ECB’s Weber Boosts EUR. Is it the Beginning of a Larger USD Decline?

The USD is On Its Way Down Ahead of the GDP Figures.
The greenback saw mixed results versus its rival counterparts during yesterday’s trading session. The USD initially retreated from recent highs against a basket of rival currencies caused mainly by a rise in Oil prices, as well as another round of concerns over the U.S. healthcare and banking system. The USD pared losses after a report showed that US Durable Goods Orders for July rose by 1.3% causing the USD climb against its counterparts immediately after the results were published. However, despite the positive release the USD continued its decline shortly after hawkish comments several ECB executives that helped the EUR rebound from a 6-month low versus the greenback.

In recent days the USD has gained some strength and been broadly supported over the fear of a deteriorating global economy, which would lead the Central Banks in those major economies affected by the global slowdown to lower Interest Rates. In contrast, most economists expect the Federal Reserve’s next step to most likely raise Interest Rates to ease inflationary pressures.

Today will be a very active trading day for the USD, as there are a few important news announcements expected from the U.S. economy. The first major economic news event will be the Preliminary Quarterly GDP for the 2nd quarter, which is expected to rise by 0.7% from last quarter’s result. Another expected event will be the Unemployment Claims report, one of the most influential USD indicators, which is forecasted by analysts to show a decrease of 5000 jobless individuals, from 432K last week. The Natural Gas Storage announcements are not expected to cause a major impact on the USD as there are inflationary and growth implications to the results. News is expected to be positive for the greenback, as it seems that the main positive announcements will be coming from the Preliminary Quarterly GDP which should give the USD momentum.

The EUR Strenghtens as the ECB Revives Rate Hike Talk.
Yesterday, the EUR saw bullish trends against most of its major counterparts despite weak Euro-Zone economic data. The bullishness of the 15-Nation currency was fueled by hawkish rhetoric of ECB Executive Board member Axel Weber who said any speculation of lower interest rates in the Euro-Zone is premature.

The EUR had suffered big losses after a report published on Tuesday showed that the Ifo index of German business confidence fell to a three year low. As result the EUR fell as low as 1.4570 versus the dollar. Yesterday, the European currency bounced back from a six month low against its American counterpart, and by 11.13 GMT was traded up 0.7% at 1.4750. Following yesterday’s data release from the Euro-Zone we saw that import prices for the Germany advanced 0.6% last month slightly up from forecasts of 0.5%, while the German CPI fell 0.3% for this month and was up 3.1% compared with same period from last year. Many analysts predict that the European data is likely to worsen in the near future, which has increase expectations that the ECB’s could soon look at cutting interest rates despite Weber’s remarks. Looking ahead to today there are only two data releases expected. The German Unemployment Change is expected to reflect a continuation in the improvement of the Euro-Zone’s strongest economic employment condition, as analysts forecast it to decrease by 10K jobs, following July’s 20K reduction. The M3 Money Supply is expected to decrease by a lower rate than its previous measuring. The EUR’s counterparts within its currency crosses have seen unfavorable economic data lately and could help bring about some strengthening to the EUR today.

JPY Gaining Steam as it Awaits Full Day of Local Data
Yesterday, the JPY saw bearish results against most of its major currency rivals. The JPY was predominantly influenced by the other major currencies’ behavior, as it was completely absent from the economic calendar. Against the USD the JPY underwent a volatile sessions after a rally of the USD altered the release of the U.S. durable goods orders. Versus the EUR the JPY experimented bearish trends following hawkish comments from ECB member Weber pushing the pair close to the 162.00 range.

A batch of economic releases and announcements are expected for the JPY today. The day will start with Manufacturing PMI, and will be followed by the Tokyo Core CPI and the National Core CPI.

According to the Ministry of Internal Affairs, the Japanese Core Consumer Price index should rise by 1.7%. Such a result may mark the 4th straight month of gains. The data reflects rising prices for imported Oil and other commodities, putting upward pressure on living expenses in Japan. Fluctuating Gold and Oil prices are the main reason behind the inflationary fears. The BoJ which has attempted to maintain a policy of steady rate increases, have found itself facing pressures to cut rates in the near term. The clear issue for the central bank in cutting rates is the fear of rising inflation.

Oil is Up As Gustav Threatens to Hit the Gulf of Mexico.
Crude Oil rose more than $2, including a high above $119.5, during yesterday’s trading session, leveling off at $118. Speculation continues regarding the severity of tropical storm Gustav, as many believe it will be the worst regional disaster since Hurricane Katrina. As Gustav maintains its path toward the production platforms in the Gulf of Mexico, the sensitivity of oil prices will grow and bring more volatility to the market. This may hold a major threat to the U.S Oil companies since their main platforms and pipelines are located primarily in the Gulf of Mexico. If the situation will continue to deteriorate it may have an impact on the Oil production in general. Meanwhile the companies in Gulf are carrying on with the production, till Friday’s prognoses on storm developments. The future Oil production in the Gulf of Mexico depends now on how hard Gustav will hit the coast. In the event of any threatening behavior, all of the Oil platform workers will have to be evacuated and prices will likely jump. In addition The Energy Information Administration announced yesterday that Crude Oil inventories fell slightly by 0.1M barrels to 305.8M barrels, comparing to the 0.9M increase forecasted, thus causing a further increase in Oil prices.

Technical News

After bottoming out at the 1.4560 level, the pair is showing signs of a corrective move. A positive slope on the 4 hour chart’s Slow Stochastic suggests the constitution of the correction. The daily chart is showing renewed bullish momentum as well. It appears that a test of the key Fibonacci level 1.4890 might be quite imminent. Going long might be the better choice today.
According to the daily chart, the downtrend the pair is going through seems to be very strong and the daily chart validates that there is still room to run. The 4 hour chart is confirming that the momentum down is still quite strong. The Bollinger Bands are tightening which indicates that the break might be imminent. Selling on highs might be preferable today.
After yesterday’s volatile trading session, the range trading continues, as the pair floats aimlessly on the hourly and the 4 hour chart. The oscillators are still floating in neutral territory with no distinct direction signal. There seems to be moderate bullish momentum on the daily, yet forex traders are advised to wait for a clearer signal before entering the market on this one
The daily chart is showing that the pair has been range trading with no distinct direction for a while now. The 4 hour chart is showing no clear signals as the RSI and the slow stochastic are floating on neutral territory. Traders are advised to wait for a clear signal before entering the market.

The Wild Card

Gold is in the midst of a very strong bullish move, as indicators are pointing up on the daily and the 4 hour chart. The Slow Stochastic on the 4 hour chart points towards a current bullish momentum. The daily Slow Stochastic strongly supports this notion. This might be a great opportunity for forex traders to join a very promising bullish trend.

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