Forex Tips & Daily Analysis

Economical News

USD

Yesterday, the greenback continued to trade on a slippery slope and although it only lost some slight ground against the EUR, it did slip significantly against most of the other majors. Yesterday was relatively light on U.S data with the main event being the Consumer Confidence figure which released well below the expected 99.0 at 95.6. This additional piece of negative data only marginally increased the problems of the fragile greenback, which has been under immense pressure the entire week ahead of today's release of the Fed's Interest Rate Statement. The current widespread market expectation is that the Fed will slash its key interest rate by 0.25%. Therefore if the Fed disappoints investors by holding back a rate cut then it will risk upsetting the still-fragile markets and harming the economy. The rationale behind a rate cut by the Fed is too prevent the rising oil prices and falling home values from driving the U.S economy into a recession. Following the Interest Rate Announcement will be the Fed Statement which will be closely followed by investors who will be on the prowl for any hints on future monetary policy changes. It seems that the Fed would probably come out with an open-ended statement that will shy away from promising any future rate cuts. Since if the Fed hints towards future rate reductions then the greenback will head towards another freefall and it will also revive inflation concerns, which will be problematic for the U.S economy in the long run. In the beginning of October the majority of traders believed that the Fed will cut the interest rate by at least 0.75 % at its next meeting. However they scaled down their expectations to 0.25% on the back of the revised August payroll numbers, which now showed a gain instead of a decline. Nevertheless there has been fresh market turmoil over the last two weeks as there have been further signs of weakness in the housing sector combined with dismal earnings reports of major U.S banks and therefore this has again prompted some investors to believe that the rate cut will be greater than 0.25%.

There is another host of significant U.S data to be released today which includes the ADP Non-Farm Payrolls Report, the Annualized GDP and the Annualized GDP deflator figures. Although the Fed Interest Rate Announcement will be taking centre stage today, it will also be important to watch the ADP report which will give the market an indication of the all important NFP report that we can expect on Friday. The greenback should experience some sharp volatility today and if the interest rate is released inline with expectations then the greenback will continue to plummet before the recovery process can begin.

EUR

The EUR continued its bullish rampage against the greenback yesterday mainly being driven by investor expectations of a U.S rate cut today instead of actual EUR strength, as the European currency traded indifferently against most of the other majors. The widening growth differential and the tightening interest rate differential between Europe and the U.S has caused the EUR to trade in unknown territory against the greenback, breaking all time highs more than once in the last few weeks. Today, there is a string of data to be released from the Eurozone which includes the German Retail Sales, Consumer Confidence, CPI, Italian CPI and ending of with Eurozone Unemployment Rate. However these figures will be insignificant today as all eyes will be on the Interest Rate Announcement by the Fed and therefore most of the EUR volatility today will be pegged to the greenback.

The continuous strengthening of the Eurozone currency has been making it more difficult for European exporters to compete on the global market. This has been particularly felt in Germany which is heavily reliant on exports and since Germany is a key player in the Eurozone economy we should see some drawbacks on overall European growth begin to appear. Therefore the state of future growth and inflationary concerns will be key determinants in the ECB's monetary stance, however for now, with regards to the direction the EUR against the greenback, the ball is in Bernanke's court.

JPY

Earlier today, during the Asian trading session, there was the release of the Japanese Average Cash Earnings. This figure measures the monthly change in the wages paid to jobholders and it released in negative territory at -0.5%, which was well below the expected figure of 0.2%. However the main news event to be released out of Japan earlier today was the BoJ's interest Rate Statement, which remained unchanged at 0.5%. Deflation still remains as a real concern of the BoJ and until it reaches a favorable target level it is unlikely that the BoJ will be in a position to hike rates.

The Japanese interest rate release did not have any significant impact on the JPY as the market seems to be holding its breath ahead of today's U.S interest rate announcement. Therefore the JPY managed to hold on to its recent gains and it may even push further upwards against the USD today if the Fed cuts the interest rate, which could also encourage a future carry trade unwind.

Technical Analysis

EUR/USD

Today, the 4 Hour chart implies on a possible recovery of the USD when both RSI (78) and Slow Stochastic (crossed at 82) are clearly in overbought territory. The 4 Doji bars imply on an upcoming move and it appears that going short might be preferable.

