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ForexYard Analysis
Yesterday the USD fell against 15 of the most-actively traded currencies after a report showed U.S. housing starts dropped to… … a 14-year low in September.
This housing data comes out only 1 day after Federal Reserve Chairman Ben S. Bernanke
reminded the market that real estate is the major threat to growth with contraction
expected to go on into at least the middle of next year. The latest housing figures
strengthen the case for Fed policy makers to cut interest rates again. Interest-rate
futures suggest more than a 50% chance the Fed will cut the target rate a 0.25%
point on Oct. 31, up from 38 percent yesterday.
In addition, yesterday's U.S CPI data fell in line with consensus forecasts, easing
fears that strong price pressures would keep the US Federal Reserve from cutting
interest rates further in 2007. The CPI rose at the sharpest rate in 4 months in
September, while core prices, which exclude volatile food and energy costs, came in
line with expectations.
Traders cannot ignore the fact that Oil prices are on their way to $90 a barrel.
The USD slipped broadly on Wednesday not only due to a sharp fall in U.S. Housing
Starts for September, but also because of the surge in Crude Oil prices. Oil prices
hitting new highs will continue to influence negatively on the US economy.
Looking ahead, there will be quite a few key US economic data releases today,
kicking off with the Unemployment Claims at 12:30 GMT and the Philadelphia Fed
Manufacturing Index later at 16:00 GMT. Both are expected to come out weaker than
the previous month's figures, and should broadly cause the Greenback to continue its
weakening move from recent days.
* EUR
Since the middle of last week, the EUR/USD has been floating within a 100 pip range
and yesterday was no exception. During the late afternoon trading session in New
York, the EUR was trading 0.2% higher at $1.4191. Later, the European currency was
pushed to $1.4230, but failed to sustain that level amid caution ahead of the Group
of Seven finance ministers' meeting over the weekend. The G7 ministers will meet in
Washington over the weekend and many analysts expect currencies to be one of the
major topics for discussion given the recent market volatility.
The ECB has not wavered in its hawkish tone which is a strong signal to the market
that the central bank has no plans to intervene in the currency or to lower interest
rates.
There is no real market moving news to be released from the Euro zone today. The
European Trade Balance is the only number due for release, with the expectations
currently standing at 0.2B, significantly higher than the previous month's negative
figure of -0.6B.
* JPY
Yesterday, the JPY was the biggest gainer amongst major currencies, as a carry trade
tumble forced similar drops for all JPY crosses.
Against the USD, the Yen strengthened 0.2% to 116.70. The JPY was little changed
against the EUR and traded around the 165.60 level.
The JPY may continue its gains versus the USD for the fourth consecutive day today,
after yesterday's reports showed that the U.S. housing recession deepened in
September and raised concern that it may drag down the rest of the US economy. As a
result, the Japanese currency has benefited as investors become more risk averse and
repurchase the currency to exit trades financed in Japan. Carry trades are now going
full steam as Japan's 0.5% benchmark interest rate, the lowest among major
economies, encourages borrowing in the currency.
Today, no significant data is expected to come out of the Japanese markets, and the
JPY is expected to continue to grow stronger on the local level.
Technical News
* EUR/USD
The pair is showing a solid uptrend on the 4 Hour and daily charts with strong
momentum, as seen in the slow stochastic and RSI. The next resistance level will be
the all time high of 1.4277. In case of a breach through that level we should see an
additional bullish move that could be quite massive.
* GBP/USD
There is a clear 5 Elliott waves pattern which suggests an imminent ABC wave
pattern. This indicates that upon a target price of 2.0440, which is the peak of the
last wave, we should see the bearish move beginning. Target price for the bearish
move should be around 2.0320.
* USD/JPY
The pair is in a corrective move from 117.80 and is now floating around 166.50. The
hourlies are showing strong bearish momentum yet the dailies are indicating a
bullish cross with a chance for a reversal move. A preferable strategy for the long
run should be buying on dips.
* USD/CHF
There is a bearish channel forming on the 4 hour chart as the pair is floating on
the bottom section of the channel. A breach through the 1.1745 will validate the
next bearish move. If the pair will continue to float above the support level, we
might see a bullish correction in the short run.
The Wild Card
* Crude Oil
After a failed attempt to break the unbelievable 90$ barrier, the positive momentum
is growing again with full strength. There is a great opportunity for
forex trades to jump in this very strong uptrend, and enjoy trading all time high
levels with unprecedented positive momentum.
