U.S Mortgage Bailout Creates Waves among the Majors

This week could end the USD’s bullishness as the American stock markets’ values have been dropping and the financial crisis seems to continue. Over the weekend, it was announced that the US Government seized control of mortgage giants Fannie Mae and Freddie Mac.

Economic News

USD – Confidence in USD Shakes in Wake of Mortgage Bailout.

Last week, the USD went through a bullish trend against most of its currency counterparts. The greenback gained around 400 pips versus the EUR, trading at under 1.43 on Friday. The USD also saw big gains against the GBP and CHF. The USD did experience some bearishness against the JPY towards the end of the week, due worse than-forecasted economic data from the US against the JPY’s positive momentum. The USD took advantage of its currency rivals’ bearishness last week, as the EUR couldn’t catch a break with a batch of bad economic releases. The USD also gained momentum from Hurricane Gustav’s-less-than expected effect on the US and the oil companies, which drove down the crude oil prices. There were also a few American economic releases that supported the USD, as the Factory Orders, ISM Non-Manufacturing PMI and Total Vehicle Sales all beat forecasts. Traders should notice that towards the end of the trading week, the USD started to slightly lose value as worse than forecasted results from the Non-Farm Employment Change and Unemployment Rate caught up with the greenback.

This week could end the USD’s bullishness as the American stock markets’ values have been dropping and the financial crisis seems to continue. Over the weekend, it was announced that the US Government seized control of mortgage giants Fannie Mae and Freddie Mac. This will take a toll on the USD as the Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke.
In terms of economic data releases this week, the very important Pending Home Sales will be announced on Tuesday and are expected to fall to a negative rate, the Trade Balance, PPI and Core Retails Sales are expected to decrease as well. Traders should pay attention to Fed Chairman, Bernake’s speech which is due on Tuesday at the White House Initiative on Historic Black Colleges and Universities, in Washington DC. Overall it seems like the greenback could lose its recent gains against its major counterparts this week.

Traders should expect a fairly volatile opening of the market today as traders are still grasping the effects of the US Government’s control of Fannie Mae and Freddie Mac, as well as the data that was released towards the end of last week that had shockwaves slowly hit the USD. Later today should be more stable for the greenback as there will only be one release of economic data, the Consumer Credit, which is expected to be lower than last month. Some volatility might be seen after Federal Reserve Bank of Dallas President Richard Fisher’s speech in Austin with questions expected from the audience.
EUR – Small Rise in EUR Value Predicted To Be Short-Lived.

As the world turns its gaze upon the recent Fannie Mae/Freddie Mac bailout in the United States, little attention is being paid to the small upward turn seen in the value of the EUR. Last week the EUR continued its steady decline and ended up around $1.42 on Friday. Contrary to this, however, the EUR now sits at $1.4408, albeit somewhat unsteadily, which is a roughly 150 pip rise since the end of last week. Largely credited to the drop in dollar confidence and not an appreciation of euro value, the EUR nonetheless made one of its first significant upward moves in six weeks. This is not necessarily viewed as a reversal in the market, however, as the Euro-Zone is still predicting a recession given Germany’s recently released industrial figures.

Some analysts are holding out hope that this decline will come to a halt and eventual reversal by mid-2009. However, given a lower European industrial output, the global economic downturn, and a strengthening dollar, speculation on the EUR will most likely continue to push it further downward, at least in the short term.

Looking ahead, ECB president Jean-Claude Trichet is set to speak twice this week. The first will be his testimony to Parliament’s Committee on Economic and Monetary Affairs in Brussels on Wednesday followed Thursday by a speech he will be presenting to a EUROFI conference in Nice. Traders should expect high volatility in the market at these times as investors try to ascertain the future movement of interest rates. Wednesday will be an important day for the EUR as France will also be releasing their industrial production figures and trade balance.

JPY – JPY Looks to Be Losing Momentum As It Starts the Week.

