Forex Tips & Daily Analysis

Economical News

USD

The dollar was steady on Tuesday, holding gains from the past week after unexpectedly strong U.S. economic data. Retail sales and inflation data scaled back expectations for aggressive monetary policy by the Federal Reserve next year. Traders hinted that the dollar was also supported by investors' covering dollar short positions before year-end book closings.

Trading volume continued to thin yesterday as traders wind down action for the year-end holidays, which could exaggerate price movements.

Expectations for a decisive step by the Fed, which will describe or even imply monetary policy for the upcoming 2008 calendar year, are still likely. After the FOMC's 25bp cut on December 11th, the committee's policy statement made a point of keeping all options open when it comes to the next meeting in January. By noting the upside inflationary risks, the downside risks to growth and an uncertainty in the financial markets, Bernanke & Co. could do or say just about anything next month. However, with the Fed joining forces with the ECB (Europe Central bank), the BOE (Bank of England) and the BOC (Bank Of Canada), in an effort to boost liquidity, the US central bank's next policy move will likely depend primarily on whether the lending facilities actually help ease the pressures in the credit markets. Until then, investors have little choice but to wait and see. There is a growing fear that stagflation (period characterized by an increase in unemployment and a decrease in economic development and growth (combination of stagnation + inflation)) will plague the US economy and may keep speculation of another rate cut in January high.

The Federal Reserve moved Tuesday to impose tough new restrictions meant to curb unfair and deceptive home-lending practices and prevent a recurrence of the meltdown in subprime mortgages this year. By a 5-to-0 vote, the Fed approved a plan that would tighten provisions meant to protect borrowers and apply them to a far larger share of home loans, whether from banks, mortgage companies or other lenders.

The proposed rules underscore the more assertive role the Fed is now prepared to take in regulating lending, a big shift from the central bank's approach in the past. In general, the rules are meant to deter unscrupulous lenders from persuading people that they can afford loans that ought to be out of their reach. By extension, the rules are also intended to keep would-be buyers from deceiving themselves about the debt that they are capable of bearing.

"We want consumers to make decisions about home mortgage options confidently, with assurances that unscrupulous home mortgage practices will not be tolerated." said the Fed chairman, Ben Bernanke. He continues by saying that "Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy."

The plan includes provisions that would require more extensive disclosures, restrict advertising and make it harder to lend to borrowers with little or no documentation and a questionable ability to repay. It would also allow borrowers, in some circumstances, to sue lenders who violated the rules.

Meanwhile, new speculations are rising, which indicate that a proposed US tax rate cut could ease any US recession concerns, and in turn show a boost in the greenback against its major counterparts.

Today is a slow economic news day for the US, as the 15:00GMT release of the Federal Auction Summary is the only real significant event.

EUR

Yesterday, the European Central Bank pumped a record €348 billion into the financial system, dramatically easing the tight conditions in credit markets that have been grappling with a global lending crunch linked to the U.S. housing crisis, on top of traditional year-end demands for ready cash. As a result of yesterday's funds injection, the EUR is expected to maintain its depreciation period especially against the Greenback.

It is important to remember that funds injection is being interpreted as an interest rate cut by the market, and in turn has reacted negatively within the forex market. The initiative behind the aforementioned cash injections was to bring down the spreads (difference between their benchmark policy rates and the rates that banks charge one another for short-term lending) but unfortunately there was no positive reaction from the market.

Late Monday, the ECB announced that it would guarantee unlimited two-week loans to banks at a fixed rate of 4.21%, rather than taking its standard approach of fixing the amount it lent and allowing overall demand to determine the cost of borrowing. The normal tactic would have resulted in an infusion of roughly €180 billion into the economy, the ECB said. Overwrought primarily by ripple effects from the United States, global credit markets are also coping with the surge in demand for cash that is common for this time of the year as banks clean up balance sheets and meet obligations before Dec. 31.

It will be an important few days for the European economy as economic data looks very likely to add to the latest downtrend against the Euro.

Today, we will see the release of the German IFO Business Climate and Expectation Indices. The figures are expected to be lower than in previous months, and could be part of the focus during ECB President Trichets remarks today. Look for today's economic data to have a relatively negative affect on the EUR.

JPY

Actions taken yesterday by the ECB, translated into successful rallies for the high-yielding JPY crosses as the currency recouped from early morning lows. More specifically the EUR and AUD crosses on the dollar saw gains of 30 plus pips as traders showed bullish behavior against the JPY.

