Forex Trader Top 3: Euro Bounce, Oil Looking Higher and Aussie Interest Rates
Mark Whistler is the founder of www.WallStreetRockStar.com and is the author of multiple books on trading. Mark’s newest book, The Swing Trader’s Bible – co-authored with CNBC/Fox News regular guest Matt McCall – will be on shelves in late summer, 2008. In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.
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1. Euro Attempting Technical Rebound, but Bears are Lurking
The News:
Overnight, the euro began staging a technical rebound after falling over 500 PIPs from the high of 1.6018 two weeks ago.
The Breakdown:
The euro has been hitting the skids over the past two weeks, after traders finally came to terms with the fact that GDP growth is flailing in the UK and Europe. Case in point, the IMF recently mentioned in the April World Economic Update that it was revising 2008 Euro area GDP down from 1.6% to 1.4%.
The IMF predicts 2008 U.S. GDP to come in at 0.5%; however, first quarter GDP actually came in slightly above the IMF’s full year outlook. The question now is whether the U.S. will be able to come through with second and third quarter GDP growth that actually stabilizes the economy and beats global economist predictions. It’s important to note that in 2007, first quarter U.S. GDP growth also clocked in at 0.6%, however, in the second quarter and third quarter, GDP growth came in at 3.8% and 4.9%, respectively.
U.S. GDP growth aside, the strong euro is beginning to drag on Euro area GDP growth and the European Central Bank (ECB) needs to begin considering easing rates. The ECB and Bank of England (BOE) both meet to discuss interest rates on Thursday of this week. No rate cuts are expected at this time, though traders will be looking for comments from the BOE firmly indicating another rate cut in June. What’s more, Jean-Claude Trichet and company should begin switching up their language too, thus indicating rate cuts on the horizon as well – something that will drive the euro lower against the dollar over the near term.
In the mean time; however, the euro will likely stage a technical rebound in the early part of the week. However by Friday afternoon, there is a high probability the greenback will have found new highs in the relative range, which of course will create the opposite effect on the euro.
The Bottom Line:
Look for a EUR/USD technical rebound in the early part of the week, though as the ECB and BOE central bank meetings approach, the momentum could switch to a economics-bases breakdown.
2. Â Oil to Test Highs this Week
The News:
Leaving the fundamental picture out for a moment, on a technical basis, crude will likely re-test highs during the week of April 5.
The Breakdown:
Looking at a daily chart of Light, Sweet Crude, we see that black gold edged higher overnight, posting a three day high, after tagging ascending support of the relative trend last Wednesday and Thursday. As of now, not much is standing in the way of crude testing highs this week, thus traders will want to keep and eye out for technical bulls who are likely already at work attempting to pump oil through the roof.
Conversely, reversal-biased technicians are looking for a breach of ascending support at $112, which would indicate a potential decline into the $106 area looming. Â
The Bottom Line:
Crude will likely stage an early week technical rally, though the Australian Central Bank (RCB) interest rate announcement could have some impact on near-term crude volatility.
3. Australia to Announce Interest Rates Tonight
The News:
The Australian Central Bank is expected to hold rates steady at 7.25% at 12:30 AM Tuesday morning.
The Breakdown:
Like much of the world, Australia’s economy is showing signs of cooling, due to slowing global growth overall. However, Australia’s Central Bank is not expected to make any rate changes this evening; thus holding rates steady at 7.25%, which incidentally is the highest rate for the “down under†country in twelve years.
The country is presently facing some of the same issues as the Euro area, in that inflation is poking the central bank in the ribs, as seen in Australia’s CPI gaining 4.2% year over year.
The Australia Central Bank’s target inflation rate is 3% on the top end.
The Bottom Line:
Should comments begin to surface from the Australian Central Bank indicating a rate cut on the radar in future quarters, the Australian dollar could lose a slight bit of momentum, while also potentially clipping some chutzpah from crude as well.