The Yen experienced bullish trends versus all of the major currencies during last week’s trading session. The Yen gained about 150 pips against the USD, trading at slightly over the 107 level on Friday. Even bigger gains were seen against the EUR as the JPY gained more than 600 pips in a week with the pair’s slide closing off the week under 107.20. Besides the notable bad economic data releases from most of the world, the JPY had a few indicators that sparked its own momentum. The low yielding currency has remained strong against its foreign counterparts after investors came to the conclusion that the European Central Bank will not increase interest rates anymore. As a result, foreigners buying Japanese goods are looking to buy Yen, which is helping to strengthen the Japanese currency. Although the Capital Spending release was worse than expected and the Japanese Prime Minister shockingly resigned last week, the JPY wasn’t affected by this very much it had a few other supporting indicators. BoJ Governor Shirakawa held a speech around the same time, where he indicated that Japan’s economy will return to a moderate growth path. The drop in crude oil price also led traders to expect a drop in transportation costs of Japanese goods exported across the world.

This week started with a continuation of bullishness for the JPY as the release of the M2 Money Stock on Sunday showed a better-than-expected figure; beating its forecast and last year’s result. Look for more volatility this week as a fair amount of economic data will be released daily from Japan, with the most notable releases being: Quarterly Final GDP, Monthly Core Machinery Orders and Revised Industrial Production. Besides the Revised Industrial Production which is expected to stay at the same rate, the other two main figures are expected to be lower than their previous results. The question this week for the Yen will be whether traders will believe that the weak data that is expected to come out from Japan is part of the global effects from the American financial crisis and will soon be in Japan, or whether the JPY is having an economic slowdown not unlike what Shirakawa said last week, and is going to face a sharp fall. Traders should also keep tabs on the USD and EUR trends this week as they could continue to be very dominant factors in the Yen trends this week.

OIL – Hurricane Threat Delays Oil Reproduction from the Gulf of Mexico.

The price on crude oil starts to escalate after nearly a five month’s decline. The oil reserves of the Gulf of Mexico are been threatened once again by an upcoming hurricane. Crude oil is traded at $108.95 a barrel, an increase of 2.6%. The Gulf of Mexico, the biggest offshore producing region in the U.S, hasn’t recuperated yet from Hurricane Gustav. Oil production hasn’t been fully resumed and now a new hurricane, Hurricane Ike, will shut down the refineries again for at least another week. The National Hurricane Center projects the hurricane to move into the Gulf in the next two days at Category 3. So far it is still unclear what will be the size of damage to the oil refineries from the hurricane. Oil companies are concerned that they will have to stop the oil production again as a result of a new hurricane coming near the Gulf.
Hurricanes are not the only events that investors are preoccupied with. The recent news that the U.S government has taken over Fannie Mae and Freddie Mac, the nation’s biggest home loan companies weakened the dollar. Since the dollar and crude oil prices are closely interwoven, the decrease of the U.S currency affects the trade of oil directly. Though for the long run the federal takeover is designed to stabilize the U.S financial market, for now the market appears to be uncertain regarding its long term outlook As a result of the dollar’s instability, oil prices continues to swing. For the next few days the traders will continue to closely watch the Hurricane Ike’s development in the Gulf which will have an impact on the price of crude.

Technical News

The pair is in the midst of a bullish correction, and is currently traded around the 1.4400 level. As all oscillators on the 4 hour chart are pointing up, another bullish session might take place. Going long seems to be preferable.
It seems that the cable has limited its bullish reversal after peaking at 1.7975. A bearish cross on the one hour chart’s Slow Stochastic indicates that the pair could resume its bearish trend. Going short with tight stops might be the right strategy today.
The 4 hour chart shows that the pair is in the middle of a bullish move, as it is now traded around the 108.70 level. The RSI on the 4 hour chart is floating around the 50 level, suggesting that the bullish trend might be elongated, with potential price target of 109.50.
After a mild bearish correction that dropped the pair down to the 1.1050 level, the pair seems ready to recommence its general bullish trend. A bullish cross on the one hour chart’s Slow stochastic implies that the bullish move is quite imminent. Going long might be the right choice today.

The Wild Card


After a period of volatile sessions, all oscillators on the daily chart are providing bullish signals, suggesting that Gold is building a strong bullish momentum. Currently traded at $813, Gold might aim at the $820 mark in the near future, giving forex traders an opportunity to enter the trend at a convenient price.

Written by: Forexyard.com