eToro – Forex Trading Forum

[etrader]

here cums the forex trading weekly forecast...............
will be of help to all the forex traders................

[etrader]

It was a volatile yet directionless period for the US dollar last week. With only a smattering of second tier economic indicators populating the docket, fundamental traders deferred to dramatic swings in commodity prices, mounting fears of a major bank collapse and ever-exigent and evolving interest rate expectations. However, these market themes were hardly fallback drivers as we have seen the US dollar push right back towards major resistance with traders on both the technical and fundamental side of the fence waiting for each of these pieces to fall into place before confidence in the greenbacks’ dominate trend is revived. No doubt, these market dynamics will play just as prolific a role in the week ahead as they have in the one that has just passed.

[etrader]

Dollar Outlook Balanced Between Growth And Financial Markets

Fundamental Outlook for US Dollar: Bearish

- Data shows no end in sight for the housing recession and inflation spiral
- Growing financial market fears and cooling commodity prices temper forecasts for Fed rate hikes
- Bernanke’s speech on financial stability focuses fears rather than calms nerves

[etrader]

With the US dollar rising to new multi-month highs against all of its liquid counterparts, skeptical bears will start to point out the fading interest rate outlook for the Fed as a good reason to reevaluate any long-term dollar rallies. While many G10 central banks are looking at significant rate cuts over the coming year, most of their benchmarks would still be well above the Fed Funds rate even if all the forecasts prove accurate. On the other hand, futures show there is a 68 percent chance that the Board of Governors will keep rates at 2.00 percent through the end of the year. What’s more, considering the evolution of market conditions lately, even these officials forecasts could be construed as being overly optimistic. Commodity prices have tumbled through August (having yet to show through in the lagging inflation reports), consumer spending is threatening to revive fears of a recession and it seem only a matter of time before another major US bank collapses. Of these three, the health of the financial sector is the most immediate concern with Lehman Brothers and Freddie Mac/Fannie Mae both showing fading vital signs.

[etrader]

With these key market dynamics just off in the background, traders will also have to prepare for a number of scheduled economic releases. Housing and consumer-centric data are two general themes, but the key reports will be the minutes from the FOMC’s August rate decision and the revision to the 2Q GDP report. The latter will be particularly interesting as the market consensus is calling for a sizable, positive revision from a 1.9 percent annualized clip to 2.7 percent. If such a figure is met, it would certainly offer the dollar a boost in the short term; but with housing, consumer spending and business conditions all faltering in the months since the first half ended, a consequential advance would merely be setting the currency up for a more magnificent collapse as recession worries regain traction. – JK

[etrader]

Euro: Will the Recovery Continue?

Fundamental Outlook for Euro: Bullish

- Euro-zone trade balance falls to worst deficit in 2 years
- Euro-zone Services and Manufacturing PMI points toward European recession
- According to the ZEW survey, European investor outlooks are improving

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Despite generally weak economic data last week, the Euro managed to recover from Tuesday’s low as the currency consolidates its declines. Indeed, from a technical perspective, it appears that EUR/USD could climb further, and shifting interest rate expectations are working in favor of gains as well. On Friday, Credit Suisse overnight index swaps actually moved to price in just under 25bps worth of cuts within the next 12 months compared to 50bps on Monday.

[etrader]

Looking ahead to next week, there are few major indicators on hand, though some releases can spark short-term volatility. Given the surprising improvement in the German ZEW survey, there is some potential for a gain in the IFO expectations report, though the gauge of current sentiment could ease. Meanwhile, German labor markets are anticipated to perk up for the third consecutive month. Finally, Eurostat estimates for Euro-zone CPI are projected to show that inflation held at a 4.0 percent pace in August. Given European Central Bank President Jean-Claude Trichet’s more bearish stance on economic growth, a weaker-than-expected CPI reading could exacerbate the market’s speculation that the central bank will cut rates within the next year. On the other hand, a jump in CPI could be just the thing to get traders to remember just how hawkish Mr. Trichet can be and send the euro higher. – TB

