Forex Tips & Daily Analysis

Economical News

USD

The US dollar went on another freefall yesterday on the back of comments from Federal Reserve President Ben Bernanke which sent speculation for a 50bp rate cut at the end of the month skyrocketing and this caused investors to seek high yielding investment alternatives.

Two days ago the day to day changes of 0.5% rate cut expectations was only at 66 percent but today, Fed fund futures are pricing in a 90 percent chance that the US central bank will opt for this aggressive move.

Market expectations are extremely important when it comes to the Fed's interest rate decision especially when judging the recent actions of the Fed chairman Bernanke as his decisions are frequently correlated to market expectations.

The outlook for growth is certainly not encouraging. In his speech on the economy, Bernanke barely touched on inflation and instead focused almost exclusively on growth. He said that the 2008 outlook has worsened housing while the deterioration in the jobs data raises the risk of softer consumer spending.

Bernanke warned that they stand ready to "act in a decisive and timely manner." This warning instantly had an impact on the market as the greenback lost some major ground against the majors.

However, wholesale inventories and sales were stronger than expected but they had no impact on the US dollar. Today the US trade balance and import prices will be released. Weak manufacturing PMI numbers suggest that exports could be soft, which would cause the greenback to plummet today.

EUR

Yesterday, the European Central Bank left interest rates unchanged at 4.00 percent.

No one expected the ECB to make a move so the actual decision was already incarnate for the Euro zone. It was not until ECB President Trichet began his speech did the EUR really take off.

Even though the Trichet did not make any groundbreaking comments, his commitment to preventing second round effects was more than satisfactory for EUR bulls.

For the ECB, inflation remains a very big problem and because of that, they are ready to act preemptively on rates because waiting for second round effects to manifest themselves could be too late.

On growth, Trichet acknowledged that the risks are to the downside, but for the time being, he still feels that euro-zone fundamentals remain positive and growth should remain around the potential target. Even though it is unclear whether Trichet is all talk and no action, the ECB's threat to raise rates comes in stark contrast to the Federal Reserve's hints of more aggressive easing - and this is all that matters for the time being. These contrasting opinions could drive the EUR to new highs against the greenback in the near future.

The GBP kept it rates on hold at the MPC meeting as policy makers appreciated the effects of last month's reduction on the economy.

Economists now expect the BoE to wait until next month before lowering rates again as banks rein in lending, damping consumer spending and deepening a slowdown in the housing market.

The GBP recovery now seems to be just around the corner but much depends on whether the monetary actions by the BoE can cause the UK economy to correct itself.

JPY

Yesterday BoJ Deputy Governor Muto spoke on the state of the Japanese economy and his speech undertook a dovish tone. Muto indicated that the Economy will remain pressured for some time as a result of the global credit crisis, however the Japanese economy is steadfast and expected to maintain its growth although it is likely to be mild.

The JPY buyers will need to wait for next week as Core Machinery Orders, which measures the total value of new orders placed with machine manufacturers excluding orders for items with a volatile sales cycle, and the Tertiary Industry Activity Index, which measures the change in spending for services, will be released and is expected to give the JPY traders an indication of how the local economy is handling the credit crisis.

Technical Analysis

EUR/USD

The 4 H chart indicates that there is still room for this pair to reach new heights, particularly after this pair breached the key 1.4800 resistance level yesterday. Both the RSI and momentum are positive indicating that this pair should continue its bullish rampage. However the dailies indicate that we are in overbought territory, so it may be a good time to begin pairing off some of those long positions

GBP/USD

Bollinger bands are widened indicating increased volatility. Both the hourlies and the dailies support a bearish signal. This pair is still within a steady downward channel which is evident from the 4 H chart. Going short still seems to be the preferable strategy.

USD/JPY

On the 4H the RSI is breaking the 50 mark and is indicating that this pairs bearish run has still got some steam. The daily chart is also bearish and this pair will now target the 108.00, once that is breached we could see even sharper moves downward.

USD/CHF

This pair is still in the midst of a steady downtrend which is not yet showing any sign of leveling out. The RSI and Momentum are still negatively sloped indicating that there is still plenty of steam left in this bearish move. Once this pair breaches the 1.1000 level likely to make another sharp break downwards

Wild Card

Gold

This commodity has been on a sharp rise over the last week and this bullish trend is likely to stick around in the near future. All charts are still giving a strong bullish signal, however there may be short term corrections during this uptrend. Therefore Forex traders can maximize profits by buying on a dip and taking advantage of a sharp bullish trend.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4880	1.9610	109,64	1.1088	0.9067	0.7668
	1.4845	1.9582	109.42	1.1066	0.9033	0.7635
	1.4820	1.9550	109.28	1.1039	0.9000	0.7600
Support	1.4765	1.9500	108.80	1.0980	0.8954	0.7548
	1.4738	1.9473	108.52	1.0958	0.8924	0.7515
	1.4710	1.9454	108.30	1.0930	0.8900	0.7483

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2008-01-11	01:30	USD	Trade Balance		-57.8B	-
		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.
2008-01-11	01:30	USD	Import Price Index	m/m	2.7%	-
		Import Price Index Measures the monthly rate of inflation for imported goods.
2008-01-11	01:30	CAD	Trade Balance		3.3B	-
		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.
2008-01-11	09:30	GBP	Industrial Production	m/m	0.4%	-
		Industrial Production Measures the total value of output produced by factories, mines, and utilities. A rising trend has a positive effect on the nation's currency because high levels of production are a sign of a strong economy. Industrial Production reacts quickly to the ups and downs of the business cycle and can be a leading indicator of manufacturing employment, average earnings, and personal income. Traders pay special attention to Industrial Production because it's one of the few growth indicators that is produced directly by the Federal Reserve.
2008-01-11	09:30	GBP	Manufacturing Production m/m	m/m	0.3%	-
2008-01-11	12:00	CAD	Employment Change		42.6K	-
		Employment Change Measures the number of new jobs created in the previous month. A rising trend has a positive effect on the nation's currency. The number of new jobs being created is one of the most important indicators of the economy's health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises
2008-01-11	12:00	CAD	Unemployment Rate		5.9%	-
		Unemployment Rate Measures the percentage of the total work force that is unemployed and actively seeking employment. A falling trend has a positive effect on the nation's currency. Working people tend to spend more, and consumer spending is a major driver of the economy. However, unemployment usually draws little attention because traders view it as a lagging indicator.