Yesterday, the Greenback spent most of the trading day with bullish
momentum against the majority of its currency pairs and crosses on the
back of surprisingly strong U.S inflation and manufacturing data
releases. The greenback added 0.35% to its value against the EUR
locking the session below the rate of 1.58, after the first day this
week for the USD to appreciate. Also, the strong U.S data release
assisted the USD recovery against the Sterling and the JPY, stopping
the bearish momentum which characterized the USD since Bernanke's
speech last Wednesday.
We see yesterday's surprisingly strong U.S. economic data as a
benchmark in the US financial crisis calendar. Those figures could be
the first that clearly indicate that the US market is better condition
than previously perceived.
March's PPI release yesterday came at the reading of 1.1%, well above
February's inflation rate of 0.3%. Also, the important figure of the
Empire State Business Conditions Index, which measures the general
business conditions of manufacturers in New York State in March, showed
a much higher than expected level of general business activity at the
rate of 0.6, well above February's reading of -22.2. The figures
released yesterday, combined with higher than expected cross-border
foreign and domestic purchases of long-term securities in March, raise
speculations that the sharp financial crisis in the U.S. seems to be
controlled and finally restrained by the Fed's actions and interest
rate cuts. Those positive figures also assist strong probabilities that
the Fed is not likely to cut the key interest rate more than 0.25pts at
the next FOMC meeting, if there will be a rat cut at all.
Today's colander is full of figures that could continue the USD bullish
momentum and send the greenback prices even higher. March's Core CPI
release is expected to show a 0.2% increase from February. Moreover,
the value of output produced by factories, mines, and utilities in
March, measured by the Industrial Production report released at 16:15
GMT today, is expected to rise by 0.4% from February. Forex traders
should follow this figure release because it could supply many
indicators for USD behavior. It is also interesting to mention Oil
prices, that hit a new record, above $114 a barrel, on supply issues
and rising demand in China. But the main factor contributing to high
Oil prices is the weak dollar itself. The greenback is currently
trading around the 1.58 level against the EUR; making safer commodities
like Oil more attractive for dollar investments. In addition, due to
oil being dollar denominated, as the dollar weakens, Oil prices should
increase by relatively the same percentage. Also today, traders will
await the Fed's report on regional economic activity, known as the
Beige Book. As a summary of economic conditions throughout each of the
12 Fed districts, the report could give key insight into how the FOMC
will vote on April 30. Overall, the outlook for the USD seems
favorable. The latest positive fundamental data signals that the Fed
cannot keep cutting Interest Rates aggressively while the economy is
not deteriorating as fast as it was previously expected.
The EUR dropped from an intraday high of 1.5875 after the ZEW
Economic Sentiment showed investor confidence unexpectedly fell this
month. The European currency also fell vs. the greenback on
surprisingly strong U.S. inflation and manufacturing data. The EUR/USD
last traded down 0.3% at 1.5802, following an overnight peak of 1.5875.
The economic data from the Euro zone continues to suggest that the
region is beginning to feel the impact of its relatively high exchange
rates and slowing global growth. As the ZEW demonstrated, European
consumer are becoming concerned about the inflation and impact of
higher food and energy costs on European consumers. Today all attention
will be focused on the Euro zone CPI inflation data. The market is
expecting the figure to be left unrevised at 3.5%, the highest record
level recorded since the launch of the EUR. However, if the indicator
surprises with stronger then expected figures, it might further
continue to support the EUR. Given market expectations for the ECB to
maintain its focus on inflation and leave the Interest Rate policy
unchanged - traders may expect the EUR bullish trend to continue during
the near future. Overall, today's data may not make much of a dent and
the EUR/USD could spend the rest of the day in a tense standoff between
the bulls and the bears as traders search for the best opportunities to
enter the market.
The JPY fell vs. the greenback on the release of strong U.S.
inflation and manufacturing data. The positive outlook for the dollar
was also supported by the market belief that the Fed may not need to
cut rates as aggressively. The carry trade has been restored and risk
appetite seems to have returned to the market.
Both the Bank of Japan and the Japanese government recently noted
increasing economic risks in the U.S. and their negative effects on
Japan's economy. This suggests the BoJ will not be raising the
overnight interest rate from 0.50% anytime soon. In the following days,
the Japanese currency will continue to heavily depend on the volatility
of the equity markets.
There was no significant economic news coming out of Japan yesterday
and today is also devoid of data. We should see the JPY continue on its
bearish path. Forex traders should keep an eye on the economic events
around the world, as today could prove to be another very volatile day
for the Japanese currency.
The pair has been range trading with high volatility for a
while now, and it appears that the bullish price movement might be
back. The Slow Stochastic of the 4 hour chart indicates an upcoming
test of the 1.5895 level. If that level is breached, swinging in the
trend would be the best strategy.
The bearish flag pattern still remains intact on the daily
chart, as the cable now makes a local correction. If the 1.9720 level
is not breached we should expect the bearish trend to continue back to
the bottom barrier of the flag. Selling on highs might be a good choice
The pair has been showing stable bullish movement since the
end of March with very few corrective anomalies. The Slow Stochastic of
the 4 hour chart is showing a triple top formation with a positive
slope, which indicates that the price movement might still be bullish,
but is approaching its final stage. Going long with very tight stops
might be a good strategy today.
The daily chart is showing that the pair still does not have
a distinct direction, as the chart appears to be quite horizontal for
the past month. The Bollinger Bands are very tight, and the 4 hour Slow
Stochastic is showing a bearish cross. It appears that the possible
next move might be a bearish one. In that case traders are advised to
swing in after the break.
Written by Forexyard.com