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Japanese Yen: Forecast Depends on US Dollar Fundamental Data

Fundamental Outlook for Japanese Yen: Bearish

- Japanese Yen Falls as Bank of Japan Leaves Rates Unchanged, states bearish outlook for growth
- Forex Traders Accurately Forecast USDJPY Decline
- See our Forex Carry Trade Outlook Report

[etrader]

The Japanese Yen saw yet another wildly volatile week of trading, as similarly choppy price action in the Dow Jones Industrials Average and other major risky assets led to major currency price swings through end-of week trade. The USDJPY initially tumbled as our own forex positioning data predicted a downside break, but currency traders quickly flipped direction and our Speculative Sentiment Index currently forecasts short-term USDJPY rallies. The Bank of Japan provided the major piece of Japanese event risk on the week, but a relatively uneventful interest rate decision gave traders little reason to force major moves across JPY pairs. Instead, the bulk of Japanese Yen volatility came from similarly large moves in global stock markets. An ostensibly busy Japanese economic calendar is unlikely to force major moves for the Yen in the week ahead, and traders will continue to monitor flows in risky assets to drive moves in the USDJPY.

[etrader]

A string of market-moving US and European economic reports are likely to determine the Japanese Yen’s fate; strong moves in regional stock markets will likely dominate sentiment in the typically risk-sensitive Yen. Though our forex correlation study shows that the Dow Jones-USDJPY relationship has recently weakened, it remains historically high by any measure and we cannot discount global risk sentiment in forecasting USDJPY moves. That is precisely what we saw through last week’s forex trade; a tumble in European indices led to a sharp G10 Carry Trade sell-off. With that in mind, we will pay especially close attention a steady string of significant US economic data.

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First on the ledger is Conference Board Consumer Confidence figures on Tuesday the 26th—almost certain to cause major moves in consumer-related US stocks. That same day, the US Federal Open Market Committee will release its minutes from its most recent interest-rate setting meeting. Currently aggressive US interest rate forecasts for the year ahead may very well depend on rhetoric in said release, and we will have to watch for any significant change in tone from US Fed officials. Otherwise, European traders will pay close attention to German IFO Business Confidence Survey; disappointments will likely force sell-offs in domestic stock indices and spark Japanese Yen rallies. – DR

[etrader]

British Pound’s Prospects Remain Weak

Fundamental Outlook for British Pound: Bearish

- Bank of England meeting minutes reveal 7-1-1 vote in August
- UK retail sales surged, but even the BOE doesn’t buy it
- UK GDP stagnated in Q2, adding to recession fears

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The markets are betting that it won’t last for much longer, as Credit Suisse overnight index swaps continue to price in over 50bps worth of rate cuts within the next 12 months. Looking ahead to this week, the economic data scheduled to be released isn’t likely to sway the markets into thinking otherwise. Furthermore, according to our Senior Strategist’s Elliott Wave analysis, GBP/USD could be nearing a bottom, but it may have further to fall first. On Thursday, CBI distributive trades is forecasted to show a mild improvement in orders while consumer confidence should worsen. The former report could hold a bit more weight than usual with the markets, as the Bank of England has recently stated that they were looking at survey data more closely given the volatility that tends to occur in the official statistics. Overall though, the economic is not good for the UK economy and thus, the British pound. – TB

[etrader]

Will Renewed Risk Appetite Sink The Franc Further?

Fundamental Outlook for Swiss Franc: Bearish

- Swiss retail sales rose 0.7% far less than the 3.3% that was expected as higher energy costs sapped purchasing power.
- The Swiss trade balance remained unchanged at 2.37 billion, as rising exports offset declining imports.
- The ZEW Survey of Investor business confidence fell to -79.6 from -76.9 as a European slowdown had dimmed the growth outlook