Newsletter July 14th
Colt FX newsletter Monday July 14th 2008
In this week’s issue:
Forex Recap for July 7th to 11th
Forecast for July 13th to 18th
Notes from the carry trade
Forex Club Platinum Accounts
There’s no Forex Review this week because I’m enjoying a fortnight in the sun. However, our team has put together this recap and forecast:
Forex Recap for July 7th to 11th
Overall, last week wasn’t good for the US dollar which lost ground against all the majors (chart 1). Tuesday’s falling oil prices saw the dollar strengthen while the Fed offered verbal support to the battered US financial sector at the same time. However, as the week wore on words were not enough to soothe growing alarm over the woes of US mortgage giants Fannie Mae and Freddie Mac. These two institutions guarantee some 43% of all US mortgages and the already dire US housing market would implode if these two were to go under. The US government cannot let this happen; but whatever they do it will be the American taxpayer that picks up the tab, spelling bad news for the US economy.
Meanwhile, Friday also saw crude oil jump by $5 a barrel to hit new highs as concerns mounted that an Israel-Iran conflict is imminent. Oil supply fears were exacerbated by news of industrial unrest in Brazil and militant activity in Nigeria.
When oil goes up the dollar goes down and the double-whammy of sky-rocketing oil prices and a faltering US economy saw the dollar fall to its lowest level against the euro since April.
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Chart 1: Forex action July 7th to 11th
Go to http://www.coltfx.com/market-news-and-reviews-en/ for news about the next Forex Focus and this forecast.
Forecast for July 13th to 18th
There are no calendar highlights this week because of the summer break.
There’s a lot of significant data out this week from both Europe and the United States. We don’t imagine that the news out of the United States will help the dollar, but at the same time the European economies are hardly the picture of health and this week’s ZEW numbers (for instance) could well give the euro a pasting. Follow the data releases with care with our economic calendar and double check your technical levels. There’s no doubt that 1.59 is a significant level for the EUR/USD and if the pair manages to stay above this level, it could push on to its all-time high of 1.6019 and beyond. We still favor euro longs and see EUR/USD trading within 1.5820 and 1.6070. GBP/USD should find support at 1.9800 and resistance at 2.0120. USD/JPY will trade within 107.00 and 105.50.
Notes from the carry-trade (Aram Sahakyan)
The carry trade takes advantage of interest rate differentials by buying the currency in a pair which has the higher interest rate. This enables the trader to benefit from swap as well as changes in the price of each pair.
EUR/CHF
The widening spread between the interest rates of these two currencies strengthened the euro and a high of 1.625 was reached on Friday. If the currency pair drops to 1.593 we intend to sell Swiss franc against Euro.
The widening spread between the interest rates of these two currencies strengthened the euro and a high of 1.625 was reached on Friday. If the currency pair drops to 1.593 we intend to sell Swiss franc against Euro.
EUR/JPY
EUR/JPY failed to break strong resistance at 169. In the light of high uncertainty over further hikes of interest rates in the Euro Zone, we suggest reducing, or at least not increasing any EUR/JPY longs at current prices.
EUR/JPY failed to break strong resistance at 169. In the light of high uncertainty over further hikes of interest rates in the Euro Zone, we suggest reducing, or at least not increasing any EUR/JPY longs at current prices.
EUR/GBP
The narrowing spread between the Euro and British pound interest rates, falling prices in UK real estate and the Bank of England’s decision to hold interest rates at 5.00% reduced demand for the British pound. By the end of last week Euro had edged up to 0.8015 against Sterling. Our target stands at 0.763, a significant correction level.
The narrowing spread between the Euro and British pound interest rates, falling prices in UK real estate and the Bank of England’s decision to hold interest rates at 5.00% reduced demand for the British pound. By the end of last week Euro had edged up to 0.8015 against Sterling. Our target stands at 0.763, a significant correction level.
GBP/JPY
Our GBP/JPY long continues to make a solid income for the second month in a row and should do so as long as British interest rates stay firm. GBP/JPY fluctuated between 210 and 212 last week. Our medium term target stands at 216.7, the mid-point of the recent downtrend. 200.9 would be a good level to load longs.
GBP/CHF
The Bank of England’s decision to hold rates saw sterling depreciate against the franc. Nevertheless, the pair’s volatility remains low. We forecast an appreciation of GBP/CHF to 2.12 in the second half of the year. Only an ECB refinancing rate hike to 4.50% could cause a further decline in GBP/CHF.
Our GBP/JPY long continues to make a solid income for the second month in a row and should do so as long as British interest rates stay firm. GBP/JPY fluctuated between 210 and 212 last week. Our medium term target stands at 216.7, the mid-point of the recent downtrend. 200.9 would be a good level to load longs.
GBP/CHF
The Bank of England’s decision to hold rates saw sterling depreciate against the franc. Nevertheless, the pair’s volatility remains low. We forecast an appreciation of GBP/CHF to 2.12 in the second half of the year. Only an ECB refinancing rate hike to 4.50% could cause a further decline in GBP/CHF.
USD/JPY
The dollar sell-off against the euro contributed to a yen appreciation against the dollar and USD/JPY fell to 105.6 We think that 103.3 is a good level for buying. But the end of the Fed’s interest rate cuts and the moderate growth of Japanese economy will force investors to close their profitable USD/JPY shorts. Our medium term target is 109.7.
The dollar sell-off against the euro contributed to a yen appreciation against the dollar and USD/JPY fell to 105.6 We think that 103.3 is a good level for buying. But the end of the Fed’s interest rate cuts and the moderate growth of Japanese economy will force investors to close their profitable USD/JPY shorts. Our medium term target is 109.7.
AUD/JPY
Little change here and the pair remained above 102. We intend to load a long if the price falls to 97.3.
Remember that one week’s access to Colt FX Module 1 is available for free at www.coltfx.com to everyone who subscribes to this newsletter.
Little change here and the pair remained above 102. We intend to load a long if the price falls to 97.3.
Forex Club Platinum accounts
Forex Club has started offering the Colt FX distance learning course as part of their package of incentives to open a Platinum account. You can learn more about the details of this offer at http://www.fxclub.com/platinum/. You can find out more about Colt FX in our short film What is Colt FX?
Forex Club has started offering the Colt FX distance learning course as part of their package of incentives to open a Platinum account. You can learn more about the details of this offer at http://www.fxclub.com/platinum/. You can find out more about Colt FX in our short film What is Colt FX?
That wraps it up for this week. Thank you for reading this far. Have a great week and I hope to see you at www.coltfx.com
If you have any questions about this newsletter or any of our services, please drop me a line at colt@coltfx.com.
Remember that one week’s access to Colt FX Module 1 is available for free at www.coltfx.com to everyone who subscribes to this newsletter.
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Disclaimer
www.coltfx.com, and any of its affiliates, will not be held responsible for the reliability or accuracy of the information available in this newsletter. The content provided is put forward in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Colt FX or its affiliates. The reader agrees not to hold Colt FX or any of its affiliates, liable for decisions that are based on information in this newsletter. We highly recommend that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
www.coltfx.com, and any of its affiliates, will not be held responsible for the reliability or accuracy of the information available in this newsletter. The content provided is put forward in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Colt FX or its affiliates. The reader agrees not to hold Colt FX or any of its affiliates, liable for decisions that are based on information in this newsletter. We highly recommend that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
15 July | 
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