Are Forex Traders Frustrated with the Dollar?
Economical News
USD
Although the USD remained pressured during Monday's trading day, the failure of the EUR to push through 1.3850 prompted a bout of profit taking following the currency's recent gains.
However, the beleaguered dollar found no reprieve in the overnight session, dropping to fresh 18-year lows versus the Aussie at 0.8847 and falling to a new 26-year low against the sterling at 2.0640.
Traders will closely assess this week's US economic reports to determine the trend direction for the greenback over the coming months - with overwhelming sentiment biased toward further declines as a result of expectations for global interest rate differentials.
The economic calendar for the USD today is light, consisting of only the July Richmond Fed manufacturing survey - seen improving to 5, up from 4 in the previous month. Traders will also continue to analyze earnings releases and monitor US equity performance. There are also Fed officials scheduled to speak, including Mishkin and Poole.
Equities, bond yields, and the US dollar all recovered yesterday amidst the lack of any US economic data. However, none of these assets managed to regain all of Friday's losses, which suggests that the selling may not be over. This week's major event risks do not come until Wednesday at which time we will learn more about how much the situation in the housing market has worsened (major affect on the US economy). If existing and new home sales continue to fall, then Fed Chairman Bernanke might claim that things will worsen before they will get better. However if they rebound the market will continue to downplay the risks of a collapse in the housing market.
We don't expect the US government to stand in the way of further dollar weakness, however it seems that they are still feeling comfortable with the low greenback especially when it's supporting the wide export sector which will try to leverage the recovery to other territories. In actuality, the manufacturing sector is recovering strongly thanks to booming exports. This is one of the primary reasons why the housing market has not collapsed yet and why the stock market remains not far from its record highs; all due to the widespread benefits of a weak dollar.
The question that will be continuously asked is when the USD recovery will take place? Well, optimism is increasing which has translated into stronger capital spending and productivity shall offer that the recovery is in sight .
We think that EUR/USD is more likely to reach 1.3900 in the upcoming weeks as opposed to a significant reversal.
EUR
This morning, the EUR trades just beneath its all-time high against the dollar, hovering near 1.3820.
Today, economic data from the Eurozone includes the May current account balance, July service and manufacturing PMI, and May industrial orders. The May current account deficit is forecasted to weaken to 1.2 billion euros in May compared to the 4.0 billion euros a month earlier. The July services PMI is estimated to slip to 58 from 58.3, while manufacturing PMI is seen falling to 55.5 versus 55.6. Lastly, industrial orders for May are forecasted to reverse the previous month's 0.4% decline, rising by 1.1%, but slip to 7.8% versus 12.2% from a year prior.
Yesterday, the Euro climbed to a new record high in the early Asian trading session, but failed to hold onto its gains. This type of price action should be worrisome for EUR bulls, however we would need to see a close below 1.3780 to turn bearish which is unlikely.
This is the last chance that we will hear from ECB officials before they go on their summer holidays and the lack of concern over the past few weeks implies that they fully intend to raise interest rates to 4.25% over the next few months.
Yesterday, the ECB member Papademos pointed out that some EZ countries have raised their growth rates while Stark talked about how the current level of the EUR reflects the strength of the Euro zone economy.
Next month's monetary policy meeting will be a teleconference with no scheduled press conference. Although Trichet has announced that establishing an impromptu press conference may not be out of the question, we expect him to wait until the September meeting to bring back the words 'strong vigilance.' At that time, he would be preparing the markets for an October rate hike and its will be interesting how the market will react when usually this expression boost up the EUR . Given Trichet's warning to EU government officials about interfering in ECB monetary policy, unless we see the EUR/USD at 1.45 in August, we do not expect to hear much from Trichet next month. Instead, what could lead to some further EUR selling is this week's busy data calendar. Today we are expecting EZ service and manufacturing PMI along with industrial orders and current account. All of these reports might affect the rates, which mean that they have decent chance of surprising to the downside.
