Newsletter August 4th
Colt FX newsletter Monday August 4th 2008
In this week’s issue:
Forex Review July 28th to August 1st
Calendar and Outlook, August 4th to 8th
Notes from the carry trade
Live trading session
Forex Review July 28th to August 1st
Dollar gains on European gloom
Doom and gloom out of Europe coupled with a sense that the US situation isn’t as bad as it could be, saw the dollar continue to strengthen against the euro and the pound. However, the greenback’s recent rise against the yen came to halt.
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Chart 1 EUR (hourly)
The week opened to the news that the US Treasury had closed two more banks over the weekend for being undercapitalized. The price of oil also rose to $125 a barrel on Monday and although trading was quiet at the beginning of the week, these two items helped support the euro (chart 1) which reached it’s week high of 1.5767. Top US Investment bank, Merrill Lynch, waited until the New York markets had closed on Monday to announce a further $5.7B in write-downs and an $8.5B share offering.
Tuesday saw the euro falter on the opening of the European session as oil prices started to fall. US housing data offered scant hope that the US housing industry was on the road to recovery and despite coming in better than expected, it marked the steepest fall since the index was created eight years ago. However, it did little to halt the fall of the euro and when US consumer confidence came in better than expected that fall accelerated. The mood seems upbeat on the dollar and growing concerns that the euro zone is heading for a recession is offering further dollar support.
Weak European consumer confidence pushed the euro back below 1.56 whilst surprising ADP numbers showed a gain of 9000 jobs in the private sector and the euro fell to test our second forecast support level. European CPI came in as expected and showed that inflation in the zone is running at a high 4.1%. Although it doesn’t look as if the ECB has any room at the moment to raise interest rates to counter inflationary pressures, falling oil prices may do the trick and the euro held steady.
A few hours later a raft of disappointing US data saw the euro spike to test 1.57 before falling back below 1.56 against a background of falling oil prices. Friday saw German retail sales disappoint and when the much anticipated US payrolls data came in better than expected, which suggested that although the US labor market is weak, the erosion is slowing down, the euro fell to 1.5514, testing our forecast support once more. US Unemployment came in worse than expected at 5.7% which perhaps slowed any dollar advance. The euro closed the week at 1.5563.
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Chart 2 GBP (hourly)
Sterling (chart 2) saw a grim week of economic data which suggest the UK is teetering on the brink of its first recession since the early 90’s. Tuesday’s Confederation of British Industry data came in much worse than expected and painted a sorry picture for UK retail sales. UK consumer confidence also surveyed lower than expected as did Thursday’s UK housing numbers which reported house prices falling by the most in almost 20 years. Friday’s UK Purchasing Managers Index saw UK manufacturing fall for its third straight month to its weakest since 1998.
Calendar and Outlook July 28th to August 1st
Here are the highlights of this week’s economic calendar (chart 3). For an extensive list of the week’s economic releases and events see our economic calendar.
It’s a busy week this week with no less than 4 central banks making interest rate statements.
In addition to the Fed’s interest rate statement on Tuesday, other significant US numbers include inflation data and Factory Orders on Monday; Tuesday’s Institute of Supply Management’s (ISM) Non-manufacturing composite and Thursday’s Pending Home Sales.
Check the rate of the euro-zone’s slowdown with Tuesday’s Retail Sales; Wednesday’s German Factory Orders and Thursday’s German Industrial Production in the run up to the ECB’s interest rate announcement. Don’t forget to give the following press conference especial scrutiny for clues to future policy.
There’s more lowdown on the UK slowdown with housing numbers, manufacturing production and the Services PMI on Tuesday. The Bank of England’s interest rate statement will be released on Thursday.
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Chart 3 Calendar Highlights
Our full economic calendar is available.
Forecast August 4th to 8th
The euro’s failure to close last week above 1.56 leaves us considering a target of 1.5380. Resistance will be found at 1.57.
Sterling will also continue to be under pressure and will trade within 1.98 and 1.96.
The yen will hold its own against the dollar and we could well see a dollar/yen decline. Look for resistance at 108.50 and support at 106.
The latest Forex Focus video
Notes from the carry-trade (Aram Sahakyan)
The carry trader 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
Thursday’s high of 1.637 saw this pair reach our target. If the pair drops to 1.599 we intend to load a long.
EUR/JPY
EUR/JPY fell sharply by 270 pips to 167. We continue to suggest reducing, or at least not increasing any longs at current prices. We look to build our share of this pair from 162.3 to 158.9
EUR/GBP
Sterling fell in line with the euro and the range for this pair was a slim 88 pips this week. Our target stands at 0.763, a significant correction level.
GBP/JPY
Our flagship pair continues to show impressive results. The pair ranged between 212 and 215 this week. Our medium term target stands at 216.7, the mid-point of the recent downtrend. 203.9 would be a good level to load longs.
GBP/CHF
This pair approached 2.08 after breaking the upper level of a descending triangle last week (a medium term resistance line). 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 decline in GBP/CHF.
USD/JPY
The Fed’s rate hike noises and the moderate growth of the Japanese economy saw many take profit on their dollar/yen shorts and price rose to 108.4, a strong resistance level. IMO 103.3 remains a good level to load a long and our medium term target rests at 109.7.
AUD/JPY
RBNZ interest rate cut had a negative impact on the Australian dollar as speculation grew over a future RBA cut. AUD/JPY fell to 99.9. We continue to plan to load a long at 98.3.
Thursday’s high of 1.637 saw this pair reach our target. If the pair drops to 1.599 we intend to load a long.
EUR/JPY
EUR/JPY fell sharply by 270 pips to 167. We continue to suggest reducing, or at least not increasing any longs at current prices. We look to build our share of this pair from 162.3 to 158.9
EUR/GBP
Sterling fell in line with the euro and the range for this pair was a slim 88 pips this week. Our target stands at 0.763, a significant correction level.
GBP/JPY
Our flagship pair continues to show impressive results. The pair ranged between 212 and 215 this week. Our medium term target stands at 216.7, the mid-point of the recent downtrend. 203.9 would be a good level to load longs.
GBP/CHF
This pair approached 2.08 after breaking the upper level of a descending triangle last week (a medium term resistance line). 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 decline in GBP/CHF.
USD/JPY
The Fed’s rate hike noises and the moderate growth of the Japanese economy saw many take profit on their dollar/yen shorts and price rose to 108.4, a strong resistance level. IMO 103.3 remains a good level to load a long and our medium term target rests at 109.7.
AUD/JPY
RBNZ interest rate cut had a negative impact on the Australian dollar as speculation grew over a future RBA cut. AUD/JPY fell to 99.9. We continue to plan to load a long at 98.3.
Live Trading Sessions
We are starting a series of live trading sessions. These sessions will last 2 hours. We will look at signals generated by the Colt FX trading system and will also look out for other trading opportunities generated by our forecasts, Aram’s carry trade calls and the charts themselves. The first session will be on August 6th and if you are interested in taking part please drop me a line at colt@coltfx.com
Forex Club’s Platinum Package
Forex Club is 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 is 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.
12 August | 
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