The Greenback Might Extend It’s Bullishness vs. Rivals

The Greenback saw substantial growth last week versus a basket of it currency rivals, most notably against the Euro. The USD gained nearly 500 pips versus its cross-Atlantic counterpart, as the oft-traded EUR/USD pair saw its biggest rise in 3 years. Investor confidence in the greenback grew as the week progressed as US officials continually pushed a hawkish stance regarding monetary policy, as well as shooting down talk of the troubles within the US economy. Dollar bullishness escalated on Thursday after Retails Sales saw a larger than expected rise, at 1.2% for the month of May. Momentum carried the dollar into the weekend despite Friday’s release of the Preliminary Michigan Statement. The report which measures consumer confidence showed that American consumer confidence dropped to nearly 30 year lows. But with a sharp rise in US inflation, a rise which will likely lead to an interest rate hike, as well as troubling news following the Irish vote of the EU Lisbon Treaty, the USD finished last week on a positive note.

As we look toward this week, investors look primed to continue to see a bullish dollar. The meeting of the G-8 leaders over the weekend, did little to veer the USD off of its latest path, even as foreign exchange was noticeably absent from talks. Much of the speculation surrounding the direction of the USD this week, is whether or not the talk of rising inflation in the US will curb sub-prime credit worries that have haunted the US economy and its trusty dollar. With a relatively light week of US news on tap, it is very possible that the bullish trend, all be it at a slower speed will continue. This week US news will be highlighted by Housing Starts, PPI, Industrial Production, Unemployment Claims and the Philadelphia Fed Manufacturing Index. Results are expected to mixed, and with the addition of key speeches by Federal Reserve officials Ben Bernanke and Donald Kohn, who will both likely defend the new hawkish US monetary stance, it could prove to be another significant week for the Greenback.

Today the US economy will provide some significant market making news as we expect the release of the Empire State Business Conditions Index (12:30 GMT), TIC Net Long-term Transactions (13:00 GMT) and to finish up the day a speech by Fed Chairman Ben Bernanke. Bernanke will address the Senate Finance Committee Health Reform Summit, where he is scheduled to discuss HealthCare reform, however with the current situation of the dollar, expect Bernanke to push the already bullish currency further.

The Euro had a tough trading session last week, as it lost major ground against the USD, seeing a 500 drop throughout the week. The bearish EUR was left in the dust as Federal Reserve officials heightened talk of inflation intervention, by raising interest rates. Many investors saw the aggressive move by the US as a sign of maturity against what has been an almost stubborn response to inflationary concerns in the Euro-Zone. European Central Bank President Jean-Claude Trichet was long a supporter of a staunch hawkish monetary policy, and such hawkishness has continued despite last weeks hint at a rate hike in the Euro-Zone. The acknowledgement of Trichet to the heightened risk in inflationary pressures in Europe was seen as a precursor to a rate hike, but instead the USD has stolen the limelight yet again as investors begin to retract from the 15-Nation currency.

Last week’s European calendar returned with decent results, despite the uncertainty in the regions direction for the future. Still though EUR bearishness continued and escalated after Friday’s vote in the EU. The Irish voted No to a referendum, which would bring a formal constitution and structural changes to the EU. Although little would have changed regarding the EUR in the short-term, investors saw the indecision by the EU as a sign that all was not as rosy as it seemed in Europe, which led to even more EUR sell-off.

As we look ahead to this week, we can expect some market moving events from the Euro-Zone. The EX news week will be headlined by CPI, German ZEW Economic Sentiment, German PPI and a speech by ECB President Jean-Claude Trichet. While most of the events are forecasted to return with similar results from the previous month, the EUR backed by Trichets words, will do its best to return some gains in the hope of cooling any investor wariness in the currency.

Today we are expecting the 9:00 GMT release of Core CPI and CPI. The two indices, expected to see a 0.2% and 0.3% rise respectively, will be important in setting a positive tone for the EUR to start the weeks trading. Still investors should keep tuned to Bernanke’s speech later on as it could be the defining point of the day.

The JPY had a mixed week of trading last week highlighted by hitting a 4 year low versus the Greenback. The pair, which ended last week’s trading above 108, has continued to make gains as the USD has renewed bullish trading. The JPY was certainly present in last weeks news, as a host of Japanese data was released. Strong Industrial Production numbers helped facilitate some bullish movement against the EUR and GBP, but was soon offset upon the release of poor Consumer Confidence figures. With the rise in oil and food prices, both of which are vital to the Japanese economy, consumer confidence is the lowest it has been in nearly 6 years. Bank of Japan Governor Masaaki Shirakawa warned investors of the growing risk faced in regards to Japanese economic expansion, and the trend looks set to continue this week as well.

On tap from the Asian powerhouse this week, we can expect Monetary Policy Meeting Minutes and the All Industries Activity Index, as a Thursday speech by BOJ Governor Shirakawa. While the first two events are likely to provide little volatility, expect Shirakawa’s speech at the annual meeting of the National Association of Shinkin Banks, to provide substantial liquidity to the market. For today we await the 23:50 release of Tertiary Industry Activity Index, which measures the change in spending for service within an economy. Expectations call for a 0.2% rise in the index which could help JPY trading during the Asian trading session. Still, the JPY will be vulnerable to the movement of outside currencies and the news brought with them as wee expect the dollar to dictate most of the trading behaviors today

Technical News

The hourlies show quite a wide range-trading with no specific direction; however the Bollinger Bands are tightening indicating upcoming increased volatility. The 4 hour chart is showing a very strong downtrend with increasing momentum. The Slow Stochastic of the 4 hour chart indicates an upcoming test of the 1.5300 level. If that level is breached, swinging in the trend would be the best strategy.
After bottoming at 1.9404 the Cable is continuing the corrective move at full momentum and is now floating around 1.9520. All oscillators show that the correction move still holds some fuel in it, and if the 1.9600 level will be breached, a new uptrend will be validated and might push the cable above the 1.9700 level once again.
This pair is in the midst of a narrowing upward channel and this pair is now heading towards the top of it. The hourlies are giving mixed signals with its RSI floating in neutral territory. However, the Slow Stochastic of the 4 hour chart is showing quite strong bullish momentum, and the RSI confirms that the direction is indeed up. All indications are that there is room for further upward movement and the preferred strategy today will be to go long on dips.
The bullish move the pair is going through appears to have diminishing momentum, and lacks the ability to make a significant breach beyond the 1.0550 level. The daily chart show mixed signals, and the hourlies are indicating a mild bullish direction. Waiting for a clearer signal on that pair appears to be a good decision today.

The Wild Card

This commodity has been on a sharp sinking over the last week and this bearish trend is likely to stick around in the near future. All charts are still giving a mild bearish signal, however there may be short term corrections during this downtrend. Therefore forex traders can maximize profits by selling on a highs and taking advantage of a bearish trend.

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