Newsletter August 11th
Colt FX newsletter Monday August 11th 2008
In this week’s issue:
Forex Review August 4th to 8th
Calendar and Outlook, August 4th to 8th
Notes from the carry trade
Live trading session
Forex Review August 4th to 8th
Central Banks play *wait and see* and the greenback goes on a bull-run.
The dollar hit a 6-month high against the euro, a 7-month high against the yen and a 17-month peak against sterling; this performance was powered by rising stock prices around the world, falling oil prices and a growing conviction that the effects of the credit crisis are spreading across the globe.
.jpg)
Chart 1 EUR (hourly)
The euro (chart 1) had a shocking week as it saw its biggest weekly fall in value against the dollar since 2005. It all started quietly enough on Monday and although the euro rose to hit its high of the week at 1.5630 it spent most of the day trading in a tight range until falling oil prices exerted downside pressure. This pressure continued as Euro-zone services PMI (Purchasing Managers Index) surveyed a contraction and retail sales continued to fall, while on the other side of the Atlantic, US ISM (Institute of Supply Managers) surveyed a better than expected rise in activity in the services sector.
Oil continued to fall and hit a 3-month low in the run up to the Fed’s announcement that it would keep interest rates on hold for a second straight meeting. The Fed’s move was widely anticipated and the Fed’s follow up statement seemed pretty much in neutral mode. They’ve dropped the claim they made in July that risks to growth had “diminished somewhat”, noting that growth was likely to remain weak for some time and that the outlook for inflation was “uncertain”. The statement gave very little away as to what it intended to do in its next policy meeting come September.
Euro/dollar found support at 1.5450 and started to recover until weak German factory orders followed by another drop in crude prices sent the pair south once more. The euro found some relief in the guise of better-than-expected German Trade balance. However, the most anticipated news of the day was, of course, the ECB’s interest rate announcement. The central bank held at 4.25% as expected. Although Jean-Claude Trichet (ECB President) acknowledged slowing economic growth saying that it will be “particularly weak” this third quarter, the main focus of his comments was on the inflationary pressures ahead.
Although Trichet said he has “no bias” or “pre-commitment” to future rate movements, the market decided that there would be no hike anytime in the near future and the euro took a dive. Positive news out of the US housing market a few hours later helped the pair on the way down and when the euro smashed through the key level of 1.53 in the early hours of Friday morning, it felt like open season on the young currency. 1.52 offered some support, but with oil falling to $116 a barrel on Friday the euro found itself pushed below $1.50 for the first time since February before closing, dazed and confused, at 1.5004.
.jpg)
Chart 2 GBP (hourly)
Sterling (chart 2) also had a miserable time of it: it started falling almost as soon as the markets opened and continued in the same vein for the rest of the week. Monday saw the news that UK construction is well down in contraction territory, no surprise there, and prompted one analyst to opine that housing was the ‘sick man’ of UK industry. Unfortunately the other guys look decidedly dodgy too with Tuesday’s Manufacturing Production, Services PMI and Industrial Production all providing evidence that the British economy is in the grip of recession. While the pound took some solace in the Fed’s interest rate hold, plummeting UK consumer confidence shows that the average Brit sees little light at the end of a long dark tunnel.
Thursday saw the UK’s largest mortgage lender survey a 1.7% drop in house prices; the Bank of England hold rates at 5.00% as was widely expected and those better than expected numbers out of the US housing sector. Friday saw Sterling dive in synch with oil prices and test a significant fib retracement level until closing the week bruised and battered at 1.9208
Calendar and Outlook August 11th to 15th
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.
This week’s US calendar highlights (chart 3) include Consumer Price numbers on Thursday, whilst economic activity will be surveyed on Tuesday with the Trade Balance and Friday with the Empire State Index. Friday also sees the release of the US TIC numbers which monitor international currency flows and the University of Michigan’s Consumer Sentiment, which is forecast to show an improvement. The President of the Minneapolis Fed, Gary Stern, will be speaking in Montana on Thursday.
Thursday is the big day for euro watchers with preliminary GDPs from both Germany and the euro-zone as a whole as well as the all important CPI inflation survey. Thursday also sees the release of the ECB bulletin, the data that the ECB evaluated when making last week’s interest rate decision.
