investors back into riskier assets as most reports suggested a surprise flattening out in growth among global industrial output and consumer spending.
As investors sought higher yields, the value of crude oil, which has been seen swinging widely all week, in fact rose to a weekly high of $96.15 a barrel. A sudden slump in dollar values due to yesterday’s statement by Fed Chairman Ben Bernanke sparked an environment that was more conducive to risk-taking and growth. The value of oil, therefore, found modest support and began to make strides. If this sentiment can persist, the value of Light, sweet crude may continue to gain through the rest of the week, targeting $98 a barrel.
After a false breakout higher from the triangle chart pattern the EUR/USD is approaching the rising support line off of the May low at 1.4160. Falling daily and monthly stochastics suggest the next move will be to the downside. A break here and the next major support is found at 1.3970. The 200-day moving average at 1.3905 may also prove supportive. Below this key technical mile marker the rising trend line from the 2010 May low comes in at 1.3710 and traders may see buying interest at this level. To the upside the July 7th high at 1.4370 could be supportive, as well as the falling resistance off of the May and July highs at 1.4530. A close above the June high at 1.4700 would likely signal a shift in momentum to the upside.
Cable is caught in a 220 pip range as the pair struggles to stay above its 200-day moving average and its initial support at 1.5910. A move lower and the next support to enter the picture stands at the late January low of 1.5750, not far from the 38% Fibonacci retracement from the 2010 May to 2011 April move. Support is also found at 1.5650 which has served as both support and resistance in October and in December of last year. The consolidation pattern is capped at 1.6140 where the neckline from a head and shoulders pattern rests. For traders who are not yet short this would be a point from which to sell a potential rally. The head and shoulders reversal chart pattern shows a measured move which could take the GBP/USD lower to 1.5370.
A series of higher highs and lower lows has created a bullish channel on the daily chart but the pair will likely remain locked in a range that has contained the USD/JPY since early June. A number of resistance levels will provide ample opportunities to sell into any gains, a play that is in-line with the long-term trend. The top of the channel is found at 81.50 and is close to the 100-day moving average. Additional resistance is located at the May high of 82.20 and the falling trend line from the 2007 high comes in at 82.80. The bottom of the channel could prove to be supportive at 80.45 but a break here could test the May low at 79.50.
The daily chart provides an interesting technical picture for the Swissie. The pair is flirting with its 50-day moving average at 0.8550, a technical indicator the pair has not traded above since February. A potential head and shoulders bottom reversal may also be forming with the neckline falling from the mid-June highs and the high from July 1st. A measured move from the pattern suggests potential gains of 260 pips and a reversal would likely target the mid-May lows at 0.8755 and the March 16th spike lower which is also a Fibonacci retracement target at 0.8845.
The Aussie dollar is standing at a crossroads following the breakout from a bullish flag pattern on the daily chart. After moving above the resistance line that falls off of the May high and the pair’s subsequent pullback to the line as is sometimes the case with this chart pattern, the pair now trades below the 1.0790 resistance. Forex traders should note that a break above this resistance level will likely test the all-time high from May at 1.1010.
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The Bank of Korea held its 7-day repurchase rate unchanged at 3.25%. The Bank of Korea noted: “The Committee expects the high level of inflation to continue in the coming months, driven largely by demand-side pressures resulting from the underlying uptrend in economic activity and by inflation expectations.” The Bank also said: “For Korea, the Committee judges the economy to have maintained its underlying upward trend, given for instance that exports show robust growth and that domestic demand is increasing modestly… Going forward, the Committee anticipates that the domestic economy will keep up this underlying trend, even in the presence of external risks.”
The Fed Chief sparked across the board selling of the USD when he left the door open for another round of quantitative easing, but it will be difficult for some FOMC members to support QE3 should US inflation continue to rise as was apparent in last month’s CPI data.
Today’s Key Economic Events:
EUR – CPI y/y – 09:00 GMT
Expectations: 2.7%. Previous: 2.7%.
EU inflationary pressures have been on the rise, thus the ECB has raised interest rates twice this year and another 25 bps of tightening is expected when Italy’s Mario Draghi takes over the helm of the ECB to solidify his inflation fighting credentials, much in the way his predecessor Jean-Claude Trichet has done. A rise in EU headline inflation would likely boost the euro from its recent lows in the crosses as traders price in another interest rate increase. EUR/GBP resistance is found at the broken trend line beneath the May and June lows at 0.8870.
