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Equities Stumble & The USD Gains

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Jul 29, 2009.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex

    The USD gained on the EUR and GBP on Tuesday as the equity market stumbled and a poor piece of economic data was released. Wall Street appeared to run out of gas, at least for a day, as a few companies offered less than overwhelming news to investors. Bank of America announced it will be making large cuts to branches in an effort to reduce operating expenses, General Electric released a report saying that they are performing well but have obstacles to maneuver around, and U.S. Steel showed that the faltering economy has affected their bottom line. The CB Consumer Confidence survey released yesterday provided a reminder that Americans are less than happy with their prospects, the reports showed a 46.6 reading compared to the estimate of 49.1. Certainly the above notes were not the only things affecting the marketplace, but when you factor into the mix that equities had seen such a strong rally the past two weeks, it definitely provided a reason for even the more optimistic traders amongst those in the marketplace to take a pause.
    The U.S. will release its Core Durable Good figures today and a slight gain of 0.1% is the expectation. Tomorrow the weekly Unemployment Claims data will be published and therefore start to set the stage for what will become a couple of interesting trading days going into the weekend. Unemployment remains a critical part of the poor sentiment surrounding any chances for a strong U.S. recovery and consumers expressed their doubts in yesterday’s CB Consumer Confidence results. On Friday the Advance GDP will be brought forth and this with the specter of the Non Farm Employment Change numbers due next week may be enough to cause the folks on Wall Street to hesitate. The USD has followed the equity markets step by step the past few months and this does not look like it will change anytime soon. The exaggerated gains made across the board in share prices the past two weeks sent the USD roiling and if those with risk appetite feel a somewhat diminished view in the coming days it stands to reason we could see the USD show some strength.

    The EUR found a tougher road on Tuesday as equity markets found resistance. There were no major releases of economic data from the European Union yesterday. Germany will publish its Preliminary CPI numbers today and the anticipated figure is a gain of 0.2%. The inflation picture throughout Europe remains one of debate as many analysts continue to point out that it is deflation which poses a significant danger – and not inflation. Germany companies will also be releasing important quarterly reports today with the likes of Bayer and Daimler posting. Tomorrow the German’s will be publishing their Unemployment Change numbers and Europe will bring forth its broad Consumer Confidence readings. Having had a good two week run against the USD, the EUR was beset with a lack of support on Tuesday as equities retreated a bit. Today’s trading should resemble the characteristics of the previous sessions, meaning the EUR will struggle if share prices show vulnerability.

    The Sterling slipped against the USD on Tuesday as the combination of lackluster results from the FTSE and a bad CBI Realized Sales survey took hold. The Sterling has had a strong performance the past two weeks but its strength was not enough to overcome diminished risk appetite yesterday. The CBI Realized Sales figure showed a minus -15 reading compared to the forecasted number of minus -12. Today the Mortgage Approval data is on schedule and the estimated number is 48K. Also the Net Lending to Individuals statistics will be published and a figure of 1.0 billion is expected. Both of these reports are calling for better results than their previous outcomes. Tomorrow the Nationwide HPI is on the calendar. The Sterling found a slippery slope on Tuesday as it saw sustained pressure for the first time in several sessions and traders will be keeping their eyes on the GBP today.

    The JPY gained quickly against the USD and other major currencies yesterday as risk appetite evaporated on Tuesday. The JPY remains on the stronger side of its rather well practiced range against the USD and if international bourses remain in a cautious state the JPY may continue to build in strength even though this is certainly not what the Bank of Japan would like to see. The JPY may stay a casualty of cautious trading among Asian investors.

    Technical Analysis

    The bearish channel on the daily chart continues with a volatile price movement. The Slow Stochastic on the daily chart is also showing continued bearish movement and is supported by the RSI. Going short appears to be the right strategy.

    There is a very accurate bearish channel forming on the 4 chart. The daily chart also supports a bearish notion. We expect the next target price to be around 1.6300 level. Therefore the preferred strategy today will be a short position.

    The pair continues its bearish trend breaking the 94. 50 support level and formed a short term top cycle at 94.20 levels on the 4-hour chart. However on the one hour chart the Slow Stochastic is crossing at the 18 level and the RSI is at the 18 level as well which indicates that we are in oversold territory and the correction is imminent. Going long with tight stops seems to be preferable.

    The daily chart is showing moderate bullish momentum as the Oscillators are in neutral territory with a slight positive slope. The range trading on the hourlies is forming into a narrowing bullish channel. The pair is approaching the middle level of it with very tight Bollinger Bands. The next target price on the opside will be around 1.0800 level. Traders must pay attention for a possible breach which could create a great buy signal.

    The Wild Card
    The Gold is now showing bearish momentum as seen by the hourly oscillators. Both the daily and hourly charts support another bearish move. Therefore, it seems that Forex traders will be able to maximize gains today by entering a short position.

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