The latest speculation regarding the Japanese economy was affirmed yesterday, as the government announced a 2% growth in the economy for the coming fiscal year (beginning April 1st). This held in sharp comparison to the readjusted forecast of the current fiscal year, as the Japanese have had to downgrade initial expectations.

"With the global economy recovering in fiscal 2008/09, the corporate sector will remain firm and households will show improvement gradually," government official said. These comments came as the BoJ began its two-day economic policy review.

Today's Japanese calendar is close to empty, as the late night release of the Trade Balance will set the path for tomorrow's Interest statement followed by words from BoJ Governor Fukui. The interest rate is expected to stay at 0.5%.

As economic data continues to put pressure on the EUR, it will be intriguing to see if the JPY will find some room to make up yesterdays down swing.

Technical Analysis

EUR/USD

A bearish wedge is forming on the 4 Hour chart offering to drift this pair to 1.4332. In the case of a breach, the bottom barrier is located at 1.4380.

RSI and Momentum indicators have a negative slope which is supporting the current bearish trend.

Going short seems to be preferable today.

GBP/USD

Range trading is expected today on this currency pair as a mild channel is offering today's movements between 2.0100 to 2.0200.

In the event that the bottom level is breached, going short seems to be preferable.

USD/JPY

A bullish flag structure is forming on the 4 Hour chart. The pair could possibly drift toward 114.10. This structure is supported by the Momentum and RSI indicators which both have shown a positive slope.

As a result of such indications, long positions on the USD/JPY look to be the preferable strategy for today's trading day.

USD/CHF

A bullish flag structure looks to be forming on the 4 Hour USDCHF charts. The structure is supported by several indicators such as Momentum and Stochastic, which have both shown positive slopes.

Going long on this pair seems to be the preferable option.

Wild Card

Silver

Slow Stochastic indictors show a cross at 72, which implies an upcoming bearish trend. The first barrier is located at 13.69, in the event that it is breached we should see a support level at 13.40. For forex traders going short seems to be today's more preferable strategy.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4520	2.0280	114.10	1.1625	0.8693	0.7235
	1.4490	2.0230	113.80	1.1570	0.8650	0.7190
	1.4450	2.0190	113.50	1.1540	0.8620	0.7160
Support	1.4360	2.0120	112.95	1.1490	0.8550	0.7120
	1.4340	2.0100	112.60	1.1460	0.8520	0.7097
	1.4300	2.0060	112.25	1.1425	0.8490	0.7070

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2007-12-19	00:30	USD	RBA Meeting Minutes
		RBA Meeting Minutes The Reserve Bank of Australia (RBA) Meeting Minutes are a detailed record of the committee's interest rate meeting held about two weeks earlier. The minutes provide detailed insights regarding the RBA's stance on monetary policy, so traders carefully comb them for clues regarding future interest rate shifts.
2007-12-19	09:00	EUR	German Ifo Business Climate Index		104.2
		German Ifo Business Climate Index The Information and Forschung (Ifo) Business Climate Index measures the mood of firms in manufacturing, construction, wholesale and retail. The index is derived from a monthly survey of over 7,000 firms where respondents are asked to give their assessments of the current business situation and their expectations for the next six months.
2007-12-19	09:00	EUR	German Ifo Business Expectations Index		98.3
		German Ifo Business Expectations Index The Information and Forschung (Ifo) Business Expectations Index measures the mood of firms in regard to future expectations for the economy.
2007-12-19	09:30	GBP	MPC Meeting Minutes		7-2
		MPC Meeting Minutes The Bank of England (BOE) Monetary Policy Committee (MPC) Meeting Minutes are a detailed record of the committee's interest rate meeting held about two weeks earlier. The minutes expose the votes cast at the meeting and can give traders further insight into the central bank's stance on monetary policy. Traders carefully comb the minutes for clues regarding future interest rate shifts.
2007-12-19	11:00	GBP	CBI Distributive Trades Realized		13
		CBI Distributive Trades Realized The Confederation of British Industry (CBI) Distributive Trades Realized Survey measures the health of the retail sector by asking executives if their firm experienced an increase or decrease in sales compared to a year ago. A positive number indicates that more retailers reported an increase. 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.
2007-12-19	13:30	CAD	Wholesale Sales	m/m	1.1%
		Wholesale Sales Measures the total value of sales at the wholesale level. A rising trend has a positive effect on the nation's currency because increased sales at the wholesale level are a good indication that there is high consumer demand at the retail level.