The U.S. Dollar anticipates the release of U.S. Core CPI at 12:30 GMT. The reason this publication is so important is due to it being a leading measure of U.S. economic growth and inflation. A positive figure is likely to help the USD gain strength throughout today’s trading. The USD will also be affected by its yesterday’s bearishness, as there may be a slight correction in the greenback. Traders should open their USD positions now in order to make maximum profits from end-of-week trading.
Economic News
USD – USD Slides on Poor Economic Data
During yesterday’s trading, the Dollar dropped against all the major currencies. The Dollar dropped as much as 100 pips at one point against the EUR on Thursday, and saw bearish trends against the Pound and the Yen as well.
The Dollar weakened yesterday as a result of series of negative economic data releases. The U.S Retails Sales unexpectedly dropped by 0.1% in July, failing to reach expectations to rise by 1.8%. The U.S Core Retails Sales dropped by 0.6% in July too. The difference between the two reports is that the core report measures the change in the total value of sales at the retail level, excluding automobiles, due to the high volatility of automobile sales. The fact that both indices showed negative figures proves that American consumers are still cautious regarding their expenses, lacking the confidence that the worst of the recession is behind us
The other important release that helped push down the Dollar on Thursday was the weekly Unemployment Claims report which showed that 558,000 individuals filed for unemployment insurance for the first time during the past week. Both the negative Retails Sales data and the poor employment figures showed that the U.S economy is yet to pull out of recession, and thus the Dollar weakened as the trading day progressed.
Looking ahead to today, the leading data seems to be the Consumer Price Indices (CPI). The CPI measures the change in price of goods and services purchased by consumers, and thus act as a leading inflation gauge. Traders are advised to focus their attention on the Core CPI report, which excludes food and energy prices, as it tends to deliver a more reliable figure. Current forecasts suggest that prices have stayed quite stable during July. It appears that if the actual result will be similar or slightly better, it may correct some of yesterday’s losses for the Dollar. However, in case of a worse-than-expected result, the Dollar is likely to continue tumbling.
EUR – EUR Soars on Positive GDP Figures
The EUR saw a volatile trading session yesterday. The EUR rose significantly higher against the Dollar, as the EUR/USD reached the 1.4300 level. However, the EUR saw mixed results against both the Yen and the Pound.
It appears that the EUR’s appreciation came as a result of the better-than-expected economic data. The German Preliminary Gross Domestic Product (GDP) unexpectedly rose by 0.3% in the 2nd quarter. The GDP report measures the change in the inflation-adjusted value of all goods and services produced by the economy. The positive result generated speculations that the German economy is recovering sooner then expected, as many analysts wrongly forecast that the German economy will only pull out of recession by the middle of 2010.
Later on in Thursday’s trading day, the European Flash GDP was released, showing that the Euro-Zone’s GDP dropped by 0.1% during the 2nd quarter, beating expectations for a 0.5% slide. The better-than-expected figures created the sensation that the Euro-Zone economy is following the U.S optimism which we have seen in the past 2 months that the recession will end sooner than expected. As a result, this has strengthened the EUR.
As for today, a batch of data is expected from the European economies. The French Preliminary Non-Farm Payrolls will be released, and analysts forecast that 0.7% people have lost their jobs during the previous quarter in France. The European Consumer Prices Indices are also expected today, and are predicted to deliver mixed results. It currently seems that if the actual results will be similar to forecasts, the EUR may drop slightly due to the overall negative figures.
JPY – Yen Rises on Asian Equity Rally
The JPY started yesterday’s trading with bullish trends against all the major currencies. The Yen continued to rise against the Dollar, yet later on lost gains against the EUR and the Pound. The Yen soared against the major pairs as a rally in Asian stocks spurred demand for higher-yielding assets. The Bank of Japan stated yesterday that Japan’s economic conditions have stopped worsening, and are likely to turn upward over time. This created positive sentiment which was reflected in Asian stock markets, and was followed by a strengthening Yen.
Yesterday, the Tertiary Industry Activity report showed that the total value of services purchased by business rose by 0.1% in June. This is another indication that Japanese consumers feel safer to enlarge their expenses, which means that the general sentiment is that the economy is doing better. Looking ahead to today, no significant data is expected from the Japanese economy. Traders should mainly focus on the major data releases from the U.S economy, as this is likely set the tone for today’s trading.
Crude Oil – Crude Oil Eyes $73 a Barrel
Crude Oil continued to rise yesterday, marking the second consecutive day of rising prices. A barrel of Crude Oil rose to over $72 during yesterday’s trading session, and now eyes $73 a barrel. Crude was helped by a weak USD Dollar, as the commodity is valued in Dollars, and thus a drop of the Dollar against the major currencies is usually followed by a rise in commodities prices, especially Oil.
The rise in Crude Oil and the weak USD was largely due U.S equities rallying to a 10-month high, and the German and French economies delivering better than expected data. What seems to be an early recovery for the leading western economies has sparked optimism for a rebound in fuel demand. It currently seems that every positive economic figure from the U.S or the Euro-Zone may spark an appreciation in Oil prices, as expectations for higher fuel demand are constantly growing.
Technical News
EUR/USD
The EUR/USD cross has risen significantly in the past 2 days, and currently stands at the 1.4258 level. The chart’s 4-hour RSI supports a bearish trend for today. However, the hourly and daily charts support a more accurate picture. The daily chart’s Stochastic Slow supports the recent upward trend to continue. This is also backed up by the Stochastic Slow of the hourly chart. Going long with tight stops may turn out to pay off today.
GBP/USD
The pair has plummeted significantly in the previous week. However, yesterday saw the GBP/USD pair rise to as high as the 1.6665 level. The chart’s oscillators seem to be showing mixed signals. On one hand, the daily chart’s Stochastic Slow and chart’s 4-hour MACD supports a bullish trend for today. On the other hand, the daily chart’s RSI and the weekly chart’s RSI support a bearish correction today. Entering the pair when the signals are clearer seems to be the preferred choice for today.
USD/JPY
The cross has experienced much bearishness in the past week, and currently stands at the 95.21 level. There is much evidence in the chart’s oscillators that supports a possible bullish correction today. This is supported by the chart’s 4-hour Stochastic Slow and MACD. This upward behavior today is also backed by the daily chart’s Stochastic Slow. Going long with tight stops may turn out to bring big profits today.
USD/CHF
The USD/CHF pair peaked about a weak ago. However, it is now officially experiencing a 3 day losing streak. The chart’s 4-hour Stochastic Slow indicates that there will be a bullish reversal today. However, most of the other technical indicators signal that a bearish move will continue for the pair today. This is supported by the weekly chart, the chart’s daily Stochastic slow, and the chart’s 4-hour MACD. Going short on this pair may turn out to pay off in today’s trading.
The Wild Card
Crude Oil
Crude Oil has again returned to the forefront as one of the most profitable commodities. The black gold has continued to rise in the past 2 days, and it could hit the $73 mark anytime soon. The daily chart’s Bollinger Bands signal that there may be some steam left in this upwards trend. However, the RSI of the hourly, 4-hour, daily, and weekly charts support a bearish correction to occur today. Entering the trend at an early stage may turn out to bring in big money for forex traders today.
Written by: Forexyard.com