Newsletter August 25th
Colt FX newsletter Monday August 25th 2008
In this week’s issue:
Forex Review, August 18th to 22nd
Calendar and Outlook, August 25th to 29th
Notes from the carry trade
Live trading session
Forex Review August 18th to 22nd
Dollar consolidates as oil rises and equities fall
A week of rising oil prices saw the dollar consolidate after its recent rally. The euro posted its first gain against the greenback in six weeks and USD/JPY closed lower, marking the first drop in three weeks. Sterling, however, continued to lose ground after GDP numbers saw UK growth grind to a halt ending the country’s longest period of economic expansion in a century.
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Chart 1 EUR (hourly)
Monday saw the euro (chart 1) continue its fall against the greenback. However, Tuesday’s release of a high German PPI and better than expected ZEW numbers saw the euro find support at its low of the week at around 1.4650. The euro rise was slowed by US PPI coming in higher than expected supporting the view that the Fed’s next move regarding interest rates would be up. However, the dollar came under pressure as oil prices surged and equity prices fell. US housing numbers were also weak and the euro closed the day testing 1.48. Wednesday was a quiet day in terms of economic data and the US dollar recovered to 1.47 as oil prices eased back on the news that US oil inventories had risen by much more than expected and US and European equities rebounded. Mixed European PMI numbers left little impression on the markets. However, the pair started moving north as oil prices roared above the $120 a barrel level amid mounting geopolitical tensions following Russia’s decision to suspend military cooperation with NATO. The Euro rise was helped on its way by weak Philly Fed manufacturing numbers and the news that both South Korean and Chinese parties had walked out on secret talks to sell a 50% stake of the beleaguered investment bank, Lehman Brothers. The euro hit week highs of around 1.49 as Thursday ended. Friday brought relief to the greenback. Oil fell back to $114.66 a barrel and news broke that the Korea Development Bank was ‘considering’ an investment in Lehman Brothers, sending bank stocks higher. The dollar recovery paused at 1.48 after Ben Bernanke indicated that the Fed should be able to maintain low interest rates because falling commodity prices and the global slowdown should reduce the threat of inflation. However, EUR/USD went on to close the week a tad below 1.48 at 1.4792.
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Chart 2 GBP (hourly)
Just like EUR/USD, GBP/USD was moved more by oil and equity prices than economic data releases. Wednesday’s MPC meeting minutes showed there was a three-way split in voting for the second month running and neatly illustrated the dilemma that the Bank of England finds itself in. Thursday’s UK Retail Sales came in surprisingly strong and suggested that consumer demand remains firm in the face of a deteriorating economy. However, it was Friday’s UK GDP numbers that had the biggest impact when they were revised down to zero growth, suggesting that the Bank of England will have to consider a rate cut to stimulate the economy. The news sent sterling plummeting to its lowest level since July 2006 and it closed the week at 1.8526.
Calendar and Outlook August 25th to 29th
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 (at http://www.coltfx.com/economic-calendar-en/).
US calendar highlights include the FOMC meeting minutes on Tuesday and more housing data on Monday and Tuesday. There will be lots of data on US economic activity including Durable Goods Orders on Wednesday, preliminary GDP on Thursday and Personal Spending on Friday. You can touch base with the US consumer twice this week with the Conference Board Consumer Confidence Index on Tuesday and the University of Michigan Consumer Sentiment on Friday.
Euro watchers should keep an eye out for key German data including Consumer Confidence and Ifo numbers on Tuesday, Preliminary CPI which is released throughout Wednesday and unemployment numbers on Thursday. Euro zone inflation is surveyed in Friday’s Flash CPI.
I hope all my viewers in Britain enjoy the Summer Bank holiday on Monday. Thursday is probably the busiest day for UK economic indicators including Nationwide house prices, the Confederation of British Industry’s retail numbers and consumer confidence
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Chart 3 Calendar Highlights
Forecast August 25th to 29th
Currency traders need to keep a close eye on a number of factors at the moment. Oil prices are particularly important at present of course. The dollar tends to fall as oil prices rise and vice versa. A second key factor is the US financial sector with both the Fannie Mae and Freddie Mac situation and Lehman Brothers’ search to raise capital before the mid-September earnings report. If the Korean deal for Lehman Brothers goes through, then the dollar should strengthen. If it falls through, watch out for dollar weakness. You should also never discount the importance of the interest rate differential and if US data is weak, then look for a rise in the euro.
We see euro/dollar finding support at 1.46 and resistance at 1.4950.
If Sterling breaks through the current support at 1.85, it could break to 1.8370. It will find resistance at 1.8850.
USD/JPY will encounter resistance at 110.65 and support at 107.20.
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 didn’t get below 1.6095 so we couldn’t sell CHF as planned at 035.
EUR/JPY
The possibility of a Fed rate hike and the continuing slowdown in the euro-zone saw EUR/JPY fall to 160.2. We will continue to load our long as price falls to 158.9 and will target 164.1 for partial closure of this position.
EUR/GBP
The MPC meeting minutes and 0% UK growth saw this pair climb back to 0.799. 0.807 is a good level to sell.
GBP/JPY
Our flagship fell to 201.8 last week. Our short-term target is 207.7. The next level to load longs is 199.9
GBP/CHF
Our long at 2.043 holds steady and we hope for only a slight change in pound-franc interest rate spread in the coming months. We aim to take out some profit at 207.7 before strong resistance at 208.
USD/JPY
The possibility of a Fed rate hike at the beginning of next year has been tempered somewhat by uncertainty around US the financial sector and the pair ranged within 108.5 and 110. Our medium term target is at 114.1. We hold our recommended level to load a long at 104.3
AUD/JPY
Aussie/yen found a foothold this week at 95 after the strong sell-off of the last few weeks. We now have a significant long on this pair with an initial target of 97.7.
Live Trading Sessions
Our August 20th session discussed entry and exit points and illustrated the need for trader discipline when I jumped the gun with a position on GBP/JPY. The August 27th session will prepare the ground for next week when we will start trading a live account. We will also take a look at 3 order strategies to use with Colt FX and a system from one of our traders. If you’d like to join in, write to me 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.
25 August | 
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