We’ll get a pretty comprehensive picture of UK inflation this week. On Monday there’s the Producer Price Index and on Tuesday the Consumer Price index. Wednesday’s Bank of England Inflation Report gives the bank’s inflation forecast for the next two years. Housing data from the Royal Institute on Monday and new unemployment claimants on Wednesday are also worthy of note.
Another major consideration for this week is the situation in South Ossetia. Georgia’s surprise attack on Thursday and Russia’s response on Friday could well have given support to the dollar. As I write this on Sunday afternoon, Georgia has announced that it has withdrawn from the enclave and Russia is said to be in control of the regional capital. The situation is still very tense and unstable and could well affect the price of oil in this week’s trading. Currency traders need to keep a close eye on unfolding events.
.jpg)
Chart 3 Calendar Highlights
Our full economic calendar is available.
Forecast August 11th to 15th
EUR/USD closed above 1.50, and we could see some correction of last week’s losses. However, the dollar looks as if it still has room to strengthen and we see the pair finding support at 1.46 with resistance at 1.52.
GBP/USD will encounter resistance at 1.95 and support at 1.90.
USD/JPY will range between 108 and 113.
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
EUR/CHF tumbled by more than 220 points to 1.622 last week. If the pair drops to 1.603 we intend to load a long on the assumption that the positive will strengthen the euro’s position. If the pair drops to 1.599.
EUR/JPY
Decisions and speeches from the Fed and the ECB saw a sharp decline in the Euro. EUR/JPY didn’t stay aloof and fell to 165. 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 but the euro downturn was so marked that EUR/GBP fell to 0.781, a three-month low. Our target stands at 0.763, a significant correction level.
GBP/JPY
Our flagship pair continues to show impressive results. The pair ranged between 211 and 214 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. As a ECB refinancing rate cut is only a matter of time we make a long call for 2.043.
USD/JPY
The growing possibility of a Fed rate hike at the end of this year or the beginning of next coupled with the moderate growth of the Japanese economy had a positive impact on USD/JPY. Our medium term target (109.7) was hit as the pair powered on to 110.35. We raise our recommended level to load longs to 104.3
AUD/JPY
Mounting speculation of a future rate cut by the RBA and the end of the Fed’s easing policy had a negative impact on the Australian dollar. On Friday AUD/JPY was down at 97.5 and we had increased our share in this pair at 98.3 as planned. Next level for buying is 96.3.
EUR/CHF tumbled by more than 220 points to 1.622 last week. If the pair drops to 1.603 we intend to load a long on the assumption that the positive will strengthen the euro’s position. If the pair drops to 1.599.
EUR/JPY
Decisions and speeches from the Fed and the ECB saw a sharp decline in the Euro. EUR/JPY didn’t stay aloof and fell to 165. 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 but the euro downturn was so marked that EUR/GBP fell to 0.781, a three-month low. Our target stands at 0.763, a significant correction level.
GBP/JPY
Our flagship pair continues to show impressive results. The pair ranged between 211 and 214 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. As a ECB refinancing rate cut is only a matter of time we make a long call for 2.043.
USD/JPY
The growing possibility of a Fed rate hike at the end of this year or the beginning of next coupled with the moderate growth of the Japanese economy had a positive impact on USD/JPY. Our medium term target (109.7) was hit as the pair powered on to 110.35. We raise our recommended level to load longs to 104.3
AUD/JPY
Mounting speculation of a future rate cut by the RBA and the end of the Fed’s easing policy had a negative impact on the Australian dollar. On Friday AUD/JPY was down at 97.5 and we had increased our share in this pair at 98.3 as planned. Next level for buying is 96.3.
Live Trading Sessions
Our live session on August 6th was attended by a small select group. Colt FX gave us a signal on EUR/JPY which hit its target. Details are on the forum. We looked at breakout/pullback system which I have started to experiment with and gave calls on AUD and NZD based on data releases.
The next session will be on August 13th at 14:30-16:30 GMT and we will monitor signals generated by the Colt FX trading system and also look out for other trading opportunities generated by our forecasts, Aram’s carry trade calls and a refined breakout/pullback system. If you are interested in taking part please drop me a line at colt@coltfx.com or post on the session thread on the forum.
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.
To unsubscribe from this newsletter, please write to support@coltfx.com.
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 | 
0 comments
0 comments