Forex Tips & Daily Analysis

CIT Bailout Adds to Risk Appetite, Safe-Havens in Decline.

Yesterday's rally on Wall Street, which led to a devaluation of the major safe-haven currencies such as the USD, was led by a decision from CIT, a large financial firm, in favor of a $3 billion bankruptcy protection bailout. The resultant boost in confidence led stock markets into a strong rally, followed by a declaration from the Bank of Japan (BOJ) that their economy may no longer be getting worse. All of this optimism has helped to increase risk appetite and lower the appeal of safe-haven investments.

Economical News

USD

The Dollar tumbled to its lowest level in over a month vs. the EUR, as Wall Street rallied on Monday. The rally was initiated by U.S. commercial finance company CIT board approving a $3 billion rescue package. The USD's subsequent devaluation and Wall Street's gains yesterday were also owed to increased risk appetite, as traders were taking into account continued optimism from the 2nd quarter, following last week's optimistic results from U.S. banks. Adding to optimism for the U.S. economy, U.S. housing data released yesterday points to stabilization of the U.S. housing sector.

The Dollar Index touched 78.799 on Monday, the lowest level since the 3rd of June. The USD tumbled against the JPY by over 70 pips to 93.92, as traders ditched the greenback for higher yielding assets. The GBP/USD jumped by 120 pips to 1.6518, as the GBP acted positively to the optimism in the banking sector. The EUR/USD closed nearly 60 pips higher at 1.4214, as the USD's safe-haven status is dissipating as signs of global economic recovery are in the making. It seems that as long as global equities rally, the USD will continue to slide vs. the major currencies.

Looking ahead to today, there are some crucial releases that are set to come out of both the U.S. and Canada. Canada is set to publish both the BOC (Bank of Canada) Rate Statement and Overnight Rate at 13:00 GMT. The results of these are set to determine the USD/CAD rate in the coming week. At 14:00 GMT, U.S. Federal Reserve Chairman Ben Bernanke will testify before the Financial Services Committee in Washington, DC. This is significant for future U.S. monetary policy. Surrounding this event, the forex market is likely to experience heavy volatility.

EUR

The EUR hit a 6-week high against the USD yesterday, as U.S. and global equities rallied. This was owed to optimistic U.S. and European data in the past week. Also, the U.S. largely led the rally, as U.S. financial firm CIT's bondholders agreed to $3 billion of emergency financing to prevent bankruptcy. The GBP also hit a 3-week high against the USD due to global banking industry expectations. The 2 things that helped the Pound gain yesterday was risk, as traders felt comfortable in diversifying their investments due to renewed optimism.

The EUR/USD cross hit as high as the 1.4250 level on Monday, before closing at 1.4210. This bullish pattern of the pair is much owed to the USD's safe-haven status declining as the global economic recovery kicks in. The GBP/USD closed at 1.6518, while the EUR/GBP cross finished lower by 30 pips at 0.8603. Much of the GBP's bullishness recently has been owed to rising energy prices and the recovery of the banking sector, as the British economy is very dependent on these 2 industries.

Today, we can expect economic news releases from both Europe and Britain. Switzerland is set to release her trade balance figures at 06:15 GMT. A high figure will be good for the CHF, as this would show a higher surplus of exported goods during the previous month. Britain is set to release public sector net borrowing figures at 08:30 GMT. A lower than forecasted 15.7 billion Pounds may help the GBP today, further adding to recent optimism in the British currency.

JPY

The JPY climbed against a number of its currency pairs yesterday, as a result of the rescue plan by the shareholders of U.S. finance company CIT. This automatically helped spread the rise in equities from the U.S. to Japan. As a result, the JPY climbed against its major currency pairs. The JPY climbed against the USD by 70 pips to 93.92, as investors put their money in higher yielding assets. The Japanese currency also made gains vs. the EUR, to close 64 pips higher at 133.34.

The strength of the Japanese currency may be owed to the fact that the Japanese economy has bottomed out. Therefore, forex traders are willing to put more of their money in the Japanese currency, as the global economic situation improves. Additionally, as this occurs, investors are beginning to pour their money back into Japan. The result will therefore lead to a stronger Japanese currency for the foreseeable future. We may see the USD/JPY drop below 93.50 in today's trading.

