Daily Forex Analysis - By FOREXYARD

Daily Forex Analysis

Headlines

ISM Manufacturing On Tap.

Market Trend


 EUR/USD GBP/USD USD/JPY USD/CHF AUD/USD EUR/GBP
Daily Trend
Weekly Trend
Resistance 1.5610 1.9760 106.00 1.0510 0.9610 0.7980
1.5590 1.9740 105.80 1.0490 0.9590 0.7960
1.5560 1.9710 105.50 1.0460 0.9560 0.7930
Support 1.5490 1.9640 104.80 1.0390 0.9490 0.7860
1.5460 1.9610 104.50 1.0360 0.9460 0.7830
1.5440 1.9590 104.30 1.0340 0.9440 0.7810

Economic News

USD

A batch of disappointing economic data left the greenback in bearish territory on Friday to end what had been a positive week for the USD. Amidst an already shaky US economic outlook, personal consumer spending indices showed a slowdown in April as both income and spending numbers came in at 0.2%. The drop in consumption numbers left some investors worried that the US is a long way from the recovery that has been mentioned for the last month or so. Combined with rising food and oil prices, and the abysmal housing market, a poor showing from the University of Michigan Consumer Sentiment report, listed at its lowest mark in 28 years resulted in a correction of the weeks bullish dollar trend.

The USD spent the early part of the week recovering versus a batch of its major currency rivals, most notably the EUR. The EUR/USD pair spent most of the week in a bearish trend of just under 400 pips, until Friday as the pair re-adjusted to close the week at 1.5557. Friday's hefty US news day was the major factor in the 84 pip rise in the EUR/USD. Along with Personal Spending and Consumption indices and the Michigan Consumer Sentiment report discussed earlier, we also saw Core PCE Price Index and Chicago PMI. Both provided little to turn around bearish results. Looking ahead to this week, an array of US data on tap should prove to be essential to dollar movement. The news week will be highlighted by ADP Nonfarm Employment Change, ISM Non-Manufacturing Composite, Unemployment Claims and a busy Friday which will include Nonfarm Employment Change and the Unemployment Rate. Friday will likely be the main contributor to USD volatility, as historically Non Farm Payrolls is one of the more volatile events on the news calendar. The mark is expected to show a falling trend for the fifth consecutive month. We will also hear twice from Fed Chairman Ben Bernanke, who is expected to address the delicate US economic situation.

On tap for today, we expect the release of ISM Non-Manufacturing Prices and Index. The indices are not expected to vary much from last month's marks, which should turn investor attention to outside news events. Still expect steady liquidity in and around the 14:00 GMT release of the ISM figures.

EUR

Last week the EUR saw bearish trends against most of its major currency counterparts. At the beginning of the week the EUR\USD pair was set at 1.5780 and by the end of the week it fell as low as 1.5474.

Last week some crucial data was delivered regarding the EUR. The German Consumer Confidence demonstrated an ongoing decrease in confidence within German consumers regarding their economy. The German Consumer Price Index showed a 0.6% price increment, reflecting an increase in inflation in the Euro-Zone's strongest economy. The Consumer Price Index Flash Estimate reflected increasing inflation in the Euro-zone as well. At the end of the week the German Retail Sales fell unexpectedly for the second month in a row, enhancing investors' concerns regarding a forthcoming recession.

Today, the Manufacturing Purchasing Manager's Index will be published, and it is forecasted by analysts to come at 50.5, similar to last month's figure, yet it should not have a large impact over the EUR. Later on, European Central Bank (ECB) President Trichet will deliver a speech at the ECB's 10th Anniversary conference. Investors are advised to search for clues regarding future monetary policy and interest rate shifts. Traders should also focus on news arriving from the U.S, as they should have an influence on EUR developments for today.

JPY

The Yen saw bearish momentum against most of its currency pairs losing tens of pips against each one. This trend took place last week during the last trading session on Friday. The only JPY related cross or pair that was not wise to go short on was the USD/JPY as the pair range traded for the day. The Japanese Housing Starts did not help the Yen, as the new housing market in Japan continued to decline by -8.7%.

The Average Cash Earnings came in earlier today at 0.6%, which is 0.9% less than the previous publication. Later on today, the Monetary Base result is expected to have a positive effect on the Yen, since the forecast is higher than the previous reading. The only other indicators expected to come out of Japan this week and have any potential to significantly impact the JPY are BOJ Governor Shirakawa's speech and Capital Spending. Both releases should be announced on Tuesday, which will cause the Yen to experience a lot of volatility. It is advisable for investors to follow the news of the Yen's counterparts today to derive a superior strategy.

Technical News

EUR/USD

After the sharp drop to the 1.5450 level there has been a local bullish correction to the 1.5500 zone. The pair is now shaping into a bearish formation again which is supported by a strong bearish cross on the Slow Stochastic of the 4 hour chart. It appears that the pair is accumulating bearish momentum and that going short might be a good choice today.

GBP/USD

The cable is the middle of a bearish trend which appears to still have a strong bearish momentum. There has been a bearish cross on the daily Slow Stochastic which implies that the bearish price direction might have some more steam in it for the next move. Going short appears to be preferable today.

USD/JPY

The bullish channel continues with full steam after a small set back of range trading which occurred for the last 10 days. All oscillators are showing regenerated bullish momentum, and being on the buy side looks like the right side to be on.

USD/CHF

The daily chart is showing range trading with no specific price direction and oscillators that float in neutral territory. The 4 hour chart is showing moderate bullish momentum due to a bullish cross on the Slow Stochastic, which means that forex traders might have a good shot at going long with very tight stops.

