The recent fundamental news coming out from the investment bank Wells Fargo seems to shed some light on the ability of such banks to withstand pressure from the credit crunch.

Derek Halpenny, head of currency research in London at Bank of Tokyo-Mitsubishi said, “we’ve had a big two-day rally in financial stocks in the U.S., which brought about a degree of stability. Generally speaking there’s a belief in the market that conditions will stabilize, that’s given the impetus to the dollar against the euro.” - Bloomberg

However, according to Mr Halpenny the dollar isn’t out of the woods yet, with expectation of a dollar decline towards $1.62 against the euro.

As we previously reported, a Bloomberg survey showed that economists expect the dollar to weaken further against the majors over the next six months.

What can we expect for EURUSD over the next few days…

Technical Chart: EurUSD 1-hour

From the 1-hour euro-dollar chart we can see that the last two days have shown some choppy lateral movement.

Although the price action has moved up towards the 38.2% Fibonacci line, we can see that there has been significant resistance as the pair have failed to rally past this line.

If we look at the 14-day RSI we can also see some significant resistance, paralleled by the price action. The recent highs have fallen back without any break through.

In a situation like this, one strategy would be to hold back trading until there is a break past the resistance line, or a break below the 200-day moving average (blue line). With the 200-day moving average moving upwards, we could see some euro gains once the pair can break past the 38.2% Fibonacci retracement line.

If there is a break past $1.5880 we may see some further resistance in the region of the 50% Fibonacci line, therefore gains may be capped. If entering a trade, bear this in mind with risk/reward management.

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USD Comeback Act

Shaun Osborne of TD Securities in Toronto said, “the Wells Fargo news took some pressure off of the systemic risk facing the financial markets.” - Bloomberg

A survey carried out by Bloomberg showed that it is expected that the dollar will decline against the euro, the yen, the Brazilian Real as well as the Swiss franc over the next six months.

Confidence in the US Treasury is at an all time low as US investors turn bearish against the dollar. Interestingly however, UBS maintain a forecast of the dollar climbing against the euro, with expectation of a fall to $1.53 by quarter-three and $1.40 by the end of 2008.

Technical Chart: EURUSD 1-hour

From the 1-hour EURUSD chart we can see that after the all-time high reached by the euro yesterday, we have seen a retreat back into more common territory.

Now we can look at the orange line which was previous support, as giving us an area of resistance on the climb up towards euro growth. With today’s fundamentals signalling better than forecast profits for Wells Fargo, we haven’t seen the market moving in favour of the dollar, therefore euro gains may be likely.

We can also see that the Fibonacci line established between recent lows and yesterdays all-time high gives us an indication that price action is moving around the 38.2% retracement line. The Bollinger band has also tightened, signalling less volatility in the market. Generally in such a situation we will see a break-out either above or below the Bollinger band.

If price action continues to sit above the 38.2% line we may see the EURUSD rise in favour of the euro towards the 23.6% retracement line. Therefore, buy signals look like the best option, however, a valid entry is necessary.

We saw some negative divergence in the RSI over the last few days, and sure enough the currency pair has pulled back from the highs. Now it appears that the RSI is moving in-line with the price action.

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Dollar Confidence Falling

The euro traded at $1.5677, near the lowest since June 25, from $1.5670 yesterday.

ECB president Jean-Claude Trichet said, “it’s very important that U.S. authorities repeat that a strong dollar is in the interest of the U.S.” - Bloomberg

UK Economy

Meanwhile the UK economy looks more shaky after leading UK building firms announce job cuts. The credit crunch appears to be hitting one sector after sector in the UK as well as the US.

Yesterday Persimmon announced 2000 job cuts, taking sector job cuts to 4500.

“Persimmon, the UK house builder, said today that it will cut 2,000 full and part-time jobs after reporting home completions had plunged by 31 per cent and revenue by 34 per cent in the first six months of this year.” - The Times

With the job sector looking vulnerable, there will likely be an increase in online job searches during the coming months. It may be a time to look for additional training, or find recession-proof (if there is such a thing) job vacancies.

Insurance Sector

With increased uncertainty in the UK and US job sectors, more and more people are considering insurance cover of some sort. This includes covering mortgage repayments, debts and loans or other types of unemployment insurance. For UK residents, Moneysavingexpert.com has many resources for finding insurance cover that will help during economically challenging times. There are also a variety of online term insurance services that can drastically cut monthly insurance payments when compared with traditional banks and insurers.

