Forex Tips & Daily Analysis

Economical News

USD

Yesterday, USD trading was mixed against the majors, attributed to investor tracking of U.S. stock prices and mixed economic data.

The greenback was firmer against the JPY and EUR early in Asian trading hours (this morning), but still moving within narrow ranges as the market cautiously awaited further fallout in equity markets from the sub-prime lending problems in the US.

Yesterday ,Consumer Confidence rose to a near six year high for the month of July, whilst a softer than expected Core PCE and survey indicated slower business activity in the Mid-West which was shrugged off by the majority of the market. U.S. stock indices were also mixed in a volatile session, with blue chips recovering from one of Wall Street's worst weeks in five years. Equities pared the morning's strong gains, led by losses in the financial sector.

The markets are selling off once again as the troubles in the sub-prime sector continue to grow. Yesterday, everyone ignored the news that American Home Mortgage (which commands 2.5% of the mortgage market) had to delay its dividend however today, the double blow of major losses at Sowood Capital and C-BASS was too much for them to handle. The Dow went from being up 135 points in the early US trading session to down 146 points at the market close.This was a swing of 281 points on an intraday session which implies on extremely volatile market..

Economic data is also beginning to deteriorate, where aside from consumer confidence, every piece of US economic data released yesterday was weaker than expected. If we are looking for growth signals: personal income was unchanged in the month of June while spending slowed, which means that in terms of inflation, the market was looking for the monthly core PCE deflator to increase, however instead, it remained unchanged .

House prices and construction spending deteriorated as well but the big surprise yesterday was the sharp decline in the Chicago PMI index and the jump in consumer confidence. Despite continued weakness in the US dollar, regionally, growth in the manufacturing sector is beginning to slow, with both the Philly Fed and Chicago PMI indices dropping significantly. Today's national manufacturing index (ISM) will likely to follow yesterday's negative figures.

Only at the end of the week we might see an improvement in the US market when non-farm payrolls, due out this Friday, could actually be better than last month's figure. However, the improvement won't be as extreme as compared to June's data.

Contrary to what some people may think, the Fed is watching the stock market. President Poole hinted today that the central bank is watching the markets closely and will "act in due time if and when evidence accumulates that action is appropriate." That would involve deterioration in both inflation and employment, which makes keeping an eye on the NFP even more important.

Crude oil reached a record high, jumping by US$1.38 to $78.21 a barrel .We expected that the Weekly US crude report would show a decline in supplies on Monday which may cause a significant reduction in oil prices.

Traders are holding their breath for this Friday's Non Farm Payrolls however ,we are holding that according to the last US fundamental info another USD depreciation should be expected.

EUR

The EUR was little changed against the USD further cautiousness remained in the market. In data news, the EUR was supported by a positive inflationary reading and decline in Unemployment on Tuesday.

Economic data was mixed with German retail sales increasing less than expected on a monthly basis but more than expected on an annualized basis which may interpreted as signals of expansion. The number of people unemployed also dropped, which is supporting our growth speculations. However there is not enough information to tell whether the ECB will raise rates in September or October.

Euro zone inflation dipped back to 1.8% yr in July, after four months at 1.9% yr which in the inflationary boundaries of the ECB .

For the moment, the pace of growth is still very respectable but we are nearing crunch time as over the next month or two the process of moderation is expected to continue while positive base effects in the inflation series is going to force the ECB to hike rates. It should be noted though that we may be nearing the top end of the interest rate cycle. Recall that earlier in the year the US faced the same crossroads with the Dollar being sold off as the result. As such the EUR should get stronger by September.

Looking ahead, PMI Manufacturing for the EZ will be released for the month of July with forecasts of 54.8 down from the previous 55.6 which slightly expected to weaken against the majors.

UK consumer confidence fell on two different measures in July, probably reflecting the rate rise at the start of the month and the more recent devastating flooding across much of England. The CBI retail survey was soft for the second month running, probably also a function of the cool and wet “summer” weather.

The GBP gained overnight as temporarily aided with an early return to carry trades in the Asian session. Yesterday, there were only two bits of data from the U.K. and these showed a slight divergence in the outlook.

The GFK Consumer Confidence dipped lower as they came to grips with a higher interest rate burden on top of what is probably one of the most expensive cost-of-living in the world while the CBI Distributive Trades Report provided mixed result with expectations slightly lower than expected though the realized jumped up higher. Overall it does look as if the U.K. economy is beginning to peak but the high level of inflation and money supply will still pose a problem for the BOE. No hike is expected this week as the MPC members have shown quite clearly that they do not like jumping the gun but prefer to watch stats as they are released. However, a hike is high in probability for September.

JPY

The JPY continued its recent rallies as ongoing worries in the credit markets, prompted traders to unwind risky trades financed with the Japanese currency.

The Bank of Japan said it would start unloading in October billions of dollars worth of equities which it bought from commercial banks between 2002 and 2004 to prevent a crisis in the country's financial industry.

The central bank said it would complete the sale of the stocks, worth some 30 bln USD in market value, in 10 years by the end of September 2017.

As we all know the BOJ strict policy will do it's best to avoid a significant impact on the market as a result of the future massive JPY buying.

The central bank bought equities worth about 17 Bln USD (2 Trln Yens) in face value from commercial banks which were burdened with shares they held in companies through cross holdings.

The buying operation was aimed at helping commercial banks dispose of shares without disrupting the stock market and shield their earnings from market slumps.

Technical Analysis

EUR/USD

On the 4 H chart, we notice that the bearish trend is running ahead. It appears that the pair is targeting to the 1.3600 level. The volatility has decreased and the EUR/USD is in a consolidation period after breaking the 1.3650 support level. The price should continue to move downwards in a range of 1.3730 to 1.3600. As it seems, the bearish pressure will continue to gather momentum also today.

GBP/USD

On the 4 H chart, a falling wedge (bearish) is forming which may imply a continuation of the bearish carry trade. The pair is now forming a downwards channel with strong resistance at the 2.0100 level. It's recommended to time the entrance to the market with short term charts, 2.0200 seems like a strong entry point. At the moment GPB USD is being traded around 2.0260 to 2.0100 range. The volatility is low and today we should expect to see more bearish pressure on the GBP.

USD/JPY

The USD JPY broke the 117.75 resistance level. USD JPY is in a downtrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands have tightened. Again today, we should expect to see a bearish configuration. 1H, 4H Elliott pattern implies that the USD JPY will continue to gather momentum. The target is expected at 117.00 level.

USD/CHF

The USD CHF is in a bearish configuration. The volatility has decreased. USD/CHF is moving without a trend and is swinging around the exponential moving averages (EMA 50 and 100). Bollinger bands have tightened. 1H, 4H Elliott pattern implies a continuation of the bearish pressure. The target is expected at 1.1940

Wild Card

GOLD

The Gold broke the 661.50 support level. Gold is in a downtrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands have tightened.The Forex Market expects also for today a bearish configuration for the Gold. 1H, 4H Elliott pattern implies that the Gold will continue to gather momentum. The target is expected at 590.30.

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
08/1/2007	7:55	EUR	German Manufacturing PMI		57.3	57.0
08/1/2007	8:30	GBP	Manufacturing PMI		54.3	54.0
08/1/2007	12:15	USD	ADP Nonfarm Employment Change	m/m	150K	103K
08/1/2007	2:00	USD	ISM Manufacturing Index	m/m	56.0	55.7
08/1/2007	2:00	USD	ISM Manufacturing Prices	m/m	68.0	66.5