Forex Tips & Daily Analysis

Economical News

USD

The greenback continued on its bearish path yesterday as traders returned to their desks after the New Years Holiday. The main reason for the dollar slide yesterday was the weaker-than-expected release of the ISM Manufacturing Index. This figure came in at 47.7, which was well below the expected figure of 50.7. This Index measures the activity level of purchasing managers in the manufacturing sector, with a reading above 50 indicating expansion. Therefore this latest reading indicated to the market that we are beginning to see a contraction in the manufacturing sector, which is another strong sign that the U.S economy is heading towards a recession. This negative news coupled with the fact that Crude Oil is hovering around the $100 a barrel mark raised speculation that the Fed will have to cut rates again in order to stimulate the economy. Also the ISM Manufacturing Prices figure, which measures the monthly inflation experienced by manufacturing organizations when purchasing materials and services, released at a beating expectations figure of 68.0. This upside surprise raised concern among investors as a contraction in the manufacturing sector coupled with rising prices indicates that the economy is steadily heading towards a situation of rising inflation and lack of economic growth, which is known as stagflation. Stagflation is an economic condition defined by rising inflation and falling growth and this would be the worst case scenario for the U.S economy and many analysts believe that is becoming almost impossible for the U.S economy to avoid. The release of the FOMC Minutes also gave further indication that at its next meeting the Fed will slash interest rates by at least 50bps, as it was stated in the minutes that the Fed members believed that a significant interest rate cut is needed to relieve the credit squeeze. However it also mentioned that if the credit crisis is alleviated then a rate cut could be avoided and this caused the greenback to regain some of its sharp losses against the JPY.

Looking ahead, today we are expecting the release of the ADP report which is a leading indicator of the significant Non-Farm Payrolls which will be released on Friday. This will be followed by the Unemployment Claims figure which is expected to release slightly better than last month. If these figures surprise we may see some sharp movement in an already volatile market and it is important to note that at the moment the broader fundamental picture remains heavily bearish for the fledgling greenback. Nevertheless the greenback may still have a positive 2008 as last years major investments into the U.S banking sector will help stabilize the financial sector and provide important capital inflows.

EUR

The EUR continued its bullish rampage against the greenback yesterday on the back of weak U.S manufacturing figures. The manufacturing sector between the two economies is at a complete contrast at the moment, as while the U.S is experiencing a contraction there is acceleration in Eurozone manufacturing. This was further reiterated yesterday with the release of the German and Eurozone Manufacturing PMI figures. Both these figures released slightly better-than-expected indicating that there is moderate expansion in the European manufacturing sector. Looking ahead to today, the only news to be released from the Eurozone will be the German Unemployment Rate and the M3 Money Supply. Both figures are expected to remain relatively unchanged and no movement is expected as a result of these figures. The EUR movement today should be dollar centric with the release of some key U.S data. Nevertheless, with the current grey cloud still looming over the USD, the EUR is expected to continue bullish surge.

JPY

There was no news released from the Japanese market yesterday as a result of the banking holiday that will also continue today. Despite the lack of Japanese economic news, the JPY still experienced some sharp movement yesterday. The Japanese currency rallied nearly all across the board yesterday on the back of concerns that global economic growth will experience a slowdown in the near future. These concerns created a risk adverse sentiment among investors, who therefore shied away from carry trades causing the JPY to strengthen sharply - particularly against the high yielders. Nevertheless it is important to note that some of this sharp movement may have been exaggerated as a result of the lack in liquidity due to the New Years Holiday and the current Japanese public holiday. The strong correlation between the Dow Jones Industrial Average (DJIA) and the JPY was once again reiterated yesterday, as the while U.S equities fell sharply the JPU rallied strongly due to the carry trade unwind. The JPY should retrace slightly today after yesterday's sharp gains but much depends on how the equity market reacts to yesterdays collapse.

Technical Analysis

EUR/USD

After a very choppy session yesterday, the pair appears to be floating around 1.4720. The hourly studies show strong bullish signals, as the dailies are becoming neutral. It appears that in the short run going short might be preferable with tight limits and and a relatively quick exit.

GBP/USD

The cable is in the midst of a very strong downtrend that doesn't seem to be losing momentum since the beginning of November. The daily chart is very bearish as the hourlies support. It looks as if a breach through the 1.9800 might be very possible today and will probably validate the next bearish move.

USD/JPY

The bearish momentum is slowing down, and it appears that the sharp drop might halt for a while. The daily chart is showing mixed signals, as the hourlies are still indicating a slight bearish sentiment. Waiting for a clear sign or a violent break to validate the next move might be preferable.

USD/CHF

There is a very strong bearish cross forming on the daily slow stochastic which indicates that a local reversal is quite imminent. The hourlies are still bearish with diminishing momentum which indicates that buying on lows might be preferable.

Wild Card

Crude Oil

There is a very distinct channel forming on the 4 hour chart as Crude Oil now floats on the upper level of it. In case of a breach beyond the 99.50 level, a very strong bullish move might be validated and may provide forex traders with great profit potential.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4800	2.0015	111.00	1.1283	0.8900	0.7529
	1.4758	1.9997	110.37	1.1205	0.8849	0.7500
	1.4735	1.9982	110.00	1.1173	0.8835	0.7447
Support	1.4710	1.9775	109.00	1.1100	0.8775	0.7367
	1.4630	1.9760	108.43	1.1052	0.8754	0.7350
	1.4600	1.948	108.00	1.1000	0.8741	0.7333

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2008-01-03		JPY	Holiday: Bank Holiday
		Holiday: Bank Holiday Japanese banks will be closed in observance of the four-day Bank Holiday. Low liquidity is expected for the Tokyo Forex session.
2008-01-03	08:30	CHF	SVME PMI		63.4	61.5
		SVME PMI uS stock markets will be closed in observance of the recent death of Gerald R. Ford, the 38th President of the US. Other US financial markets remain open.
2008-01-03	13:15	USD	ADP Nonfarm Employment Change		189K	45K
		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.
2008-01-03	13:30	USD	Unemployment Claims		349K	345K
		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.
2008-01-03	15:00	USD	Factory Orders	m/m	0.5%	0.5%
		Factory Orders Measures the value of new purchase orders placed with domestic manufacturers for durable and non-durable goods. Factory Orders tend to have a low impact because it reports much of the same information contained in the Durable Goods Orders report released over a week earlier.