Economic News
 
USD

The greenback experienced some volatility yesterday on the back of the much anticipated U.S Interest Rate Statement. The Federal Reserve cut its benchmark short-term interest rate yesterday by a quarter of a percentage point, to 4.25%, and suggested that it would lower rates again if the credit crisis continued to damage not just housing, but the rest of the economy as well. Since the credit crisis erupted in August, the Fed has shaved a full percentage point from the federal funds rate, which is what banks pay to borrow from each other overnight. However many analysts believed that the Fed would cut the interest rate by at least 0.5% in order prevent the U.S economy from slipping into a recession. Therefore the Fed's decision to cut the interest rate by 0.25% is a positive indication to investors that the Fed believes that the economy is still well clear of a dreaded recession. Policy makers also cut the discount rate yesterday, which is what banks pay to borrow directly from the Fed. The quarter-point cut, to 4.75%, was less than what the market had been expecting, and that triggered a selling spree that sent the Dow Jones Industrial Average (DJIA) on a freefall. On the back of the sharp equity market fall, Fed officials hinted to the market that the Central Bank could inject more funds into the banking system before the end of the year. However the statement by Fed Chairman Bernanke, that followed the interest rate announcement, left the impression that the Fed's policy makers were done with their rate cuts. Although the Fed rate cut caused the greenback to falter slightly it did manage to recoup most of the losses it suffered in the dollar sell-off leading up to the interest rate announcement. The Fed also shyed away from hinting further rate cuts, so this was taken as a positive signal by investors as it seems that the Fed now believes that it has done enough for the economy to now repair itself and we could see the greenback begin a steady recovery. However in order for the greenback to leap onto a sustained bullish path, it will need a string of strong data to indicate to the market that U.S growth and inflation are heading in the right direction. Looking ahead to today, the only news expected from the U.S will be the Trade Balance and the Import Price Index figures. The Trade Balance is expected to release lower than last month's figure of -56.5B, at -57.3B. However we could see this figure surprise on the upside, as the recently weak dollar should have boosted exports thereby reducing the current trade deficit.  

EUR

EUR The EUR did strengthen temporarily against the greenback on the back of the Fed rate cut, however as the market settled the EUR lost a large portion of its earlier gains. There was negative news for the EUR as the German ZEW Economic Sentiment, which measures institutional investor sentiment, released well below the expected figure of -34.5, at -37.2. The EUR slipped 0.4% yesterday against the greenback, touching the 1.4655 level. The EUR slip can mainly be attributed to the Fed's modest discount rate cut, as many analysts were expecting at least a 0.5% rate cut. Also the EUR fell sharply against the JPY on the back of the collapse of the equity markets yesterday which caused carry trades to unwind. The EUR lost 1.3% against the JPY and it slipped to the 162.15 level. We could see the Eurozone sentiment begin to change to a more bearish outlook, even though the ECB predicts steady growth, as liquidity is still a major headache for the European economy and as long as it persists it will be forced to keep interests rates on hold. Looking ahead to today we are expecting the Eurozone Industrial Production and Employment Change figures. These figures are not expected to be market moving and we should see the EUR consolidate today after yesterday's losses.  

JPY

The JPY came out firing on the back of yesterday's U.S Interest Rate announcement which caused carry trades to collapse, thereby driving a carry trade unwind. The JPY gained all across the board, particularly against the high-yielders, which is a reflection of increased risk-aversion by investors as a result of a falling stock market. The JPY surged to the 110.92 level against the greenback and to the 2.0340 mark versus the Sterling, gaining 0.6% on the day against both the currencies. Earlier today during the Asian trading session the Japanese CGPI figure, which measures the rate of inflation experienced by corporations when purchasing goods, released better-than-expected at 2.3%. There was more positive news for the JPY as the Current Account also released better-than-expected at 2.56T. However these figures had little effect on the JPY movement, which is likely to remain in strong correlation with the performance of equity markets, particularly with U.S stocks and the Nikkei.

Technical News

EUR/USD

A widening bearish channel and a bearish head & shoulders structure are establishing on the 4 Hour chart both indicates on an upcoming bearish trend, however only if the current trend won't be able to break the1.4715 resistance level. Today, going short with the trend seems to be preferable.  

GBP/USD

The cable is going through a strong downtrend, and we can see new momentum on the hourly charts growing stronger. The daily chart indicates that the next target price might be around 2.0320.  

USD/JPY

A bullish channel is establishing on the 4 Hour chart, the Slow Stochastic crossed at 26, Momentum and RSI both having a positive slope which implying that much more room is left for the current bullish trend. Today, going long with the trend seems to be the preferable strategy.  

USD/CHF

In the past few days the pair is going through a choppy session, and is giving mixed signals on the hourly level. The daily chart is showing bullish formation, and it looks as if the pair is heading toward 1.1350 again. A preferable strategy might be going long for the short run.  

 
The Wild Card
 
Gold

A bullish channel is forming on the 4 Hour chart supported by the Slow Stochastic which having a positive slope. An ascending triangle is establishing on the 15 Min chart, indicates on 803.92 as a possible entry point for long position which forex traders may take advantage of.  

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