GBP/USD

On the 4 H chart we can see the Slow Stochastic crossed at 88 which is clearly in overbought territory and we expect for an upcoming reversal which will lead to a bearish trend. Meanwhile there is still room left for another strengthening before the reversal will take place.

USD/JPY

The pair is going through a choppy session in the past few days, and gives mixed signals on the hourly level. The daily chart is still showing a light bullish formation and it looks as if the pair is heading 116.00 again. A preferable strategy might be to wait for the hourlies to unwind before going long. Going short seems risky at this point.

USD/CHF

A strong bullish configuration is forming on a 4 hour chart. The volatility has increased. Hourlies are showing that the pair moves without a clear trend and swings around exponential moving average (EMA 50 and 100).

Wild Card

Crude Oil

Oil is consolidating at 89.50 after it has been going up for more than three weeks from 80.50. The slow stochastic on the daily chart is showing a strong bearish cross, and together with inability of the oil to breach through the strong resistance it delivers a great opportunity for forex traders to go short at a great entry point.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4530	2.0815	115.60	1.1700	0.9330	0.7100
	1.4500	2.0785	115.30	1.1667	0.9300	0.7055
	1.4480	2.0750	115.00	1.1620	0.9255	0.7030
Support	1.4380	2.0700	114.45	1.1550	0.9200	0.6940
	1.4350	2.0670	114.00	1.1500	0.9175	0.6900
	1.4310	2.0640	113.75	1.1485	0.9150	0.6885

