Forex Tips & Daily Analysis

Economical News

USD

As 2007 draws to a close, the USD is making a nice comeback. Yesterday the greenback continued to gain ground against most of the majors. Even though the Fed estimates that the economic growth will be weak into next year, the USD was bought anyway as risk aversion continues to seep through the market.

The U.S. currency appreciated against the EUR and surged to a 3 month peak against the GBP amid signs that the financial market turmoil was starting to threaten economic growth beyond U.S. borders. In mid-afternoon trading, the USD was 0.3% higher at $1.4365. Analysts say that the greenback continues to draw strength from last week's unexpectedly strong U.S. Retail Sales and inflation data that was seen limiting the need for the Federal Reserve to cut interest rates further next year.

Meanwhile, the U.S. Financial markets are continuing to be a significant source of uncertainty. The Federal Reserve warns that the overall economic growth will be slowed down into next year as the housing market is set to keep contracting. Home construction and sales are also unlikely to bottom out before the middle of the next year and it is most likely that housing will continue to be a drag on growth well into 2008.

Looking ahead to today's' fundamental offerings, there are far more scheduled indicators in the lineup. The final readings on the 3rd quarter GDP could see small modifications as the GDP numbers are final figures with no further revisions expected. Therefore the figure will probably not move the market. GDP annualized is expected to hold unchanged at its 4 year high. Later, the Philadelphia Fed's factory activity survey is expected to slip slightly. Trading volumes are foreseen to be typically light ahead of year-end.

EUR

The EUR was down yesterday after an index of German business sentiment came in close to a one-year low, prompting investors to increase year-end dollar buying. The EUR last traded 0.4% down at $1.4345 after earlier dipping to a session low of $1.4327 in overnight trade.

The weak Business Confidence reading in Germany highlighted the difficult situation which the ECB is going to face in the medium term: a slowing Euro zone economy and rising price pressures, suggesting that the ECB may have a tough time raising rates any time soon.

Today will be light on market moving news from the Euro-zone. The British Current Account is on tap today along with the GDP. The GDP figure is expected to stay unchanged while the Current Account might drop to its half a year low.

JPY

Investors refrained from aggressive trade ahead of the Bank of Japan's monetary policy meeting. The USD was nearly unchanged at 113.43 Yen after earlier dipping to a session low of 112.75 Yen on a brief re-emergence of risk aversion.

Today, the Bank of Japan will be announcing their interest rate decision. The market largely expects that the BoJ will forego hiking interest rates at its policy meeting as it needs more time to assess the impact of the credit crisis. Moreover, with recent economic data still reflecting a weak economy, the Bank of Japan does not have any room to raise rates especially at a time when central banks around the world are pumping liquidity into the financial system.

At its last meeting in November, the policy board left Japan's key interest rate on hold for the 11th straight time, with only one board member proposing a rate hike to 0.75%. Analysts estimate that given the uncertainty inside and outside Japan, the BoJ will not be able to hike interest rates anytime before the end of the current fiscal year in March 2008.

Technical Analysis

EUR/USD

A falling wedge structure is forming on the 4 hour chart which might take the pair to test the bottom barrier which is located at 1.4330. However, there is an upcoming reversal expected as indicated by the daily RSI and therefore going long from 1.4330 seems to be a preferable today.

GBP/USD

A bearish channel structure is establishing on the daily chart as the cable is expected to test the lower end today and in case of a breakout the next target price is located at 1.9890. All oscillators support the bearish notion on all time scales, especially on the hourlies.

USD/JPY

The pair is still in the midst of a very strong bullish move that was initiated at the end of November. The daily chart is showing a certain slowdown in the trend's momentum, indicating that the move might come to a halt soon. That notion is supported by a bearish cross in the 4 hour slow stochastic. Waiting for a clearer signal might be a smart move today.

USD/CHF

The pair's massive correction move shows no signs of a stop. The daily chart is still quite bullish and the 4 hour chart is showing that there is much more room to run, making 1.1700 a very solid target price for this trading week. Going long appears to be preferable.

Wild Card

Silver

There is a very distinct bullish flag on the daily chart, and Gold is floating around the upper level of it. This could be a great opportunity for forex traders to catch a very strong possible trend in case of a violent breach beyond the 800 level. If a break will occur Gold might get to 825 levels quite quickly.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4500	2.0100	114.30	1.1650	0.8693	0.7300
	1.4470	2.0065	114.00	1.1620	0.8650	0.7260
	1.4430	2.0030	113.60	1.1580	0.8620	0.7230
Support	1.4340	1.9940	113.00	1.1500	0.8550	0.7175
	1.4300	1.9900	112.70	1.1460	0.8520	0.7140
	1.4275	1.9880	112.30	1.1440	0.8490	0.7100

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2007-12-20		JPY	Interest Rate Announcement		0.50%
		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.
2007-12-20		JPY	BOJ Governor Fukui Speaks
2007-12-20	08:15	CHF	PPI	m/m	0.2%
		PPI The Producer Price Index (PPI) measures the rate of inflation (i.e., the rate of price changes) experienced by manufacturers when purchasing goods and services. A rising trend has a positive effect on the nation's currency. When manufactures pay more for goods and services, they are likely to pass the higher costs to the consumer, so PPI is thought to be a leading indicator of consumer inflation. PPI is highly regarded, and at extremes will have a market impact equal to that of its CPI counterpart.
2007-12-20	09:30	GBP	GDP	q/q	0.7%
		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.
2007-12-20	09:30	GBP	Current Account		-9.1B
2007-12-20	13:30	USD	GDP Annualized	q/q	4.9%
		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.
2007-12-20	13:30	USD	Unemployment Claims
		Unemployment Claims Measures the number of individuals who filed for unemployment insurance for the first time during the past week. A falling trend has a positive effect on the nation's currency because working people tend to spend more money, and consumer spending makes up a large portion of GDP. This weekly indicator produces very timely data, but traders generally view unemployment as a lagging indicator that gives little indication of the economy’s future performance.
2007-12-20	17:00	USD	Philadelphia Fed Manufacturing Index		8.2	-
		Philadelphia Fed Manufacturing Index Measures the general business conditions of manufacturers in the Philadelphia Federal Reserve district. The index is derived from a survey that asks respondents to rate the level of general business activity as 'decrease', 'increase', or 'no change'. A rising trend has a positive effect on the nation's currency because good manufacturing conditions are a sign of a strong economy. Although this survey is limited to manufacturers in Philadelphia only, traders pay close attention because the Philadelphia Federal Reserve releases it weeks before other major reports on manufacturing (e.g., Industrial Production, ISM Manufacturing Index).