Forex Tips & Daily Analysis

Economical News

USD

With the stock market continuing to rise, it is not surprising that the US dollar hit a new five year high against the Japanese Yen yesterday as carry trades were once again the name of the game. In fact, the dollar is stronger across the board as inflationary pressures continue to manifest themselves. Producer prices increased 0.9 percent in the month of May while core prices increased 0.2 percent. This brought the annualized pace of inflation to the highest in 11 months. However it was not just past prices that had traders worried. Domestic supply concerns also drove oil prices to an 11 week high. This means that not only did inflationary pressures increase last month, but they are alive and kicking. This should keep Federal Reserve officials extremely hawkish, but don't expect them to raise interest rates anytime soon because thirty year mortgage rates increased to 6.74 percent, the highest level since July 2006. The 21 basis point jump over the past week is the largest rise in 3 years. Thirty year mortgage rates have been skyrocketing since the middle of May and it is certainly not a coincidence that foreclosures hit record levels in the first quarter according to the Mortgage Bankers Association as well. More updated numbers from RealtyTracUSD Inc. also indicate that foreclosures are up another 90 percent last month. Federal Reserve President Moskow was spot on when he said that the spike in bond yields could trim growth because the housing market is exactly where the pain of higher yields will be felt. Although we expect the US economy to slow, a major contraction will probably be averted thanks to the offsetting stimulus that a weak dollar brings to the table. Consumer prices are on tap today along with the Empire State manufacturing survey, the current account balance, industrial production and the Treasury International Capital flow report. Given the rise in import prices and PPI, there is a strong chance that CPI will surprise to the upside as well. The rest of the data is also expected to be dollar positive. So we may see the dollar extend its gains across the board if the US news surprises on the upside but the dollar may also retreat slightly as the current market sentiment seems to be that the recent dollar rally is running out of steam.

EUR

The EUR ended the day unchanged against the US dollar and this is either a testament to the currency's resilience to dollar strength or the market's falling interest in what is typically the most actively traded currency pair. According to the latest market survey's, it is the former since the EUR/USD positioning is 8.7 percent above its monthly average. Given the weakness of recent economic data, the only things that are keeping the EUR propped are hawkish comments from ECB officials and continual demand from the central banks. Both Eurozone consumer prices and labor costs fell short of expectations yesterday which suggest that inflationary pressures are abating. However this doesn't seem to matter to the ECB as member Quaden clearly stated yesterday that the monetary tightening has not ended. The same sentiment is shared by the Swiss National Bank who raised interest rates by 25bp yesterday, bringing the mid point of their target range to 2.5 percent. If the pace of economic growth remains unchanged and the Swiss franc fails to rally, they said that “further increases in interest rates are likely in the months ahead.” Swiss retail sales are due for release today. The EUR should continue range trading at current levels and may pull back some ground against the USD as the greenback rally is believed to be losing steam.

JPY

Carry trades have continued to rise, but the moves today reflect cautious buying ahead of the Bank of Japan's interest rate decision. Although the market does not expect the central bank to raise interest rates, there is a minor risk that they could. The Japanese Yen has sold off significantly over the past few months putting the government under pressure to put a halt to the currency's slide. Now that the Yen has also hit a five year low against the US dollar, the criticism of the currency's weakness could heat up. Prior to that, the Europeans were the primary ones complaining about the weak yen's impact on global trade but the market barely reacted because their bark tends to be bigger than their bite. If the US starts getting uncomfortable as well, it becomes a totally different story. Therefore if USD/JPY continues to rise, the chance of a Bank of Japan interest rate hike will increase as well. In the meantime, continue to keep an eye on the US equity markets. Carry trades will die when the Dow dies. Aside from the BoJ interest rate decision, we also have the tertiary industry index and the BoJ monthly report due for release.

Technical Analysis

EUR/USD

The EURUSD is at an important juncture right now. The pair bounced off of the 100% extension of 1.3552-1.3392/1.3552 at 1.3264 and in our candlestick analysis we can see a hammer developing indicating a potential reversal. The daily charts are bearish and the hourlies are slowly unwinding from oversold levels. Indicators are showing that there might be a correction up, before the move down resumes.

GBP/USD

The decline from 1.9964 is a clean 5 wave affair and an a-b-c correction is unfolding from 1.9621. This correction should be complete near 1.9833/35. The hourlies produce mixed signals and show no distinct bias. It looks as if the preferable strategy would be to wait for a clear sign to confirm the daily bullish trend.

USD/JPY

The pair is peaking at 123.06 and is in the midst of a very strong uptrend which was initiated at the beginning of March. As for now all indicators support the bullish notion, together with bullish signals from the Daily studies. The hourlies are a bit overbought which indicates that buying on dips might be the preferable strategy today.

USD/CHF

The recent upward channel pattern that was formed on the daily charts has been breached. and the pair is now floating at a key pivot point. It looks as if the pair might test level 1.2481 level before we begin to see this pair retreat.

Wild Card

USD/CAD

Forex traders should be aware as this pair should have a sustained bullish run targeting the 1.0800. All momentum is still upward bound and indicators are still in OB territory. Traders should take advantage of today's profit taking opportunities.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3510	1.9789	123.78	1.2514	0.8469	0.6843
	1.3476	1.9759	123.55	1.2495	0.8435	0.6810
	1.3348	1.9729	123.29	1.2476	0.8403	0.6788
Support	1.3295	1.9679	122.78	1.2419	0.8345	0.6718
	1.3265	1.9653	122.50	1.2396	0.8310	0.6682
	1.3240	1.9525	122.23	1.2362	0.8281	0.6653

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
06/15/07	12:30	USD	CPI	m/m	0.4%	0.6%
06/15/07	12:30	USD	Core PPI	m/m	0.2%	0.2%
06/15/07	12:30	USD	Empire State Business Conditions Index		0.8%	11.1%
06/15/07	12:30	USD	Current Account		-196B	-203B
06/15/07	13:00	USD	TIC Net Long-Term Transactions		67.6B	71.8B
06/15/07	13:15	USD	Industrial Production m/m		0.7%	0.1%
06/15/07	13:30	USD	Capacity Utilization Rate Claims		81.6%	81.6%
06/15/07	14:00	USD	Consumer Sentiment	(p)	88.5%	88.3%