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2007-10-31		JPY	BOJ Governor Fukui Speaks		-	-
2007-10-31	00:30	AUD	Building Approvals	m/m	-1.7%	0.9%
		Building Approvals Measures the number of new construction intentions. This data is a leading indicator for the construction industry since the issuance of a building permit is one of the first steps in the construction process.
2007-10-31	01:30	JPY	Average Cash Earnings	y/y	0.6%	0.2%
		Average Cash Earnings Measures the monthly change in the wages paid to jobholders.
2007-10-31	02:00	JPY	Interest Rate Announcement		0.5%	0.5%
		Interest Rate Announcement Each month the Bank of Japan (BOJ) Monetary Policy Committee (MPC) votes on where to set the nation's short term interest rate (i.e., "overnight call rate"). Shortly after each vote, the MPC releases a statement that contains the outcome of their vote. While no commentary is provided, a press conference regarding the economic conditions that effected their decision is held a few hours afterward. A rising trend in interest rates has a positive effect on the nation's currency. Short term 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. High interest rates attract foreigners looking for the best "risk-free" return on their money, which can dramatically increases demand for the nation's currency. The decision on where to set interest rates depends mostly on inflation. 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.
2007-10-31	05:00	JPY	Housing Starts	y/y	-43.3%	-32.0%
		Housing Starts NULL
2007-10-31	07:00	GBP	Nationwide House Prices	m/m	0.7%	0.2%
		Nationwide House Prices Measures the monthly change in the average price for a house in the UK. It serves as a leading inflation indicator for the housing market.
2007-10-31	07:00	EUR	German Retail Sales	m/m	-1.6%	0.8%
		German 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.
2007-10-31	09:00	EUR	Consumer Confidence		-5	-5
		Consumer Confidence Measures the mood of consumers in regard to economic conditions. The reading is derived from a monthly survey that asks respondents to evaluate the prospects for the economy in the future. GfK, a leading German market research company, publishes this indicator monthly. Higher readings point to higher consumer optimism. When consumers are optimistic they tend to purchase more goods and services, which stimulates the economy.
2007-10-31	10:00	EUR	CPI	y/y	2.1%	2.3%
		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.
2007-10-31	10:00	EUR	Unemployment Rate		6.9%	6.9%
		Unemployment Rate Measures the percentage of the total work force that is unemployed and actively seeking employment. A falling trend has a positive effect on the nation's currency. Working people tend to spend more, and consumer spending is a major driver of the economy. However, unemployment usually draws little attention because traders view it as a lagging indicator.
2007-10-31	10:00	EUR	Italian CPI	m/m	0.0%	0.1%
		Italian 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.
2007-10-31	10:30	GBP	Consumer Confidence		-7	-7
		Consumer Confidence Measures the mood of consumers in regard to economic conditions. The reading is derived from a monthly survey that asks respondents to evaluate the prospects for the economy in the future. GfK, a leading German market research company, publishes this indicator monthly. Higher readings point to higher consumer optimism. When consumers are optimistic they tend to purchase more goods and services, which stimulates the economy.
2007-10-31	10:30	CHF	Leading Index	m/m	2.14	2.10
		Leading Index Measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices, and interest rate spreads. The index is published monthly by The Conference Board, a leading private US research group, but traders tend to pay little attention because the components that make up the index are reported at an earlier date.
2007-10-31	12:15	USD	ADP Nonfarm Employment Change		58K	60K
		ADP Nonfarm Employment Change Measures the number of new jobs created in the previous month, excluding the farming industry. ADP, a leading provider of employment solutions for businesses, releases this indicator two days before the highly anticipated official Nonfarm Employment Change. ADP claims that this indicator has predictive value in regard to official statistics, but it hasn't yet gained acclaim from traders due to it's short history.
2007-10-31	12:30	USD	GDP Annualized	q/q	3.8%	3.1%
		GDP Annualized Gross Domestic Product (GDP) measures the total value of all goods and services produced by the economy. A rising trend has a positive effect on the nation's currency. GDP is the broadest measure of activity and the primary gauge of the economy's health. To foreign investors, a strong economy is viewed favorably because it spurs investment opportunities in the domestic stock and bond markets. More importantly, the central bank is more likely to raise interest rates in the face of a strong and growing economy. The combination of these effects can have a large impact on the demand for the nation's currency.
2007-10-31	12:30	USD	GDP Deflator Annualized	q/q	2.6%	2.0%
		GDP Deflator Annualized The Gross Domestic Product (GDP) Deflator measures the annualized quarterly implied rate of inflation for all economic activity. The deflator is used to calculate the difference between nominal and real GDP. The Federal Reserve takes special note of this indicator because it is the economy's broadest measure of inflation.
2007-10-31	12:30	USD	ECI	q/q	0.9%	0.9%
		ECI The Employment Cost Index (ECI) measures rate of inflation in the wages, salaries and benefits paid to civilian workers. A rising trend has a positive effect on the nation's currency. When businesses pay more for labor, they are likely to pass the higher costs to the consumer, so traders view wage inflation as a leading indicator of consumer inflation.
2007-10-31	12:30	CAD	GDP	m/m	0.2%	0.1%
		GDP Gross Domestic Product (GDP) measures the total value of all goods and services produced by the economy. A rising trend has a positive effect on the nation's currency. GDP is the broadest measure of activity and the primary gauge of the economy's health. To foreign investors, a strong economy is viewed favorably because it spurs investment opportunities in the domestic stock and bond markets. More importantly, the central bank is more likely to raise interest rates in the face of a strong and growing economy. The combination of these effects can have a large impact on the demand for the nation's currency.
2007-10-31	13:45	USD	Chicago PMI		54.2	53.0
		Chicago PMI The National Association of Purchasing Managers (NAPM) Chicago Purchasing Manager's Index (PMI) measures the health of the Chicago business environment. It's derived from a monthly survey of purchasing managers where respondents indicate whether their organization's activity is higher than, the same as, or lower than the previous month for output, purchases, employment, inventories, orders, and prices. An index reading above 50 indicates sector expansion.
2007-10-31	14:00	USD	Construction Spending	m/m	0.2%	-0.4%
		Construction Spending Measures the monthly change in value of new construction projects
2007-10-31	14:30	USD	Crude Oil Inventories		-5.3m
		Crude Oil Inventories The Energy Information Administration's (EIA) Crude Oil Inventories measures the weekly increase in barrels of commercial crude oil held in inventory by US firms. The level of inventories influences the price of petroleum products, which can have an impact on inflation and other economic forces.
2007-10-31	18:15	USD	Interest Rate Statement		4.75%	4.5%
		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.
2007-10-31	19:00	USD	BOE Chief Economist Bean Speaks		-	-
		BOE Chief Economist Bean Speaks Bank of England (BOE) Chief Economist and Monetary Policy Committee (MPC) Member Charles Bean will speak at a Dow Jones event. MPC members are responsible for setting the nation's short term interest rate, and traders scrutinize their speeches because they are known to drop clues regarding future monetary policy.
2007-10-31	22:30	AUD	Manufacturing PMI		50.7
		Manufacturing PMI The Manufacturing Purchasing Manager's Index (PMI) measures the activity level of purchasing managers in the manufacturing sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation's currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.