The Wild Card

GBP/JPY

There is a very distinct flag forming n the daily chart, as the pair now approached the tip of the flag with moderate bearish momentum. It appears that a target price of 205.00 is quite imminent, and there is a possibility of a breach attempt. This gives forex traders a great opportunity to join in a bearish trend with a possible breach in the very near future.

Indicators

Date Time (GMT) Country Event Period Previous Forecast Importance
2008-06-02 00:30:00 AUD TDMI Inflation Gauge m/m 0.5% * ***
2008-06-02 01:30:00 AUD Retail Sales m/m 0.2% 0.2% ****
2008-06-02 01:30:00 AUD Company Gross Operating Profits q/q 4.1% 1.5% *
2008-06-02 01:30:00 JPY Average Cash Earnings y/y 1.5% 1.3% *
2008-06-02 05:45:00 CHF GDP q/q 0.9% 0.3% ***
2008-06-02 06:30:00 AUD Index of Commodity Prices y/y 21.8% * ***
2008-06-02 07:30:00 CHF SVME PMI
56.7 55.4 ***
2008-06-02 08:00:00 EUR Manufacturing PMI (r)
50.5 50.5 **
2008-06-02 08:30:00 GBP Manufacturing PMI
51.0 51.0 ****
2008-06-02 08:30:00 GBP Mortgage Approvals
64K 64K *
2008-06-02 08:30:00 GBP Net Lending to Individuals m/m 8.1B 8.0B *
2008-06-02 13:30:00 EUR ECB President Trichet Speaks
* * ****
2008-06-02 14:00:00 USD ISM Manufacturing Index
48.6 48.6 *****
2008-06-02 14:00:00 USD ISM Manufacturing Prices
84.5 85.0 ****
2008-06-02 14:00:00 USD Construction Spending m/m -1.1% -0.5% **
2008-06-02 23:50:00 JPY Monetary Base y/y -2.8% -0.9% *

FOREXYARD

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Disclaimer: Content in the Forex Forecast and Analysis section is for informational purposes only. Contributors submitted Forex Forecast, Forex Commentary, Forex Analysis, and Forex Articles and articles on other markets are based upon information gathered from various sources believed to be reliable, complete, and accurate. However, no guarantee can be made as to the validity of the believed sources. All statements and expressions in the Forex Forecast and Analysis section are opinions, and not meant as investment advice or solicitation. Forex Markets can be volatile and opinions may change without notice.

FOREX : Foreign Exchange Market

FOREX is a word play on the term Foreign Exchange Market. It is a market for buying and selling of currencies from all over the world. Certainly, such transactions are bound to be voluminous. It is just an estimate that there are about transactions of $1.5 trillion USD on a daily basis in the FOREX. Now just compare this with the paltry $300 billion USD a day transactions for the US Treasury Bond and the $100 billion a day transactions for the US Stock Exchange.

The FOREX came into existence in 1971 when the fixed currency exchanges were abolished. Currencies no longer had fixed values after that; on the contrary, their rates (mostly taken in comparison with the USD) were fluctuating, and changed on a daily basis. Throughout the seventies and the eighties the FOREX grew steadily, showing more advancement in the later years. The market has stupendously grown from $70 billion USD a day to the staggering amount that it transacts today on a daily basis.

There are actually about five thousand trading institutions in the FOREX. These include international banks, central government banks such as the US Federal Reserve, and commercial companies and brokers for all types of foreign currency exchange. The best thing that shows the unbiased nature of the FOREX market is that it has no fixed headquarters anywhere – it operates primarily from all major cities like New York, Tokyo, London, Hong Kong, Singapore, Paris, Frankfurt, etc. One can even use the telephone or the internet to make the transactions. The major businesses at the FOREX are the buying and selling of products in other countries. Several transactions are also conducted from the currency brokers or traders who stand to make small profits with the daily fluctuations in the market.

Most of the FOREX business is centered on big banks and financial institutions, but it doesn’t mean that the FOREX is inaccessible to small investors. The recent changes in the financial regulations have effectuated this accessibility. Earlier, a minimum transaction size was required to conduct business with the FOREX. But the current rules have made it possible to break large inter-bank units into smaller bits. Each bit is worth as less as $100,000. This makes it possible to each individual investor through loans that are extended for trading, known as leverage. The ratio to control the lots is 100:1. This means, every $1000 USD will allow one to control $100,000 on the FOREX.

The benefits of trading with the FOREX are mentioned below:-

(1) Liquidity of Investments – As the FOREX is a huge market, the funds have a very high degree of liquidity. This is because of the presence of the international banks who provide their bids and carry out a large number of transactions on a daily basis. Therefore, there is always a buyer or seller for any type of currency.

(2) Highest Degree of Accessibility – The FOREX is open 24 hours a day for 5 days a week. Every Monday morning the exchange opens at Australian Standard Time and closes on Friday afternoon at New York time. Greater accessibility is provided because the transactions can be conducted from the person’s home or office.

(3) Open Market – At the FOREX, there are no secrets. All the fluctuations that occur in the market are made accessible to everyone at the same time. There is no insider trading in the FOREX.

(4) No Commission – There is no hassle of paying commission to the brokers in the FOREX. Here the brokers earn by setting up a difference between the buying price and the selling price of a currency, which is known as a spread.

It must be understood by now that for the FOREX to work effectively, the currencies must always be traded in pairs. For instance, the Japanese yen must be traded against the euro. When one kind of currency is sold, there should be another to be bought in its stead.

The profit happens because there is always mobility between the different currencies. Even if there is a miniscule change in the exchange rate, then it could mean substantial changes in the profits due to the large amount of money involved in the transactions. People are thronging to the FOREX and not any other institution due to the trust that they have in it. To add to the advantage, the market is absolutely well-advanced and uses sophisticated software for dealing out its transactions.

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