Forex Tips & Daily Analysis

Economical News

USD

Yesterday the greenback slipped sharply against the EUR on the back of significant US stock market losses. Nevertheless it managed to gain back some much needed ground against the EUR. The USD was trading at 1.4241 against the EUR yesterday but it managed to rally later on and break the key 1.4200 mark. The main driver of this small greenback recovery was the release of the Empire State Business Conditions Index which surprised on the upside coming in at 28.8, beating the expected figure of 13.0. This Index measures the general business conditions of manufacturers in New York State and it was the only significant US economic event that was released yesterday. This positive data also helped the greenback find some reprieve against the GBP, as although it did not strengthen against the British currency it did manage to hold its ground which is a positive sign as the GBP has been on a sustained bullish rampage against the greenback. On Friday, there was also a string of positive US data, however the greenback fell sharply as the unexpectedly strong PPI figure once again raised inflation concerns for the Fed. However it will be important to monitor inflation as the previous rate cut by the Fed seems to already be bolstering producer prices, so it will be a major concern for the US economy if this results in a significant rise in consumer prices. On the back of last week's FOMC meeting the Fed was expected to once again slash its key interest rate. However, this expectation has been offset by the latest string of robust US data. Yesterday's strong Business Conditions Index reinforced the sentiment that the Fed will not cut the interest rate at the end of this month thereby boosting the greenback.

Looking ahead to today, there is more significant news to be released from the US, kicking off with Industrial Production which is expected to release slighlty lower than last month's figure of 0.2% at 0.1%. Also, Treasury Secretary Paulson will speak today about the housing market, which will be closely followed by investors for hints on the Fed's future monetary policy as a another monetary easing may be what is necessary to help the struggling housing sector. If the recent trend of US data is anything to go by then today's news events, including the Capitalization Rate and the NAHB index, may very well spring another surprise on the upside. However with the current negative USD sentiment and with the ever rising Oil prices, the greenback is likely to remain under pressure.

EUR

Yesterday, the EUR maintained its bullish surge against the USD and the JPY in particular; however it did lose some of its gains on the back of the positive US data. The strong EUR is definitely beginning to be a concern for the European economy as it will dampen growth in the long run and it seems that this topic will be raised in the upcoming G7 meeting. The main reason why the strong EUR will dampen growth is due to the fact that European exporters are finding it harder to compete against the US and the Chinese in the global trading market. Therefore cracks are beginning to appear in the European economy as indicated by recent data because the German economy, which is a major player in the EU, is heavily dependant on exports. Today, the most significant news to be released from the Eurozone will be the German ZEW Economic Sentiment, which measures institutional investor sentiment, this figure is expected to release lower than last month's figure of -18.1 at -22.0. However any negative data is unlikely to cause the EUR to reverse as it has shown its resilience in recent weeks and with the greenback under pressure, the EUR should stay on its bullish path.

JPY

The JPY experienced a whipsaw trading day yesterday, as it fell to 117.91 against the USD on the back of stronger equities. However as stocks began to experience significant losses the JPY recouped and it touched the 117.09 level against the greenback. The US stock market took a tumble yesterday after fresh concerns were raised about global credit. The way the JPY traded yesterday gives a strong indication that there is once again a correlation between equities and the JPY crosses. The fall of US stocks caused investors to drop their carry trade strategy and seek a safe-haven investment, thereby causing the JPY to rally after being sold-off sharply. However in the longer term all the JPY crosses should remain bullish as it seems that carry trades will remain the preferred strategy by investors, as the BoJ is no position to hike its interest rate in the near future. Nevertheless, traders should closely monitor the performance of equities as the correlation between stocks and the JPY crosses has been evident over-and-over again and the future direction of the JPY may very well depend on the performance of US stocks.

Technical Analysis

EUR/USD

The pair is floating in a relatively tight range for several days now, as can be seen on the 4 Hour chart. No significant break through the 1.4240/1.4260 range has occurred, and the hourlies continue to deliver mixed signals. The daily chart is giving a moderately bullish sentiment with a bit more room to run.

GBP/USD

The 4 hour chart notes that a tight bearish channel is forming and traders should seek the breakout to get into the market at a good entry point for a long position. The daily charts are delivering mixed signals.

USD/JPY

There is a local consolidation around 117.40, after a moderate rally.

On the daily and 4 H chart indicators seem to be sailing in neutral territory as usually indicates an upcoming breakout of the neutral channel barriers which is located at 117.00 - 117.60. Hedging seems to be the right strategy until the breakout direction will be determine.

USD/CHF

USD-CHF has had a sharp fall during the day and it is coming close to its important Support of 1.1760-50, the lower end of the 1.1900 and 1.1750 range within which the pair has been trading in the last two weeks. The pair could hold at its Support near 1.1760 for the next few hours, however a break below that would result in the pair becoming bearish. If that is seen, then there could be a fall towards 1.1710-00 later on in the day or tomorrow.

