Forex Tips & Daily Analysis

Economical News

USD

The greenback experienced mixed reactions yesterday as it gained further ground versus the JPY but extended its losses against the EUR and the sterling. The USD slipped to a new 26-year low against the sterling reaching the 2.0475 level on the back of the release of better than expected UK inflation figures which was another strong indication that we may see another rate hike by the BoE in the near future. The interest rate differential between the United States and England seems destined to continue to widen and this is putting sustained pressure on the greenback dropping it to unprecedented levels. There was a string of significant data releases from the US yesterday beginning with the PPI figures. The headline figure released in negative territory at -0.2 % while the core figure came in slightly better than expected at 0.3 %. The positive Core PPI release was followed by further positive news as Industrial Production and Capacity Utilization released better than expected at 0.5 % and 81.7 %, respectively. This string of positive data did not stop the dollar from continuing its slide versus the EUR and the sterling because it seems that the Fed is content on keeping a weaker USD as US exporters will be more competitive in the global market. However the greenback managed a rally against the JPY and it was further backed up by the TIC report which surprised on the upside releasing at 126.1B. The TIC report showed that foreign investors bought a record amount of US securities last month thus indicating that carry trades are unlikely to unwind in the near future and this caused the JPY to lose ground against the greenback. The fact that the headline PPI figure released negatively while the core figure only improved slightly indicated to the market that today's CPI figures may also be weak because the costs incurred by the producer are usually passed on to the consumer. However the Core CPI, which bears greater significance than the headline figure as it excludes the volatile food and energy items, may surprise the market and beat the expected figure of 0.2 %.

Looking ahead to today, besides the CPI figures, the market will be eagerly awaiting the release of Housing Starts and Building Permits figures which will shed more light on the status of the troubled US housing sector. It will be important for traders to note whether there was a correlation between yesterday's soft homebuilder's sentiment and today's housing figures. However most of today's volatility is expected to occur during Fed Chairman Brernanke's semi annual monetary policy testimony as traders will shift all their attention to identify a hint of a future rate hike, so they will listen closely to his views on inflation. If Bernanke is interpreted as being hawkish then we may see the dollar find some reprieve, however there is a strong possibility that the CPI and housing figures will be soft so the USD will crawl deeper into the bears' cave.

EUR

Yesterday the EUR continued on its bullish rampage trading at record levels against the greenback. The EUR also rose against the JPY reaching the 168.57 level on the back of comments made by an ECB council member that inflation is still a concern and that European inflation risks are rising. This indicated to the market that a rate hike in the near future is a realistic possibility. The most significant data to be released out of the Eurozone yesterday was the German ZEW Economic Sentiment which measures institutional investor sentiment. The figure came in at 10.4 which was much lower than the expected figure of 19.5. This negative data had no impact whatsoever on the EUR indicating to the market the depth of the bullish EUR. The only data to be released today is the Italian Trade Balance and the Eurozone Trade Balance which are expected to come in at -0.88 B and 4.0 B, respectively. This data is expected to make no significant impression on the EUR.

So with no real market moving data expected to be released from the Eurozone today the EUR volatility will be dollar centric. The market sentiment is to sell the dollar and it has been strongly poised against the greenback since investors increased their concerns over the troubled housing market. Therefore the European currency should be able to sustain its bullish momentum today and in the near future but much depends on today's US data releases and Bernanke's speech. Investor sentiment will also be key in determining the future EUR direction and where they feel the EUR has hit a peak against the dollar as many investors are beginning to feel that the EUR is nearing the tip of the iceberg.

JPY

Yesterday the JPY lost ground against the greenback on the back of the TIC report which showed record high foreign investment into US securities. With the JPY still reeling from the rise in carry trades which has been unrelenting in recent times, the positive TIC report only added to its woes dropping the Japanese currency to the 122.86 level. However the JPY managed to stage a fight back earlier today during the Asian trading session following the release of the Japanese monetary policy meeting minutes. According to the minutes of the board's June 14-15 meeting the nine members of the Bank of Japan agreed that they would adjust Japan's benchmark rate gradually and in accordance with the inflation and the economic situation of the country. Although the Japanese inflation is likely to remain flat the BoJ strongly believes that in the long term the CPI trend is upward and this will provide a basis for the BoJ to raise rates in the near future. Without any further significant news to be released for the rest of the weak we should see the JPY continue its rally against the struggling greenback.

Technical Analysis

EUR/USD

Daily chart signal on an upcoming reversal as Slow Stochastic is crossing at 86 , however there is a mild divergence which indicates that the reversal will be slight.

On the 4 H chart it can be observed that there is still more room left for the EUR to strengthen. We are in the middle of a bullish trend which might strengthen since the momentum 100.323 has a positive slope .

Going long might be the preferred strategy .

GBP/USD

The bullish trend seems to be running out of steam when Slow Stochastic crossed at 90 which indicates an upcoming reversal .

The 4 H chart suggests a significant reversal when the upcoming bearish trend might relocate this pair value at 2.0440- 2. 0472 Fibonacci retracement levels.

USD/JPY

Daily chart implyies on range trading when Slow Stochastic and RSI are sailing in neutral territory .

The 4 H chart indicates that the bearish trend will continue which might take this pair to 121.56 Fibonacci retracement level 23.6%.

Then we expect a reversal to take place.

USD/CHF

On the 4 H chart the bearish trend still has steam in it and may test the 1.1960 before the reversal will take place ,as a result of the mildly bearish channel which is observed.

Wild Card

Gold

Daily chart indicates a continuing bullish trend and Slow Stochastic is crossing with a positive slope .

We expect the gold to test the 670.84 resistance level ,and then the reversal will start to gather energy and take place. Forex traders may find the gold attractive today since there will be a clear opportunity for profit taking.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3510	1.9945	124.14	1.2514	0.8534	0.6843
	1.3476	1.9899	123.78	1.2495	0.8500	0.6810
	1.3400	1.9849	123.50	1.2423	0.8478	0.6767
Support	1.3315	1.9779	122.99	1.2360	0.8400	0.6700
	1.3265	1.9753	122.50	1.2312	0.8367	0.6682
	1.3240	1.9625	122.23	1.2289	0.8334	0.6653

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
07/18/07	8:30	GBP	MPC Meeting Minutes	y/y	5-4	6-3
07/18/07	8:30	GBP	Average Earnings Index +Bonus	q/y	4.0%	3.6%
07/18/07	8:30	GBP	Claimant Count Change		-9.3K	-7.6K
07/18/07	12:30	USD	CPI	m/m	0.7%	0.1%
07/18/07	12:30	USD	Core CPI	m/m	0.1%	0.2%
07/18/07	12:30	USD	Housing Starts		1.47M	1.45M
07/18/07	12:30	USD	Building Permits		1.52M	1.52M
07/18/07	14:00	USD	Fed Chairman Bernanke Speaks