Technical Chart: EURUSD 1-hour

The 1-hour chart for euro/dollar is interesting as there is some divergence. The price action has seen lower highs, where as the 14-day RSI has shown a higher high. This suggests some strength in the market that will push the euro up against the dollar.

This trend may come to fruition, however, it may be short-lived depending on the fundamentals. Further backing for dollar strength could push the euro down further against the dollar in coming days.

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Euro Trading Lower After Trichet Comments

Simon Derrick of Bank of New York Mellon said, “a lot of this euro weakness is due to the market changing expectations with regards to ECB policy. Trichet made it clear that yesterday’s move was not the start of a tightening cycle.” - Bloomberg

The euro fell to $1.5656 from $1.5703 yesterday, trading at a near one week low against the dollar.

After the European Central Bank interest rate rise, comments made by ECB chairman Jean-Claude Trichet suggested a more neutral stance from here on. There are some economists speculating that the euro will fall back towards the $1.53 mark.

According to BNP, the euro may fall to $1.53 on a break below $1.5650.

Insurance Sector

With continued pressure on the banking and insurance sectors it is interesting to see a reprot by JP Morgan suggesting that European insurance stocks now offer “strong value”.

This is an area that is under the radar for many investors - with suggestion that banking and insurance stocks are reaching a low at which they offer investors a good value entry.

In the UK insurance sector, good value stocks are worthy of consideration. Along with this, the economic climate is giving many consumers increased incentive to take out life insurance policies to assist in covering any further economic downturn.

With consumers becomeing ever-more knowledgable about what financial tools are at their disposal, using low-cost services to find term insurance enable consumers to make substantial savings over the traditional banks and insurance company offerings when going direct.

Services such as Last Quote and Life Search offer consumers an easy-to-use avenue for arranging various different term insurance policies.

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Euro Falls Back On Speculation of Worsening Economic Climate

The drop is likely due to speculation of poor US payroll figures along with speculation that the European Central Bank will remain hawkish and raise interest rates to curb inflation in the eurozone.

A Bloomberg news survey showed that 58 of 59 economists interviewed, are expecting a quarter percent rise in the euro interest rate - taking the benchmark rate to 4 percent. (Bloomberg)

Toru Umemoto of Barclays Capital Inc., Tokyo said, “bad news comes from the U.S. everyday. The ECB’s rate hike today is a done deal and the ECB will remain hawkish. The euro may rise above $1.60 against the dollar today.” - Bloomberg

Technical Chart: EURUSD 1-hour

Looking at the present 1-hour chart for the euro/dollar, we should expect to see the euro rise after the ECB announcement. Although bear in mind that the market has probably already priced in the likely quarter percent ECB benchmark rate rise.

In the longer timeframe we could see the euro rise toward the $1.60 mark. However, look for the key areas of retracement on the chart. The 23.6% Fibonacci line looks like being a strong area of support, so if after the ECB news breaks, we could look for retracement around this area (approx. $1.5780) for an entry point to go long in favour of the euro.

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Dollar Trading Lower Against Euro

Fears over the US banking sector is blamed for the sell-off of equities, leading to a weakening dollar against the Yen and Euro.

The dollar has also been hit as commodities continue to rise, with oil hitting record highs and gold continuing to rise. Gold tends to move inversely proportional to the dollar.

According to Maurice Pomery, “The dollar looks like it is teetering on a major slide again.” - FT.com

The dollar fell against major currencies including the euro, yen, Australian dollar, the Swiss franc and the Canadian dollar. The dollar fell 0/2% against the euro to $1.5772.

The British pound also felt the squeeze, with some analysts pointing to a recession.

David Tinsley of National Australia Bank said, “the iceberg ahead is most likely the labour market. Should this deteriorate more sharply than expected, then the UK will do well to avoid recession.” - FT.com

Technical Chart: EURUSD 1-hour

From the 1-hour techncial chart for EURUSD, we can see that the pair are moving in favour of the Euro. Both the 55-day and the 20-day SMA lines are in a positive trend.

The Fibonacci retracement lines also give us an indiciation of market entry points. With the euro trending upwards we would look for buy signals. This is matched by fundamentals - further dollar decline likely with rising commoditiy prices and expected ECB interest rate announcements in July.

From the 1-hour chat the stochastic is undecided, moving well within the upper and lower channels. For confirmation, we could extend to the 30-min and 4-hour chart to see if there are any confirmations to indicate a euro buy signal.

A retracement toward the 23.6% or 38.2% would give us a good indication of entry if the price action stalls at either of these points - and the stochastic agrees. Look for euro growth in the coming days.

