Daily Forex Analysis

Daily Forex Technicals | Written by FOREXYARD | Oct 10 08 11:00 GMT |

Headlines

G7 Summit on Financial Crisis Kicks Off Today

Today's meeting of finance ministers and central bankers from the world's leading industrial nations kicks off today as the financial crisis is the primary focus of today's economy. Apparently recent measures have not been sufficient enough to turn the corner of this crisis; therefore, markets are expecting central banks around the world to cut rates further. These rate cuts, and other possible solutions, will be the main talking points in today's G7 Summit.

Economic News

USD - Interest Rate Cut Strengthens U.S. Currency

After declining for the past three days, the USD finally started to gain versus the EUR yesterday rising to $1.3558 at the close of yesterday's trading session. This could be attributed to the steadily climbing short-term interest rates in global money markets despite coordinated efforts by many central banks this week to ease the credit crisis. Regardless of these efforts, there is still a fear of further bank failures. This is leading many banks to start hoarding cash, especially the USD, and also discouraging inter-bank lending. The resulting investor demand for dollars has pushed the USD's value higher against the other major currencies.

The USD's gains also came amid speculation that the Group of Seven (G7) meeting of finance ministers and central bankers today would follow Wednesday's coordinated rate cuts with bold steps to unblock the flow of credit in global markets. The market is looking forward to the G7 meeting, as well as a broader meeting of G20 countries over the weekend, for a more coordinated approach to the global financial crisis. Perhaps this meeting will instill confidence in the market. Traders expect the G7 to take another major step to guarantee more inter-bank lending.

Apparently the current measures are not yet sufficient to turn the corner of this crisis. Therefore, markets expect central banks around the world to cut rates further after the Fed, the ECB and the central banks of Canada, England, China, Sweden and Switzerland cut rates simultaneously on Wednesday. As the dollar broke out of its recent depreciating trading pattern in today's early trading session, analysts are predicting a continuation of its upward movement over the weekend, and further rate cuts will help bolster this movement. Unless today's G7 Summit creates a sudden rally for the other major world currencies, the USD will likely continue its bullish run.

EUR - Euro-Zone Rate Cut Can Take Up to Two Years to Digest

European banks are more highly leveraged than their U.S. counterparts, and the perception of a recession in Europe hasn't yet been priced in. The EUR's value versus the USD already reflects expectations that the difference between the benchmark rates for the Fed and the European Central Bank (ECB) will narrow in the future, which the coordinated cut did not change. The ECB lowered its overnight lending rate by half a percentage point to 3.75% yesterday; and the Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 %, both moves are expected to generate more confidence in money markets and increase the volume of inter-bank lending.

The EUR is likely to benefit against the dollar should the European Central Bank lower overnight borrowing costs. The ECB independent rate cuts will also likely fuel further gains for the EUR since it will demonstrate the capacity for the ECB to be proactive on economic and financial developments. In the last few months, the ECB has been less aggressive than the Fed in addressing financial problems, and as the credit crisis was worsening in Europe, the EUR was steadily falling against the USD. However, the latest ECB move was an effective rate cut, which reassured the banks that they could rely on it to keep liquidity circulating and also bring more confidence to the markets.

Nevertheless, the Euro- Zone is likely to responds more slowly to changes in official interest rates than countries like the United States. The Euro-Zone economy can take up to two years to digest rate changes because of its diverse and decentralized nature. The ECB is now considering the impact of impaired functioning of money markets on the pass-through of rate changes, although it is too early to draw any definite conclusions. Unless today's G7 Summit produces strong indicators for Europe's economic future, the EUR could continue to lose ground to its currency counterparts.

JPY - Japanese Currency a Safe-Haven in Times of Financial Turmoil



The yen is headed for its biggest weekly gain versus the dollar on speculation a global stock market rout will prompt investors to pare holdings of higher-yielding assets funded with JPY. The yen rose to 98.86 per dollar, headed for a 6.8% gain this week. Apparently the market's trend is to buy the yen as the credit crunch is spreading from the financial sector to other companies, meaning currency traders can't take on more risk. The yen is probably going to continue strengthening since continued financial market volatility is now spilling over to concern about global growth outlook.

Despite the synchronized cut in borrowing costs around the world this week, fears are still growing that the global economy is shifting toward recession. This move is seen as too little and too late, and investors doubt that the meeting of the G7 nations later today will achieve much. As a result, the Japanese currency has become a refuge from the worsening financial crisis. The yen is gaining in these times of financial turmoil as investors unwind carry trades using the low-yielding Japanese currency to buy higher-yielding currencies. As the panic mode gripping investors deepens on fears that the global financial system is faltering, the Japanese currency has acted as a safe-haven. As with the other major currencies, unless today's G7 Summit produces positive results for the global economy, the JPY will continue its recent trend.

Oil - Recent Price of Crude Oil Not Seen Since Last October

It has been one year since the price of Crude Oil reached the price where it currently sits. The difference comes from the direction the price of this commodity is moving. Last October, when Oil hit $82, it was beginning a significant upward trend which ended in July at $147 a barrel. At the moment, the price of Crude Oil is on a major downward trend which analysts are predicting won't end until it sinks as low as $50.

Speculation has come to play a major role in spot trading recently. The expectations of a production cut from OPEC in November have some investors worried that the price of Oil may see a premature rise as a result of this speculation. Price increases are not necessarily the aim of OPEC. Rather, stabilization in prices is the objective as movements, such as those seen over the last year, are unsustainable and potentially damaging to the demand for Crude Oil. Price jumps also generate a stronger motivation to those in search of alternative fuel sources, which cause further deterioration to demand and price value for traditional fuel sources like Oil. Also, with a strengthening dollar, Oil is continuing to see depreciation to its dollar value. Unless something occurs which reverses this trend, the price of Oil will continue to fall as analysts are forecasting.
Technical News

EUR/USD

The pair has been range-trading for the past few days, and is now traded around the 1.3620 level. Currently, the Bollinger Bands on the 4-hour chart are tightening, suggesting that a sharp movement is impending, and as all oscillators on the 4 hour-chart are pointing down it appears that the move will be bearish. Traders should wait for the breach and swing.

GBP/USD

The cable is currently in the midst of a very strong downtrend and dropped over 400 pips in one day. Right now, the pair's price has dropped beneath the Bollinger Bands' lower border, indicating that another bearish session might take place. Going short appears to be a good strategy today.

USD/JPY

There is a very distinct bearish channel forming on the daily chart, as the pair is now floating in the middle of it. A bearish cross on the 1-hour chart's Slow Stochastic suggests that another bearish move is forthcoming. Going short might be the right choice today.

USD/CHF

After peaking at the 1.1485 level, the pair is dropping consistently and is now traded around the 1.1185 level. Currently, as all oscillators on the 4-hour chart are pointing down, it seems that the bearish movement could extend. Going short appears to be the preferable choice today.
The Wild Card

Wild - Silver

After appreciating from $10.80 an ounce to $12.20, Silver prices dropped to $11.80. And now, as a bearish cross on the 4-hour chart's Slow Stochastic took place, it appears that Silver might experience a bearish correction. This might be a great opportunity for forex traders to enter a very promising trend.

FOREXYARD