Technical Analysis

EUR/USD

The hourly chart's Bollinger Bands appear to be tightening on this pair in anticipation of a modest price jump. With the pair floating near the upper border of the 4-hour chart's Bollinger Bands, combined with the bearish crosses on the 4-hour and daily Slow Stochastic, we could see some downward movement in the nearest future. Going short with tight stops may be a wise choice today.

GBP/USD

The indicators on this pair seem to show mixed signals. There is a tightening on the hourly Bollinger Bands, which suggests impending volatility, but the bullish cross on the hourly Slow Stochastic mixed with the bearish cross on the 4-hour Slow Stochastic highlights the unpredictability of the impending movement. Waiting for the breach and then jumping on the trend as early as possible may be a solid tactic for today.

USD/JPY

The price of this pair appears to be floating in the over-sold territory on the hourly chart's RSI, signaling upward pressure. The fresh bullish cross on the hourly Slow Stochastic, and what appears to be a developing bullish cross on the 4-hour Slow Stochastic, may both point in the direction of an upward movement. Going long may be today's best strategy for this pair.

USD/CHF

There appears to be fresh bullish crosses on the hourly and 4-hour MACD, as well as the 4-hour Slow Stochastic, which suggest the impending movement of this pair is likely to be upward. The price floats in the over-sold territory on the 4-hour RSI, which supports this notion. Going long may be a good idea.

Wild Card

Silver

The hourly Bollinger Bands appear to be tightening on this commodity as prices prepare for a volatile jump. With bearish crosses on the 4-hour and daily Slow Stochastic, as well as an over-bought indication on the 4-hour RSI, the next major movement may indeed be in a downward direction. Forex traders involved in commodity trading can take advantage of this knowledge by going short on Silver and riding out what appears to be building up to be a sharp movement in price.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4285	1.6585	94.75	1.0790	0.8200	0.8685
	1.4255	1.6555	94.50	1.0760	0.8175	0.8655
	1.4230	1.6530	94.25	1.0730	0.8150	0.8630
Support	1.4175	1.6475	93.65	1.0675	0.8100	0.8575
	1.4150	1.6450	93.35	1.0650	0.8075	0.8550
	1.4125	1.6425	93.00	1.0625	0.8050	0.8525

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2009-07-21	01:30	AUD	Monetary Policy Meeting Minutes		*	*
		Monetary Policy Meeting Minutes provides in-depth insights into the economic conditions that influenced their decision on where to set interest rates
2009-07-21	01:30	AUD	New Motor Vehicle Sales	m/m	5.4%	-
		New Motor Vehicle Sales This report offers a broad measure for the sales of new vehicles. Has a correlation to consumer spending and GDP.
2009-07-21	03:00	NZD	Credit Card Spending		-2.4%	-
		Credit Card Spending This is a general measures of total credit card expenditures made for the largest credit card companies. Consumer spending is a major driver of the economy and accounts for about two-thirds of GDP; as such, this is a leading indicator of economic growth.
2009-07-21	06:15	CHF	Trade Balance		2.00B	1.87B
		Trade Balance This report measures the difference between imported and exported goods and services. A positive number indicates the country is exporting more goods than it is importing. A country with a growing positive trade balance may see their currency strengthen as a result.
2009-07-21	08:30	GBP	Public Sector Net Borrowing		19.9B	16.1B
		Public Sector Net Borrowing This indicator is a measure of the difference between spending and income for government and other public corporations. It has a strong correlation with GDP and government spending.
2009-07-21	13:00	CAD	BoC Rate Statement		*	*
		BoC Rate Statement This statement is the primary medium used by the Bank of Canada (BoC) to communicate with investors about monetary policy decisions, specifically those regarding interest rates.
2009-07-21	13:00	CAD	Overnight Rate		0.25%	0.25%
		Overnight Rate A general measure of the interest rates which large financial institutions use to borrow and lend overnight funds amongst themselves. Interest Rates are a key component in currency valuation.
2009-07-21	14:00	USD	Fed Chairman Bernanke Testifies		*	*
		Fed Chairman Bernanke Testifies Bernanke's testimony before Congress typically consists of reading a prepared statement followed by a question and answer session. The leader of the Federal Reserve can instantly influence the currency markets with his speeches and off hand remarks on the future of U.S. monetary policy. The remarks are poured over by traders and analysts for the direction of interest rates and the state of the American economy.