The Greenback Corrects Massively
Posted on 06. Dec, 2007 by admin in Forex News, Market Snapshot, Technical Analysis
Economic News
USD
Dollar bulls took their chance yesterday following the release of a report that showed a marked rise in private-sector jobs, giving the greenback a lift against its major rivals. Yesterday, the U.S. currency gained 1% against the EUR, 0.9% versus the JPY and 1.6% against the GBP.
The USD strengthened yesterday after reports showed that U.S. job growth and factory orders quickened, both of which are reducing concerns that the world’s largest economy will head into a recession. The Labor Department said worker productivity rose the most since 2003, while labor costs posted the biggest drop in 4 years. A report from ADP Employer Services showed companies last month added 189,000 jobs, more than triple the average forecast, prompting economists to raise estimates for the government’s payroll report scheduled for release tomorrow. The surprise jump in the ADP Nonfarm Employment report suggests that we could see a better-than-forecast reading of Friday’s Nonfarm Payrolls number, prompting the market to trim back chances of a 50 basis points interest rate cut by the Federal Reserve next week.
Futures contracts show that the odds of a 0.5% point cut by the Fed are currently standing at 42%, down from 48% yesterday. Futures are pricing in a 58% chance of a 0.25 point cut to 4.25%.
Part of the reason for yesterday’s stronger dollar is also the hope that Treasury Secretary Paulson will announce an Interest Rate freeze on subprime mortgages today, thus saving many homeowners from foreclosure. If this manages to work, we could have some respite for the US economy.
As for today, there is only an Unemployment Claims figure expected from the U.S. market. The expectations are currently standing at 335K, 17K down from the previous month’s one.
EUR
The EUR reduced gains after the U.S. ADP report on private payrolls showed an unexpectedly strong 189K in November, following expectations of only a 50K. The stronger than expected ADP report has dragged the EUR/USD down to 1.46, suggesting that the U.S. economy will probably avoid a recession. Also, European Retail Sales fell sharply in October, with the index registering the biggest monthly decline in 6 months.
The thirteen nation’s currency may sustain further decline at the press conference that will follow the European Interest Rate announcement during the day. Even though the rates are not expected to be changed, the ECB decision could still be a big market mover. Let’s not forget that Europe still faces uncertain future as local markets continue to provide us with mixed economic data. Inflationary pressures remain very high in the Euro zone with Consumer and Producer Prices well above their target level – but growth is beginning to slow. Therefore, the tone of Trichets’ comments will be dependent upon whether he recognizes the trend of recent economic data or bases his views on the forecasts for growth in the months ahead.
The Bank of England is also expected to set borrowing costs today. By now, the U.K. Central Bank is forecasted to hold borrowing costs at a 6 year high of 5.75%. Nonetheless, recent speculation rose that the BoE may cut interest rates as soon as today after the U.K.’s biggest mortgage lender said that home prices posted yesterday their biggest decline since 1995. As a result, the GBP fell to the lowest level in 4 years against the EUR and the weakest since October vs. the USD.
JPY
Almost a 200 point rally in the Dow yesterday has triggered a rebound in carry trades as the strong U.S. ADP Nonfarm Employment numbers helped to boost risk appetite. The USD/JPY rose to a session peak of 110.96 as traders took profits on the Yen’s rise from the previous 2 days – a move which had been fueled by worsening credit market conditions before the usually illiquid year-end.
Meanwhile, a weakening Japanese currency turns to be positive for the local stocks. The Yen’s retreat is helping to lift major local exporters, while buying of retailers provided additional upward momentum.
Today’s Japanese economic calendar is quite empty with only a quarterly GDP figure due to be released. The expectations are currently standing at 0.6%, the same as in the previous quarter. Apart from that, most price movement on JPY pegged currencies will be derived from the European and American market events.
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Technical News
EUR/USD
On the 4 Hour chart, a bearish channel is establishing which implies a continuation of the current trend as next target price is located at 1.4532 and going short from 1.4630 appears to be a lucrative trade. A breach through the target price will validate a much deeper bearish move that might take the pair beyond the 1.4500.
GBP/USD
Yesterday, on the 4 Hour chart a descending triangle structure was breached which carried the pair to 2.0235, it looks clear that an upcoming reversal is expected as the Slow Stochastic (19) and RSI (14) both are in over sold territory and have a positive slope. The bearish momentum is very strong, and going short might be the best call today.
USD/JPY
There is a very distinct bearish channel on the daily chart, as the pair now floats on the upper level. A breach through the 111.00 will validate a very strong bullish move that might take the pair beyond the 112.00. if a breach will not occur, the bearish channel is most likely to continue.
USD/CHF
The bullish channel on the 1 Hour chart continues with full steam. RSI and Slow Stochastic are floating around the 50 level which indicates that the pair still has plenty of room to run. The 1.1300 level have been breached which strengthen the general bullish direction. Next target price might be 1.1350.
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