Forex Tips & Daily Analysis

Economical News

USD

The USD depreciated against most major currencies on Monday for the 3rd consecutive session, ahead of today's widely expected FOMC Interest Rate Statement. Also, yesterdays' data on U.S. Pending Home Sales for November showed an unexpected gain and gave the greenback a modest boost.

Markets have recently pared back aggressive U.S. rate cut forecasts, with analysts citing more optimism that the Feds' action will be enough to prevent severe fallout from market volatility. Analysts estimate that the U.S. economy will slip into a ``mild'' recession next year, essentially predicting a downturn for the world's largest economy. Nevertheless, it is expected to pick up as early as the second half of the next year.

Meanwhile, the depreciating dollar has helped American exports rise to record highs in the last 7 months. The U.S. trade deficit narrowed to $56.5 billion from the record $67.6 billion in August 2006 as a falling dollar made American goods cheaper in foreign markets.

Today, all eyes will be on the Interest Rate Statement from the Federal Reserve. Futures fully reflect a 0.25% point easing in the Fed funds rate to 4.25% from 4.50%. Chances of a bigger move have shrunk following a string of somewhat stronger-than-expected economic data. However, lower expectations for such a big rate cut have left the USD back in a downward trend.

To summarize, the market is already reflecting the expectation that the Fed is going to cut. Given all of the dovish potential surrounding the upcoming FOMC meeting, we expect the USD to remain relatively weak before the rate decision.

EUR

The EUR continued its rally yesterday as traders were looking ahead to today's U.S. Interest Rate Statement. During yesterdays' late New York session, the EUR was up 0.4% at $1.4712.

The EUR got a boost last week as comments by ECB President Jean-Claude Trichet left open the possibility of higher rates next year as a result of growing inflation. Comments made yesterday by ECB policy makers, to the affect that the Euro-zone inflation could be higher in 2008, as remarks once again reaffirmed the view that the European Central Bank is not likely to ease current trends in the near future.

The EUR is also benefiting from these inflation risk warnings, as we can recall in the month of October, exports actually hit a record high in Germany, bringing the EUR above 1.45 for the first time.

Today, we await the release of the German ZEW survey, which is expected to drop to a new 15-year low.

JPY

Yesterday, the JPY traded close to a one-month low vs. the USD and the EUR on speculation that the Fed will cut interest rates today, encouraging investors to buy higher-yielding assets funded by loans in Japan.

The Japanese currency yesterday touched the weakest point since Nov. 9 against both the EUR and USD as it traded at 111.71 per USD and 164.35 per EUR at 16:00 p.m. in Tokyo.

Today's' Fed announcement might be a very critical inflection point for the rest of the year. If worries of a global growth slowdown resume, we could see a renewal of the equity sell-off and JPY crosses could come under pressure again. On the other hand, if a deeper U.S. downturn will be avoided; further gains of higher-yielders are likely to be spurred.

The only news to be released from the Japanese calendar today will be the Corporate Goods Price and Current Account indices data. Both of the indicators are of a relatively minor importance and will probably not have a significant impact on its currency. Instead, traders' attention will be focused today on the U.S. Interest Rate announcement and on its possible outcomes.

Technical Analysis

EUR/USD

There is a bullish configuration forming on the 4 Hour chart. The volatility is high and the EUR/USD is in a consolidation stage, especially after the pair broke the 1.4740 resistance level. The price should continue to move upwards in the 1.4700-1.4800 range. As it seems, the bullish pressure will continue to gather momentum at least until the weeks end.

GBP/USD

In the past few days the pair is going through a choppy session, and is giving mixed signals on the hourly level. The daily chart is showing massive bullish formation, and it looks as if the pair is heading toward 2.0500 again. A preferable strategy might be going long for the short run.

USD/JPY

A bullish flag is forming on the 4 Hour chart which might take this pair to 112.00. Slow Stochastic shows a positive divergence which strengthens the possibility of an upcoming bullish trend.

USD/CHF

The pair shows consolidation around the key level of 1.2010 which has proven to be a very significant level. A preferable strategy might be to wait for the oversold hourly levels as traders should pay close attention to the 1.1300 level to unwind before taking a long position.

Wild Card

Gold

Gold broke the 812.30 resistance level. Gold is in an uptrend supported by 1 Hour exponential moving averages as the volatility is high. Bollinger bands are tightened. We should expect to see a bullish configuration today. 1 Hour and 4 Hour Elliott patterns are implying that Gold should gather momentum today. The target is expected to hit 810. 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
Weekly Trend
Resistance	1.4815	2.0587	112.32	1.1390	0.8936	0.7246
	1.4795	2.0555	112.18	1.1350	0.8917	0.7227
	1.4765	2.0530	112.00	1.1320	0.8900	0.7211
Support	1.4700	2.0435	111.60	1.1243	0.8830	0.7160
	1.4670	2.0412	111.40	1.1200	0.8812	0.7142
	1.4655	2.0390	111.07	1.1171	0.8790	0.7120

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2007-12-11	07:00	AUD	RBA Governor Stevens Speaks		-	-
		RBA Governor Stevens Speaks Reserve Bank of Australia (RBA) Governor Glenn Stevens will deliver a speech titled "Asia, Australia and Financial Markets" at the Asia Society AustralAsia Centre CEO Asia Update luncheon, in Sydney. As head of the central bank's governing body, which is responsible for setting the nation's short term interest rate, his speeches can sometimes cause market volatility as traders react to clues regarding future monetary policy.
2007-12-11	09:30	GBP	Trade Balance		-7.8B	-7.4B
		Trade Balance Measures the difference in value between imported and exported goods and services. A positive Trade Balance indicates that more goods and services were exported than imported over a given period. A rising trend has a positive effect on the nation's currency. When higher levels of exports are sold to the world, demand for the nation's currency is elevated as foreigners convert their native currency to purchase the exports. The Trade Balance also has a sizable impact on GDP because high demand for exports creates increased employment and production, as domestic factories work to fill this demand.
2007-12-11	10:00	EUR	German ZEW Economic Sentiment		-32.5	-34.5
		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.
2007-12-11	19:15	USD	Interest Rate Statement		4.50%	4.25%
		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.
2007-12-11	19:15	USD	Discount Rate		5.00%	4.75%
		Discount Rate Eight times per year the Federal Open Market Committee (FOMC) votes on where to set the nation's short term interest rate (i.e., "federal funds rate"). The discount rate, which is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility, is usually moved in tandem with the federal funds rate, but can also be moved independently. A rising trend in interest rates has a positive effect on the nation's currency.