Data on Tap - Existing Home Sales.
Economical News
USD
Yesterday the USD continued to range trade in bearish terrain against the EUR and the Sterling on a day which was light on US news releases. However the greenback experienced some strong volatility against the CAD on the back of the release of Canadian Retail Sales which soared to 2.8 % in May, beating the expected figure of 0.5 % and thus posting the largest monthly gain in just under a decade. Also the Core figure came in at 2.3 %, beating the expected figure of 0.6 %. The dollar slipped to a thirty year low against the CAD as the unexpectedly strong retail sales figures triggered expectations that the Bank of Canada will be hawkish with regards to its future monetary policy. Investors have been expecting the Bank of Canada to hike the interest rate in September but yesterdays retail sales figures has got investors believing that we will see rate hikes even beyond that point. However the dollar freefall against the CAD can also be attributed to the US economy's worsening credit woes coupled with problems in the housing sector, which are the main factors responsible for the underlying weakness in the USD. To make matters worse for the troubled US housing sector it was reported yesterday that the largest US mortgage lender, which is a company called Countrywide Financial Corp., cut its full year earnings projection and reported a 33 % drop in its second quarter profits.
Looking ahead to today, the most significant news to be released from the US will be the Existing Home Sales figure which is expected to release significantly lower than last months figure of 5.99 M at 5.87 M. It is also very important for traders to watch the US stock market closely today because if the Existing Home Sales figure releases weaker than expected this may cause the equity markets to panic and therefore there will be potential for a carry trade unwind. Should a carry trade unwind occur it will cause the greenback to appreciate against the higher yielding currencies even though it is currently under a lot of pressure. On the other hand the carry trade unwind will cause the dollar to weaken significantly against the JPY. However in the longer term the USD should weaken against the higher yielding currencies as US Core inflation is likely to continue to trend down and the recession in the housing market will bear a significant impact on future US GDP figures. Also the weak dollar is in the Fed's interests as it is boosting exports and thereby strengthening the US economy
EUR
Yesterday, there was a string of soft Eurozone data releases which indicated to the market that some cracks are beginning to appear in the resilient European economy. The Manufacturing PMI figure came in at 54.8 which was below the forecasted figure of 55.5. However the most disappointing data to be released yesterday was the Eurozone Current Account which released in negative territory at -8.6 B which was well below the expected figure of 0.0 B. Therefore the EUR had a rather mixed trading session yesterday as it reached a new record high against the greenback during the US trading session peaking at the 1.3850 mark but it was unable to stay at this level on the back of the weak Eurozone news releases.
Today there are no news events to be released from the European market and as a result of the important US Existing Home Sales release any sharp EUR movements will be pegged to the USD. Also it seems that the bullish EUR surge is unlikely to subside in the near future as there are no indications that the strong EUR is having a negative impact on European exports and there are no concerns that the ECB will proceed in the future with an active currency policy as this will conflict with their main goal of ensuring price stability.
JPY
The JPY strengthened all across the board yesterday particularly against the AUD and the NZD. There was a strong sell-off of all the JPY crosses except for the CAD/JPY as a result of the unexpectedly positive Canadian Retail Sales figures. The main reason for the JPY strength is the unwinding of carry trades which continued through to today's Asian trading session. Weakness in the US and Asian equity markets is causing risk reduction and as long as risk aversion remains at high levels the JPY crosses will continue to sell off. Also today's release of the US Existing Home Sales figure may cause US equity markets to panic if the figure is weak thereby causing further carry trade unwinding.
Earlier today during the Asian trading session the Japanese Trade Surplus released at 1.82 T which was below the forecasted figure of 1.85 T but it did not have any negative impact on the powerful JPY surge. The JPY has been extending its gains for a fourth straight day against the USD and the EUR making it its longest rally this year. With carry trades no longer the name of the game we should see the JPY continue on its upward trend today.
Technical Analysis
EUR/USD
A bullish channel is establishing on the 4 Hour chart and the pair is expected to breach the 1.3840 and to test the 1.3900 today.
A long term upward channel is establishing and it is more likely that the next breakout will be up, however if a breakout will not take place, the next move might be bearish since a 3 waves pattern on the daily chart is established and may take the pair to 1.3530 - 1.3600 soon.
GBP/USD
On the Daily a brief spike is forming through the support line, the GBP is showing signs of reversing. The slow stochastic is crossing above 90 indicating that we might see a reversal soon. The 4 Hour chart is also leaning towards a reversal.
USD/JPY
The USD/JPY broke the 120.05 support and immediately rebounded. USD/JPY is in a downtrend supported by 1 Hour exponential moving averages. The volatility is low, and the Bollinger bands have tightened. We should expect to see a bearish configuration. The 4H Elliott pattern implies that the USDJPY will continue to gather momentum.
USD/CHF
The USD/CHF is in a bearish configuration. The volatility has decreased. The pair moves without trend and swings around exponential moving average (EMA 50 and 100). The Bollinger bands have tightened and the 4H Elliott pattern implies a continuation of the bearish pressure.
Wild Card
Silver
There is an upcoming reversal which Forex traders might use for profit taking in the upcoming days. On the daily chart, the 5 Eliot waves pattern is shown and the A B C wave's formation might bring this pair to 13.00 however it might touch 13.40 first.
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 |
|---|---|---|---|---|---|---|---|
| 07/25/2007 | 2:00p | USD | Existing Home Sales | 5.99M | 5.87M |  | |
| 07/25/2007 | 6:00p | USD | Beige Book | - | - |  | |
| 07/25/2007 | 9:00p | NZD | Interest Rate Statement | 8.00% | 8.25% | |