ISM Manufacturing on Tap.
Economical News
USD
As the US market was closed yesterday for the labor's day holiday no news was released from the US and movements in the market were still an echo of Ben Bernanke's speech on Friday. The President of the US Fed spoke on Housing, Housing Finance, and Monetary Policy at the Federal Reserve Bank of Kansas City. Investors understood his concerns of mortgage market developments and their "possible implications for the broader economy" as a sign for a rate cut, furthermore the "deterioration in financial market conditions and the tightening of credit since its August 7 meeting had appreciably increased the downside risks to growth". The announcement of ISM Manufacturing Index today and Non-farm employment change on Friday will indicate further if this rate cut will already occur in the September FOMC Meeting.
ISM Manufacturing Index, which measures the activity of purchasing managers, is expected to fall from 53.8 to 53.2 supporting the notion of an economical slowdown. ISM Manufacturing Prices are expected to fall from 65.0 to 63.1 indicating a reduction of inflation experienced by manufacturing organizations. Non-farm employment for August, which will be released on Friday, is expected to rise from 92K to 110K and will, together with the ISM data today, be crucial in order to determine the timing of a Fed rate cut possibly as early as September 18th. A negative surprise regarding the Non-farm Payrolls will probably bring about the rate cut, indicating that the economy already was in a slowdown before the sub prime credit woes shook the market.
Without further market moving news today the USD will only react to the ISM Manufacturing Index and prices, and if the outcome takes course as expected the USD will trade flat today.
EUR
Yesterday was a quiet day for the EUR principally because of the U.S. holiday, although there was a bit of a spillover from Friday's U.S. session.
The EUR traded around session lows against the USD after dropping to the 1.3610 level late yesterday evening.
There was a comfort factor from Bernanke's speech that the Federal Reserve is equipped to act in any moment of necessity. In addition, yesterday's UK economic news proved far more supportive as GBP Manufacturing PMI surprised with strong 56.3, beating expectations of 55.1. German Manufacturing PMI released inline with expectations at 56.0. The GBP Retail Sales Monitor came yesterday in just above expectations at 1.8%.
The 13 nation currency managed to appreciate all across the board ahead of Thursday, which is expected to be the "all European" day with major events like the BOE and the ECB Interest Rate Statements and the ECB President Trichet Speech. The ECB is expected to keep its benchmark refinancing rate at 4%.
Today is also devoid of any significant data so we should see the EUR continue range trading. We could see some strong volatility through the following days, so it will be crucial for traders to identify how the preceding economic indicators from European and the U.S markets will affect the currency.
Despite the good European fundamentals, currency traders remain nervy mainly about the stability of the credit markets.
JPY
News out of Japan offered little hope for yen strengthening at the beginning of the week as both labor and business data were very unsatisfactory with the headline figure slumping into negative territory.
Sunday's JapaneseCapital spending came in much weaker than expected at -4.9% in contrast to a 13.6% gain in the previous month. The Average Cash Earnings has also suffered a drop to a -1.9% level. In fact, it was the worst performance of that index in more than three years showing that Japanese consumer spending will likely remain relatively weak as wages refuse to rise. This adds to expectations that the BOJ's rate hike will be delayed for the rest of this year.
However, the impact on yen trading was limited with most yen traders still focus on the carry trade theme. Yesterday the JPY dropped slightly against the USD touching the 115.80 level.
The following days will provide almost no news from the Japanese markets except the Machine Tool Orders and the Leading Index, both of a minor importance.
Therefore, most price movement on JPY pegged currencies will be derived from the European and American markets, while carry trades and equities might resume their gains this week.
Technical Analysis
EUR/USD
On the 4 H chart we notice that the bearish trend is running ahead. It appears that the pair is going to break the 1.3600 support. The volatility decreased and the EUR USD is consolidating after it broke the 1.3610 support level. The price should continue to move downwards in a range of 1.3630 to 1.3580. As it seems, the bearish pressure will continue to gather momentum.
GBP/USD
The GBP USD is in a bearish configuration. The volatility decreased. The pair moves without trend and swings around exponential moving average (EMA 50 and 100). the pair is now forming a downwards channel with strong resistance at the 2.0145 level. Its recommended to time the entrance to the market with short term charts, 2.0170 seems like a strong entry point. Bollinger bands have tightened. 1H, 4H Elliott pattern implies a bearish pressure. The target is expected at 2.0120.
USD/JPY
USD JPY is in a downtrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands are tightened. We should expect to see also today a bearish configuration. 1H, 4H Elliott pattern implies that the USD JPY will continue to gather momentum. The target is expected at 115.15 level.
USD/CHF
The USD CHF is in a bearish configuration. The volatility decreases. USD CHF moves without trend and swings around 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 1.0480
Wild Card
Crude Oil
Gold broke the 673.45 resistance level. Gold is in an uptrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands are tightened. We should expect to see today a bullish configuration. 1H, 4H Elliott pattern implies that the Gold should to gather momentum also today. The target is expected at 675.00. This provides Forex traders with a great opportunity to go long on a very healthy uptrend.
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 | 1.3700 | 2.0244 | 116.27 | 1.2170 | 0.8319 | 0.6825 |
| 1.3655 | 2.0200 | 116.00 | 1.2145 | 0.8300 | 0.6800 | |
| 1.3620 | 2.0176 | 115.70 | 1.2115 | 0.8265 | 0.6785 | |
| Support | 1.3570 | 2.0120 | 115.21 | 1.2060 | 0.8200 | 0.6731 |
| 1.3543 | 2.0100 | 115.00 | 1.2025 | 0.8170 | 0.6700 | |
| 1.3514 | 2.0083 | 114.70 | 1.2000 | 0.8145 | 0.6680 |
Indicators
| Date | Time GMT | $€£¥ | Event | Period | Prev. | Forecast | Imp |
|---|---|---|---|---|---|---|---|
| 4/09/2007 | 5:45 | CHF | GDP | q/q | 1.6% | 0.6% |  |
| 4/09/2007 | 14:00 | USD | ISM Manufacturing Index | - | 53.8 | 53.2 | |
| 4/09/2007 | 14:00 | USD | ISM Manufacturing Prices | - | 65.0 | 63.1 |  |
| 4/09/2007 | 23:30 | AUD | Interest Rate Statement | - | 6.5% | 6.5% | |