USD – Unemployment Claims – 12:30 GMT
Expectations: 413K. Previous: 418K.
Last week’s dreadful NFP jobs report underlines the position of the Fed and Bernanke, “until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.” Therefore an additional drag on employment may bring further inflows to the safe-haven Japanese yen. The USD/JPY has recently moved below its trading range and could continue to fall towards its all-time low at 76.11.
USD – PPI m/m – 12:30 GMT
Expectations: -0.2%. Previous: 0.2%.
The Fed’s strategy with QE2 was to avoid a deflationary environment by creating a burst of inflation. Yesterday Bernanke left the door open for another round of quantitative easing which led to dollar selling across the board. However, given the CPI data from May that showed US CPI rising 3.6% y/y and core CPI climbing to 1.5%, it may be a tough sell to other FOMC members to enact another round of quantitative easing for fear of the Fed losing its grip on inflation and its reputation. EUR/USD support comes in at 1.4160 from the rising trend line on the hourly chart. Resistance is found at the 100-day moving average at 1.4280.
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GBPUSD broke above 1.6139 key resistance, suggesting that the downtrend from 1.6546 had completed at 1.5781 already. Further rise could be seen in a couple of days, and next target would be at 1.6300 area. Support is at 1.6080, only break below this level will indicate that consolidation of uptrend is underway.
The forex markets continues to remain one of the more popular options for traders today – with more than $ 4 trillion in daily trades a day. This article outlines the reasons why forex markets remain so popular even today, with other options available. Several advantages of forex trading have been highlighted.
Low fees: Fees and commissions payable to the forex broker are the lowest across all financial sectors.
Low transaction costs: The costs of the transaction is built into the price, often called ‘spread’ – the difference between the bid-ask prices.
24/7 access: Since forex markets are spread all across the world, markets are open throughout.
Focus: Forex trading is done through currency pairs – the first currency is the base currency and the second one is the quote currency. The eight most traded currencies are the US Dollar, the Euro, the British Pound, the Japanese Yen, the Canadian Dollar, the Swiss Franc, the New Zealand Dollar and the Australian Dollar. Such a narrow set of choices avoid possible confusion.
Go long or short: When trading in forex markets, you may choose to go long or short, i.e., you may make money on both rising and falling markets. On the other hand, when you trade on shares, you can only profit when the price of the share purchased goes up.
Liquidity: The sheer volume and size of the forex market makes it the most liquid market in the world. All currencies you buy can easily be sold and you will never be stuck with currency that won’t find buyers.
Leverage: Most forex traders make use of leverage provided by forex companies. A leverage of 1:10 implies for every £ 1 you have in your account, you can control trades of upto £10. Leverage is a wonderful tool to magnify returns on your forex trades. However, excessive leverage may lead to unseen losses and destroy your account. Hence, it is wise to use adequate leverage and not excessive leverage when engaging in forex trades. This is especially very important in the early stages of your forex trading career.
Article courtesy of etxcapital.co.uk
Rich Canlione, The NKO Group – Bernanke speaker at Semi-annual House of Representatives in front of House of Representatives, will he talk about “risk to growth” hinting QE 3. Europe out of lime light for today , no factor for US today.
July 13 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke says the central bank must “keep all options on the table” to stimulate the economy if growth were to weaken. Bernanke testifies before the House Financial Services Committee in Washington. (This is an excerpt. Source: Bloomberg)
Latvijas Banka held its main monetary policy interest rate, the refinancing rate, unchanged at 3.50%, and held its other interest rates unchanged. The Bank said: “In view of the fact that the current inflation risk factors are not related to a rise in demand and that risks for price stability in the medium term are limited, the Bank of Latvia Council today resolved to leave unchanged the interest rates set by the Bank of Latvia and the mandatory reserve requirement in place for the banking sector.”
July 12 (Bloomberg) — Steve Blank, a professor at the University of California at Berkeley’s Hass School of Business, talks about the possibility of a bubble in the technology industry. He speaks with Emily Chang on Bloomberg Television’s “Bloomberg West.” (Source: Bloomberg)