Yesterday, he Sterling briefly popped to a new 26 year high above 2.0600, supported by the currency's yield advantage, before fading back to 2.0570. However, this morning, the GBP is on a rampage gaining 70 pips since the evening session and is trading at over 2.0635
JPY
The JPY was steady throughout Monday as the dust began settling from China's rate hike on Friday.
Friday's sell-off in the Yen crosses was driven by the fear that the problems in US sub-prime sector have become global. So far we have learned that they have not and because of that, some of the Yen crosses have recovered.
According to an article in the Nikkei paper, the value of Japanese investment into foreign trusts has increased 56%. The market's appetite for carry trades has also been fueled by their expectation of nonexistent inflation.
Consumer prices are due for release this Thursday night when another negative month is forecasted. Meanwhile the LDP elections are scheduled for Sunday and when latest opinion indicate that Prime Minister Abe and the LDP are losing support is effecting directly on both the Japanese Yen and Japanese equities.
The USDJPY pair did trade at a six week low of 120.37 during the night session when as overall the USDJPY traded with a range of a low 120.80 and a high of 121.65 before closing the day at 120.47
Technical Analysis
EUR/USD
On the 4 H chart we notice that the bullish trend is running a head. The volatility has decreased and the EUR/USD is in a consolidation pattern after it broke the 1.3830 resistance level. The price action should continue to be upwards in a range between 1.3810 to 1.3860. As it seems, the bullish pressure will continue to gather momentum also today. The long term target is 1.4000.
GBP/USD
On the 4 H chart, a rising wedge (bullish) is forming which may imply a continuation of the bullish carry trade; its recommended to time the entrance to the market with short term charts, 2.0620 seems like a strong entry point. At the moment GPB/USD is being traded around the 2.0590 to 2.0680 range. Volatility is low; we should expect to see also today bullish pressure on the GBP. The uptrend should continue on 2.0700 resistance.
USD/JPY
The USD JPY broke the 120.50 support. USD/JPY is in a downtrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands have tightened. We should expect to see also today a bearish configuration. 1H, 4H Elliott pattern implies that the pair will continue to gather momentum. The target is expected at 120.00
USD/CHF
The USD CHF is in a bearish configuration. The volatility has decreased. The pair has moved without a trend and has swung around the exponential moving average (EMA 50 and 100). Bollinger bands have tightened as well. 1H, 4H Elliott pattern implies a continuation of the bearish pressure. The target is expected at 1.2000
Wild Card
EUR/JPY
On the 4 H chart we notice that the bearish trend is running ahead. The volatility decreases and the pair is in a consolidation after it has broken the 166.70 support level. The price should continue to move downwards in a range of 167.10 to 166.20. As it seems, the bearish pressure will continue to gather momentum in the Forex market also today. The long term target is 164.00.
Market Trend
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
|---|---|---|---|---|---|---|
| Daily Trend |  |
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| Weekly Trend | |
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| 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 |
|---|---|---|---|---|---|---|---|
| 07/24/2007 | 08:30 | JPY | BOJ Governor Fukui Speaks |  | |||
| 07/24/2007 | 09:00 | EUR | Manufacturing PMI | 55.6 | 55.5 |  | |
| 07/24/2007 | 09:00 | EUR | Italian Retail Sales | m/m | -0.4% | 1.0% | |
| 07/24/2007 | 09:00 | EUR | Current Account | -4.0B | 0.0B | | |
| 07/24/2007 | 11:00 | GBP | CBI Industrial Trends Orders | 8 | 7 | | |
| 07/24/2007 | 13:30 | CAD | Retail Sales | m/m | 0.4% | 0.5% | |
| 07/24/2007 | 13:30 | CAD | Core Retail Sales | m/m | 0.0% | 0.6% |  |
| 07/24/2007 | 15:00 | USD | Richmond Fed Index | 4 | 4 | | |
| 07/24/2007 | 22:30 | USD | St. Louis Fed President Poole Speaks | |