Wild Card

Crude Oil

Over the past two weeks there is an extremely accurate upwards channel forming on the 4 Hour chart. Oil has made a significant move and is displaying a healthy consistent move up with plenty of room to run. The next significant resistance level is around 88.00 which provides forex traders with a great opportunity to jump in to this massive uptrend with large momentum still steaming.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4320	2.0500	118.30	1.1905	0.9130	0.7096
	1.4280	2.0470	118.00	1.1870	0.9085	0.7065
	1.4250	2.0450	117.75	1.1840	0.9050	0.7030
Support	1.4180	2.0380	117.00	1.1760	0.8960	0.6981
	1.4150	2.0350	116.73	1.1700	0.8928	0.6957
	1.4100	2.0300	116.47	1.1650	0.8900	0.6933

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2007-10-16	08:30	GBP	CPI	y/y	1.8%	1.9%
		CPI The Consumer Price Index (CPI) measures the rate of inflation (i.e., the rate of price changes) experienced by consumers when purchasing goods and services. A rising trend has a positive effect on the nation's currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates to bring prices down. Higher interest rates attract foreign investment, thus increasing demand for the nation's currency. CPI is one of the most closely watched indicators and will usually have a high impact upon release.
2007-10-16	08:30	GBP	Core CPI	y/y	1.8%	1.8%
		Core CPI Derivative of the Consumer Price Index (CPI) that excludes the volatile Food, Energy, Alcohol and Tobacco items. CPI with the exclusion of these volatile components is thought to be a better indicator of the underlying inflation trend and the central bank uses it as their primary inflation gauge, aiming to keep it at an annualized rate of 2%.
2007-10-16	09:00	EUR	German ZEW Economic Sentiment		-18.1	-22.0
		German ZEW Economic Sentiment Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment measures institutional investor sentiment. The monthly indicator reflects the difference between the share of investors that are optimistic and the share of investors that are pessimistic. For example, if 30% of participants expect the economic situation to improve within the next six months, 30% expect no change and 40% expect the economic situation to deteriorate, the ZEW Indicator of Economic Sentiment would take a value of -10. Thus, a positive number means that the share of optimists outweighs the share of pessimists.
2007-10-16	09:15	CHF	Retail Sales	y/y	3.3%	4.0%
		Retail Sales Measures the value of sales at the retail level. A rising trend has a positive effect on the nation's currency because Retail Sales make up a large portion of consumer spending, which is a major driver of the economy and has a sizable impact on GDP. Traders pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and is susceptible to surprises.
2007-10-16	12:30	CAD	Manufacturing Shipments	m/m	2.3%	-0.9%
		Manufacturing Shipments Measure the total value of shipments made by manufacturers.
2007-10-16	13:00	USD	TIC Net Long-Term Transactions		19.2B	60.0B
		TIC Net Long-Term Transactions Treasury International Capital (TIC) Net Long-Term Transactions measures the monthly difference in cross-border foreign and domestic purchases of long-term securities (i.e., bonds with an original maturity longer than one year). For example, if foreigners purchased $100 billion in US securities, and the US purchased $30 billion in foreign securities, the net reading would be $70 billion. A rising trend has a positive effect on the nation's currency because foreigners must first convert their domestic currency before they can purchase the nation's assets. This can dramatically elevate currency demand. Traders watch this indicator closely as it provides several insights into international currency flows.
2007-10-16	13:00	CAD	Interest Rate Statement		4.50%	4.50%
		Interest Rate Statement The Central Bank Governing Council releases an Interest Rate Statement each month. The statement contains the latest decision regarding changes to the countries short term interest rate ("minimum bid rate"). A rising trend has a positive effect on the nation's currency. Short term interest rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. What makes interest rates so important is that high rates attract foreigners looking for the best "risk-free" return on their money, which significantly increases demand for the nation's currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates in an attempt to bring prices down. This is what makes inflation-predicting indicators so important. Traders know that rising prices will lead the central bank to raise interest rates, which ultimately leads to a more valuable currency.
2007-10-16	13:15	USD	Industrial Production	m/m	0.2%	0.1%
		Industrial Production Measures the total value of output produced by factories, mines, and utilities. A rising trend has a positive effect on the nation's currency because high levels of production are a sign of a strong economy. Industrial Production reacts quickly to the ups and downs of the business cycle and can be a leading indicator of manufacturing employment, average earnings, and personal income. Traders pay special attention to Industrial Production because it's one of the few growth indicators that is produced directly by the Federal Reserve.
2007-10-16	13:15	USD	Capacity Utilization Rate		82.2%	82.2%
		Capacity Utilization Rate Measures the percentage of available resources being utilized by factories, mines and utilities. A rising trend has a positive effect on the nation's currency because companies tend to raise their prices when nearing maximum capacity. This price increase (i.e., inflation) will eventually trickle down to the consumer, so capacity levels can act as a leading indicator of CPI and other consumer inflation gauges. Traders pay special attention to the Capacity Utilization Rate because it's one of the only inflation indicators that is produced directly by the Federal Reserve.
2007-10-16	15:00	USD	Treasury Secretary Paulson Speaks		-	-
		Treasury Secretary Paulson Speaks US Treasury Secretary Henry Paulson will hold a press conference with French Finance Minister Christine Lagarde, in Paris.
2007-10-16	17:00	USD	NAHB Housing Market Index		20	19
		NAHB Housing Market Index The National Association of Home Builders (NAHB) Housing Market Index (HMI) combines several factors including present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers in new homes. The NAHB produces the index through a survey in which respondents are asked to rate the general economy and housing market conditions.
2007-10-16	23:50	JPY	Tertiary Industry Activity Index	m/m	-0.5%	1.0%
		Tertiary Industry Activity Index Measures the change in spending for services. A rising trend has a positive effect on the nation's currency because about half of the nation's workers are employed in the service industry. Strong spending in the services sector not only signals higher employment rates, but can also be a sign of strong consumer spending in the future.