The USD Saga Continues

Yesterday, the Greenback spent most of the trading day with bullish momentum against the majority of its currency pairs and crosses. The USD gained almost 0.9% and closed trading around 1.5850 vs. the EUR after it previously dropped to 1.6019, the lowest level ever. The dollar gained after a weak printing of the European manufacturing activity suggested that economic growth in the Euro zone is starting to slow.

European Economic data and official comments start to turn against the Euro and in favor of the US dollar. Comments made by the ECB Governing Council member Noyer yesterday, dampened speculation of the possible Interest Rate increase in Europe, giving the USD another push forward.

Fed fund futures are currently pricing in an 82% chance of a quarter point rate cut next week with the remaining 18% probability in favor of no rate cut at all. This is a sharp change from just a week ago when the market was estimating a 76% chance of a 25bp cut and a 24% chance of a 50bp cut. The only reason for this dramatic shift in expectations is the increased inflationary pressures.

Today, we await several events on the US economic calendar. Durable Goods Orders and Unemployment Claims are expected to show improvement from the previous month. Later today, the New Home Sales figures are also expected to attract trader’s attention. Earlier this week we had better than expected US housing market numbers. We would not be surprised to also see a recovery in new home sales. These two should contribute directly USD movement, as history has shown us in the past. Expect the USD to have another volatile trading session today. The release of today’s fundamentals will likely shape the near tem outlook for the greenback.

The EUR spent another day on the bearish side of trading yesterday, as it lost ground for the second day against the US dollar closing at 1.5873. During the week the EUR/USD broke new records going above the 1.60 mark which slowly hurts Euro-economic zone. With a full schedule of events from Wednesday, a basket of mixed results sent the EUR falling most notably against the Greenback. The downturn has been largely due to internal economic issues over the strength of the EUR. Manufacturing PMI numbers suffered yesterday and forecasts point toward business confidence sharing the same fate.

Today, German IFO Business Confidence Indexes are coming out, and the forecasts expect a decline for the month of April. IFO Climate and Expectations figures will must likely drop the EUR down further. The problems with the Euro-Zone now have some questioning the benefits of such a strong current. At 8 GMT along with the German IFO numbers we will get Euro-Zone Current Account details, which should not contribute to volatility. Later on in the day European Central Bank President Jean-Claude Trichet is expected to speak. His remarks generally bring volatility to the market. Looking forward to Friday’s events, expectation for the M3 money supply are quite negative and with today’s result might bring EUR/USD to new records.

The JPY saw mixed results yesterday as Dow Jones prices sparked some renewed interest in carry trading. While most JPY crosses lagged, the USD/JPY did rise 0.7 percent to 103.76 yen, from 103.02. Risk appetite has stalled in general, as many are still not seeing proper Equity market movement to take risks with the low-yielding currency.

Yesterday saw the release of CSPSI figures as well as the All Industries Activity Index. Both came back with negative results but had little effect on the market, as most of the movement came from global news events. Later today Japan’s Core CPI and Core Tokyo CPI will be posted; expectations are mixed. And Friday will be a slow news day.

With rice achieving new records on the Chicago Mercantile Exchange going as high as $894 per metric ton, consumers in the United States are being limited in their purchasing ability. This new record is caused due to poor harvests and is derived from the laws of supply and demand.

Given the published indicators from yesterday, the Yen’s bearish movement, high rice prices and the expectations today we should assume a continuation in this downward direction.

Technical News

The pair has made a substantial bearish correction, and is now floating around a key Fibonacci level 1.5850. The hourly chart is showing a bullish cross with growing bullish momentum, which indicates that if a bearish breach through that level will not occur, we shall probably see the bullish trend resumes. Traders are advised to hold for the breaching attempt before making an entry.
The 4 hour chart is showing that the bearish momentum is back with full steam ahead, as the cable lost more than 200 pips in the last 48 hours. The daily Slow Stochastic is showing no crosses, which indicate the continuation of the bearish trend. Going short appears to be preferable today.
There is a very distinct bullish channel forming on the daily chart, as the pair now floats in the middle of it. Both the daily RSI and Slow Stochastic are showing that there is still plenty of room to run up, and that the next target price might be 105.00. Going long appears to be the right choice today.
The range trading on the daily chart is starting to form into a narrowing bullish channel. The pair if approaching the upper level of it, and with the very tight Bollinger Bands, the possible test of the 1.0230 appears to be quite imminent. Traders must pay attention for a possible breach which could create a great buying point for a strong potential bullish momentum.

The Wild Card

Crude Oil
The very strong bullish trend continues uninterrupted for the past month, as oil keeps ignoring all technical indications. The daily oscillators are showing a very bullish three top formation with a positive slope on the Slow Stochastic. This is a great opportunity for Forex traders to join the still very strong trend when the steam is still quite high.

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