Non-Manufacturing data is on tap today.
Economical News
USD
Last week was a particularly miserable week for the greenback as it lost significant ground all across the board and it slipped to another new all time low against the EUR. The dollar weakness was mainly being driven by the Fed interest rate cut and by the uncertainty surrounding the US economy. The main concern at the moment surrounding the U.S economy is that rising oil prices and falling home values will inevitably lead to a recession. Therefore, the Fed lowered its key interest rate by 0.25% in order to stave off this scenario. However a continued policy of monetary expansion by the Fed will revive inflationary concerns, so at the moment the greenback seems to be finely balanced on a double edged sword. The negative sentiment surrounding the greenback was so strong last week that even a significant upside surprise by the Non-farm Payrolls report on Friday was unable to provide the fledgling U.S currency with some reprieve. The strong NFP report was overshadowed by fears of huge losses at major U.S financial institutions.
Today the most significant news to be released from the U.S will be the ISM Non-Manufacturing Index, which measures the activity level of purchasing managers in the services sector. This figure is expected to release slightly lower than last month's figure of 54.8 at 54.0. Looking ahead, traders will be paying close attention to Fed Chairman Bernanke's speech later on in the week for any hints on future monetary policy. Also on Friday there will be the release of the U.S Consumer Sentiment figure and the Trade Balance, which will also be closely followed by investors. There is a strong possibility that the Trade Balance figure may surprise on the upside, as the weak greenback has boosted U.S exports. However with the U.S economy still reeling from the subprime mortgage crisis and with major U.S financial institutions in turmoil, it seems that the dollar will continue to stare down the barrel and that a sharp bullish reversal is highly unlikely. Nevertheless, investors may not be keen to keep shorting the greenback at such record low levels.
EUR
The EUR hit an all time high of 1.4528 against the greenback on Friday on the back of the reported U.S financial institution turmoil. The EUR has been on a sharp rise against the greenback over the last few weeks, reaching record levels multiple times. However EUR volatility should decrease this week as investors exercise caution ahead of the ECB's Interest Rate Announcement on Thursday. The ECB is expected to keep its key interest rate unchanged at 4.00%, so investors will pay close attention to ECB President Trichet's speech for any hints of a future rate hike. If Trichet uses the words “strong vigilance” with regards to combating inflation then this will be a very strong indication of a future rate hike and this could boost the EUR to another record high against the greenback. However if Trichet states that the ECB will adopt an “accommodative stance” then we could see the bullish EUR rampage stopped dead in its tracks. Many analysts believe that Trichet will be dovish with regards to future monetary policy as any hawkish comments will boost the EUR and the ECB will be reluctant to push the EUR higher.
The only news to be released from the Euro-zone today will be the Sentix Investor Confidence, which measures investor confidence towards the Euro-zone economy. This figure is not considered significant and will not have any major impact on the market. So the EUR should range trade today as investors will be hesitant to push the EUR higher ahead of Trichet's speech on Thursday.
JPY
The JPY rose against the USD and the GBP in the Asian trading session as investors shied away from carry trades. This carry trade unwind was mainly being driven by news that Citigroup Inc. will report as much as $11 Billion in additional losses and by fears that more U.S banks will report losses on subprime mortgages. The carry trade strategy is preferred by investors when there is a “risk-appetite” in the market and then they can throw caution to the wind. However the turmoil in major U.S financial institutions is creating a risk aversion sentiment among investors, which is resulting in a carry trade unwind. It will be difficult for the carry trade unwind to be sustained as Japan's 0.5% benchmark interest rate, the lowest among major economies, encourages borrowing in the currency. However due to fears of major losses in U.S banks, the Japanese currency has benefitted as investors have become more risk averse and have repurchased the currency to exit trades financed in Japan.
Today, no significant data is expected to come out of the Japanese markets, and the JPY should maintain its bullish path if carry trades continue to unwind
Technical Analysis
EUR/USD
On the 4 Hour chart we notice that the bullish trend is running ahead. The volatility has increased and the EUR/USD is consolidating after it broke the 1.4480 resistance level. The price should continue to move upwards in a range of 1.4430 to 1.4500. As it seems, the bullish pressure will continue to gather momentum today as well.
GBP/USD
The cable is showing a steady increase in the past few days with relatively low volatility. The hourlies are bullish, and the slow stochastic of the 4 Hour and the daily charts are floating on 50 level, which indicates the continuation of the bullish momentum. Next target price is around 2.0900.
USD/JPY
A mild bearish channel is forming On the 4 Hour chart with 114.00 as a support barrier which may be tested today. In case of a breach, the pair might be in its way to 113.50. Going long might be preferable after the reversal will take place.
USD/CHF
There is a strong bearish channel on the 4 Hour chart as the pair now floats on the upper level of it. All oscillators show that the momentum should continue without a reversal which indicates that we might see a break through the bottom level. If a breach through the 1.1510 will occur, we should see a very strong bearish trend into the 1.1450 level.
Wild Card
Crude Oil
After peaking at an all time of 95.96, Crude Oil seems to be calming down a bit, and is now in a correction stance. There is a bearish cross forming on the daily chart which indicates that it might be a great opportunity for Forex traders to go short on a very strong potential correction move. Next target price appears to be around 94.00.
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 | 1.4580 | 2.0915 | 115.55 | 1.1627 | 0.9295 | 0.7035 |
| 1.4530 | 2.0885 | 115.26 | 1.1600 | 0.9265 | 0.7008 | |
| 1.4500 | 2.0860 | 115.00 | 1.1573 | 0.9230 | 0.6980 | |
| Support | 1.4432 | 2.0800 | 114.43 | 1.1500 | 0.9160 | 0.6915 |
| 1.4408 | 2.0770 | 114.05 | 1.1470 | 0.9132 | 0.6880 | |
| 1.4388 | 2.0740 | 113.77 | 1.1433 | 0.9100 | 0.6853 |