Forex Tips & Daily Analysis

Economical News

USD

As a big proponent of transparency, Federal Reserve Chairman Ben Bernanke had no surprises for the market when he delivered his testimony on the economy and monetary policy to the Senate yesterday. The question and answer session continued to center on the problems in the sub-prime sector and Bernanke responded by reiterating the Fed's growing concern that the problems in housing could get worse before they get better. He even went so far as to say that sub-prime losses could hit $50-100 billion. This concern is the main reason why the market did not react to the more optimistic minutes from last month's monetary policy meeting. Bernanke's take is a far more accurate and current account of how the Fed really feels. Despite a larger drop in leading indicators and a much weaker than expected Philly Fed manufacturing survey, the dollar failed to budge. This was due to the fact that oil prices continued to rise while jobless claims were much lower than expected last week. As long as the labor market holds steady, the economy could still recover. In the near term, the dollar looks prime for a breakout against both the Euro and Japanese Yen. What could cause the next big move? It seems that it will be Housing and the Dow. With everyone focusing on the contagion effect of sub-prime problems, next week's existing and new homes sales will be particularly important. Also, the Dow is struggling to stay above 14,000. If that proves to be unsurpassable resistance, then a reversal in US stocks could also lead to big movements elsewhere in the currency markets.

EUR

The Euro continued to hover near its record highs today. German producer prices were the only piece of data released and they fell short of expectations. Interestingly enough, the Euro rallied on the back of this release. The central bank's commitment to continue to raise interest rates has helped to keep the Euro steady near its record highs. There were reports yesterday that German Chancellor Merkel is considering introducing measures that would make it more difficult for foreign state controlled funds to invest in German companies. More specifically she is attacking the increasing number of Chinese and Russians that are interested in German companies. This measure of protectionism is a sharp shift away from the comments she made at the Davos conference in the beginning of the year. Back then, she warned of the perils of protectionism and urged greater dialogue between developed and developing nations. Meanwhile over in Switzerland, the Franc broke down after the release of a much weaker than expected Swiss ZEW survey. The trade surplus was higher, but the fact that analysts turned pessimistic on the Swiss economy despite strong economic data was worrisome.

JPY

The JPY has had a relatively mixed week. It began the week firmer against the USD mainly as a result of the recent dollar slide but it lost some of it gains towards the middle of the week on the back of the US TIC report. The US TIC report showed record high foreign investment into US securities and this was a strong indication to the market that the carry trades were unlikely to unwind in the near future. Therefore the JPY which is still reeling from the rise in carry trades which has been unrelenting in recent months dropped to around the 122.80 level against the greenback. The JPY has managed to pull back some ground against the struggling greenback since the TIC report but with the prevailing wide interest rate differential between Japan and the rest of the world investors will be hesitant to let up on the carry trades. There was no significant economic news released from Japan yesterday or today so JPY movement will be pegged to the majors. The JPY should continue to range trade at current levels for the remained of the day.

Technical Analysis

EUR/USD

The correction from 1.3773 may extend higher, but should be contained by the 61.8% of 1.3832-1.3773 at 1.3809. An initial bearish target is 1.3700. However both the daily and hourly charts still indicate that there is more room for this pair to strengthen so if a reversal occurs it will be slight.

GBP/USD

After a brief spike through the resistance line drawn off of the 6/12, 6/20, 6/22, and 7/2 highs, Sterling is showing signs of reversing. The slow stochastic is crossing above 90 indicating that we may see a reversal soon. The 4 H chart is also supporting a reversal.

USD/JPY

The dailies and the hourlies both indicate that the bearish trend will continue which might take this pair to the 121.60 level. Both momentum and RSI are sloping downwards supporting an imminent bearish trend. A short position may keep risk tight at the current levels.

USD/CHF

Bollinger bands are widened on the daily chart suggesting increased volatility. The daily chart is bearish while the hourlies are bullish. So the preffered strategy may be to short on 4 hour highs.

Wild Card

Crude Oil

The daily and the hourly charts both indicate a strong bullish trend. The slow stochastic is crossing with a positive slope. However the momentum and RSI are both indicating overbought levels, so we may see a reversal in the near future but for today the crude oil should continue on its steady rise. Therefore Forex traders may find a long position on crude oil very 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
20.7.07	07:15	CHF	PPI	m/m	0.9%	0.4%
20.7.07	08:30	GBP	GDP(p)	q/q	0.7%	0.7%
20.7.07	08:30	GBP	Index of Services	3m/3m	1.0%	1.0%
20.7.07	09:00	EUR	ECB President Trichet Speaks
20.7.07	15:00	USD	St. Louis Fed President Poole Speaks