Special Consultant to the FPA
EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
September, 24, 2009
Analysis and Signals
September, 24, 2009
There is no much to say about fundamentals for the current week. In general, there are just a couple of movements that I want to investigate. First is the FOMC meeting and their announcement. There were two major points:
The Fed downplayed inflation, because they removed their previous statement “The prices of energy and other commodities have risen of late”. By removing this line, the Fed has indicated to the market that they currently see no imminent threat of inflation, effectively dampening expectations of a near term rate hike. A week ago Fed Fund futures were pricing in a 4.7% probability that the Fed would hike rates in December. With the meeting in the rear-view mirror, that probability has fallen to 3%. Additionally, the Fed once again reiterated that the fundamentals justified that rates stay low for an extended period of time. I think that this is a most important item in the whole announcements, and it will influence on the investors’ behavior in the intermediate future. This is a bearish sign for dollar.
For the long-term perspectives, FOMC has raised a bit the expectations about the economy and testified “economic activity has picked up following its severe downturn” instead of “economic activity is leveling out”. In general, this statement is bullish for USD, but I think that it will have not much influence in nearest future, if we take into consideration other, more important circumstances.
Second, we have to pay attention to the stock and commodities prices, because they can launch up a serious correction on the dollar. Now we have an “X” point. Asian stocks markets are trading heavy. If demand for risk will fall and stock will not be able to hold their momentum, then we can see downward correction on EUR/USD. Besides, Crude oil has a bearish momentum now, and stands near main support level. If it will not hold, then it will add pressure for EUR/USD. As a result, we can see a medium-term downward trend on EUR/USD pair.
Current Basic Macroeconomic Issues:
Investors basically pay attention only to the nearest perspective. Since FED rates tightening is too blurring, we should not to expect meaningful USD strengthening till next year (or till first signs of rates hike possibility);
USD will become stronger when investors will see these signs, so the expectations concerning EUR/USD rates parity will change;
We can expect growth in USD, if the possibility of second leg of recession will grow, and if investors will have large borrowing positions in USD;
EU economic recovery will have a time lag about 1-2 quarters compared to US recovery;
When EU rates hike expectation will appear, the dollar will turn to weakeness;
We can see temporary USD strengthening from time to time due some technical movements untill first signs of rates hike possibility appear.
The primary US economic data that will be under scrutiny – personal credit, spending, wages and employment, inflation. This is a final segment in chain, and it’s very important.
As a result, I think that technical factors will prevail during next week – stock market and Crude oil. They can tend to some strengthen in USD. The major fundamentals, in fact, stays unchanged, according to FOMC statement.
Previous “trade possibilities(1)”:
“I think that market will feel a downward pressure at 1.4850-1.50 level, if market will reach it during current month.”
“For those, who is already had long positions: hold them surely till 1,4820. But I think we will reach 1.4950 and even can touch 1.52. You may tight stops a bit, when market will be closer to 1.4900.
For those, who out of the market: may be there will be an opportunity to go short in 1.49-1.52 range. Looking for signs of correction. But such kind of deal should be short-time. You can go long using your own enter technique until 1.4850 level is reached.”
Monthly (EURO FX all sessions CME futures)
I have nothing to add to my previous analysis of monthly data. The trend is still up. All major resistance levels are passed. The main thing, that could somehow break the upside move, at least for some time, is an overbought situation. I think that the market will feel a downward pressure at 1.4850-1.4900 level, if market will reach it during current month.
Weekly (EURO FX all sessions CME futures)
The same thoughts are applicable on the weekly chart. The overbought level allows price to reach as far as the 1.51 level. Trends are up, so I think that we have to be looking for possibility to go short in 1.4850-1.4900 range.
Trade EUR/USD possibilities (1):
During the first half of the next week, the monthly overbought level – 1.4850 - will limit upside move. Put an eye on stocks and Crude oil movements. If there will be down turn on stocks and EUR/USD will be in 1.4850-1.4900 range, then good opportunities to sell EUR/USD can appear.
From the other side, the market still has an upside momentum, that’s why I do not expect strong down move. It is possible that 1.4620 level still will give strong support to the market.
Be careful during the second half of the next week, because we will have an explosive combination of macro data – unemployment, ISM index, and PMI index. But, from the other side, it can give us interesting opportunities to enter the market.
(1) “Trade possibilities” are not detailed trade signals with specific entries and exits. They are expectations about possible moves of the market during the week based on market analysis.
General Notice: Information has been obtained from sources believed to be reliable, but the author does not warrant its completeness or accuracy. Opinions and estimates constitute author’s judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein.