Economic News – USD. Yesterday the greenback was mixed against most of the major currencies as investors sought to weigh US economic prospects amid hopes… … that the world's largest economy will pick up steam later this year.

The USD strengthened slightly versus the JPY
touching the 121.66 level, as a record intraday high for US stocks meant that carry
trades were back in action, but the US currency lost some ground against the EUR
falling to 1.3459 from Tuesdays 1.3447 level. Sentiment on the US economy has
brightened in the past week following better-than-expected reading on jobless
claims, a surprise rebound in new home construction and an unexpected strong rise in
industrial production. Hence traders are buying back the dollar as they continue to
digest this series of robust economic indicators.
After two days of top-level economic talks in Washington, the US and China claimed
to have agreed on the need for economic and currency reforms. Paulson said Chinese
officials agreed with the United States that their economy had to be “rebalanced” to
take on a greater role as a global consumer and cut Beijing's reliance on exports
for growth. That would help reduce a U.S. trade deficit with China that hit an
all-time high of $233 billion last year and ease tensions over China's economic
success. The most significant deal announced yesterday was one that commits China to
remove a bar on new foreign securities firms and resume issuing licenses for
securities companies, including joint ventures, in the second half of 2007. This
deal is important as Treasury Chief Paulson has made gaining greater access to the
Chinese financial sector a key objective. However there still seems to be no
agreement on the dispute over China's undervalued currency. In July 2005, China
abandoned an 11-year-old practice of holding the Yuan fixed against the dollar and
revalued it by 2.1%. Since then it has risen only a further 6%, frustrating U.S.
legislators who claim an undervalued currency makes Chinese products unfairly
inexpensive and therefore this hurts the ability of US exporters to compete on the
global markets, leaving the US with limited options to shrink its trade deficit.
Today we will finally see some significant news coming out of the US after a
relatively barren news week. At 13:30 GMT the US Durable Goods Orders figures will
be released as well as the Jobless Claims figure which is expected to rise to 305K
from a previous figure of 293K. This news will be followed by the release of the new
home sales figure at 15:00 GMT which is expected to improve slightly from 858K to
860K. If these figures disappoint we may see this week's fledgling dollar rally
begin to crawl back into the bear cave and it seems that the dollar retracement may
have already began yesterday as the USD only gained ground against the Yen but it
slipped against all the other majors. So today's economic news will be a
particularly key turning point for the USD.

* EUR
Yesterday the Italian retail sales figure released at 0.5% beating the previous
months figure and the expected figure of 0.2%. This positive news was a further
indication of the ever strengthening Euro-zone economy and the EUR gained all across
the board. The EUR was slightly firmer against the USD yesterday ahead of today's
German IFO survey which will be the main EUR market moving data of the week. This
survey measures the mood of firms in manufacturing, construction, wholesale and
retail. The index is derived from a monthly survey of over 7,000 firms where
respondents are asked to give their assessment of the current business situation and
their expectations for the next six months. So unlike the German ZEW survey, which
focuses more on the past, the IFO survey will give a better indication of how robust
the European economy really is and whether this strength is sustainable in the
future. If this survey releases surprisingly strong we will see the EUR resume its
bullish rampage.

Elsewhere, the GBP gained all across the board yesterday after the BOE monetary
policy meeting minutes for May showed all nine committee members voted to lift UK
interest rates a quarter percentage to 5.50%. This marked the first time this year
that the committee members unanimously voted to increase rates. Besides, the minutes
revealed that some members even suggested an unprecedented 50 basis point increase
in the meeting. The MPC minutes surprised the market that had expected an 8-1 vote.
The sterling rose sharply from 1.9750 to 1.9880 versus the dollar. However there is
still plenty of skepticism of whether the BoE will hike rates in the near future.

* JPY
Improving prospects for interest rates in the US and the UK has given further
impetus for the carry trades; this is where investors borrow money in countries with
low interest rates in order to invest in higher-yielding assets elsewhere.
So the JPY, which is the most common funding currency for carry trades due to the
very low Japanese interest rates, came under fresh pressure reaching its lowest
level since February against both the dollar and the pound. Also Japan's exports to
the U.S. fell for the first time in two years, underscoring the nation's reliance on
faster growing markets in Asia and Europe. Exports rose 8.3 percent in April from a
year earlier, cooling from 10.3 percent in March. Shipments to the US dropped 4.8
percent, the steepest decline since May 2004.
The Japanese market will be looking ahead to tomorrow's important CPI and core CPI
figures. It seems that the Japanese consumer prices probably fell at a slower rate
in April, signaling that inflation may turn positive again soon and allow the
central bank to raise interest rates. The core consumer prices, which exclude fresh
food, declined 0.1 percent from last year and according to estimates less than 0.3%
drop in March. The BoJ Governor Fukui said last week that the central bank could
raise interest rates even with prices falling, as long as policy makers are
confident about the economic outlook. The consumer prices, which began falling in
February, probably hit bottom in March and we should see improved CPI figures from
now. This could provide the JPY with some relief from the persisting bearish trend
that it has found itself trapped in.

Technical News
* EUR/USD
The pair is rallying down for the last 3 weeks and touched the 1.3415 level
yesterday. The hourly studies are in oversold territory, and a bullish cross has
formed on the daily chart. A correction up might be in place with a target price of
1.3550.

* GBP/USD
The Cable has already initiated the move up after the big slide from the 2.0100
levels, and is now showing the first distinct signals on the bullish side. Hourlies
are bullish, and the dailies still have much steam in it.

* USD/JPY
The uptrend for the pair could not be any clearer, and all studies indicate there is
still plenty more room to run. The pair now floats on the bottom of the upwards
channel, indicating a further move up is imminent.

* USD/CHF
The pair is still in the middle of the uptrend initiated at 1.2000, and now shows
signals of a correction. Dailies are bullish, and the hourlies are a bit overbought.
Buying on dips might be a preferable strategy.

The Wild Card
* EUR/GBP
The pair nose dived more than 150 pips in the last 4 days, and is now touching
0.6770 which is a strong local support. The dailies are turning bullish, and there
is a very distinct bullish cross forming on the 4 Hour chart, allowing
Forex traders a great opportunity to get in at a great low price and go long.

http://www.forexyard.com

USD – The US centric trading week continued yesterday, as both the European and Japanese markets were closed. The biggest news that was released was… Read the rest of this entry »