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Risk Aversion Sends Dollar Lower

The UK retail sales figures for May were the highest on record, leading to the pound gaining against all major currencies. This is interesting considering the comments from the Bank of England chairman acknowledging that Britain faces “the most difficult economic challenge for two decades”.

Sterling strength has transferred into dollar strength; the U.K. retail-sales number was ludicrously strong,” said Adrian Schmidt, a senior currency strategist in London at Royal Bank of Scotland Group Plc. “The market sees the U.K. and the U.S. as together in the front line of potential weakness in global consumer spending from the credit crunch.” - Bloomberg

Technical Chart: EURUSD 1-hour

From the 1-hour technical chart, we can see the US dollar rising against the euro after UK retail sales helped to bolster confidence in the pound and dollar.

Using Fibonacci retracement we can see that the price has pulled back to the 38.2% line. If price action stalls in this area, we may see a leg up for the euro, especially as the 1-hour stochastic is well into oversold terriotory. We would look for confirmation across additional time-frames. Perhaps looking at the 30min, and 4-hour charts to establish a likely trend for the pair.

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Economy Expected To Withstand Pressure

Data showed an increase of one percent in retail sales during May, whilst analysts were expecting a rise of of 0.5 percent for the month.

The dollar appreciated by one percent to $1.5396 during early New York trading, with a 2.4 percent rise against the euro so far this week.

The dollars gains offset the euro rise last week which came off the back of comments by European Central Bank chairman Jean-Claude Trichet who suggested that a euro benchmark rate rise of 0.25 percent would be likely in July.

Technical Chart: EURUSD 1-hour

The 1-hour chart shows us progress for the EURUSD over the past few days. The Fibonacci lines show that the EURUSD retraced past the 23.6% line, towards the 38.2% line, before continuing on its downward trend which we have continued to see today.

The US May retail sales figure bolstered the USD pushing the chart down further in favour of the dollar. A look at the support and resistance lines shows we have a downward channel which is tightening. The red line marking $1.5364 shows recent euro lows whilst the upper red line @ $1.5620 shows an area of resistance over previous weeks.

With the tightening channel and the small area for manoeuvre within recent resistance and euro lows we will look for a break-out - which may not be seen today. A break above $1.5489 may give us a chance to take a long position (also taking into account the stochastic on the 4-hour chart is in oversold territory, whilst the daily chart stochastic is near the oversold 20 line).

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US Retail Sales Boost Dollar

If we have a look at the Tata Motors [TCOA] share price on the London Stock Exchange we can see there has been a drop of just over 11 percent in the month of May. Ford sold of Land Rover and Jaguar for about half the price they paid, so was this a good move for Tata?

“Jaguar and Land Rover are two iconic brands with worldwide growth prospects. These brands will retain their distinctive identities,” Ratan Tata, chairman of Tata Motors said in a statement after the acquisition.

Jaguar

The new Jaguar XF has been well received by many consumers, even winning a design award for its bold design - a significant step-away from the traditional Jaguar image. In the hotly competitive car manufacturing market this can only mean good news for Tata. After an outlay of $2.3bn to purchase Jaguar and Land Rover, Tata will be keen to recoup their initial outlay as quickly as possible.

Enthusiasts of the Jaguar XF give some impartial information on the new model at a xfforum.com. The XF sits within the luxury mid-size executive model range of cars, that includes the BMW 5-series and the Mercedes Benz E-class.

Land Rover

The acquisition of Land Rover is an interesting move for Tata. With rising fuel costs, large SUV vehicles are increasingly a status symbol rather than purely an off-road vehicle. Although there are strong views for-and -against 4×4 vehicles, there is no doubt that many people find a four-wheel drive invaluable for their day-to-day business - whether that involves towing large trailers or off-road agricultural use.

The smaller Land Rover Freelander model is perhaps aimed more at the family market, with it’s smaller overall dimensions and better fuel economy. In the past many 4×4 vehicles have received poor safety ratings, but this doesn’t seem to be the case with the Freelander, receiving a five star EURONCAP rating.

Again, as with Jaguar, a lot of enthusiast forums and blogs have popped up around the Land Rover brand including Landyzone. Such sites are a good place to get information on the brand/vehicles available.

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SUVs Say Tata to Ford

At present the euro benchmark rate sits at 4 percent, however, inflation has risen at the fastest pace in 16 years. Futures traders expect the ECB to raise the benchmark interest-rate twice this year, with a target of 4.5 percent.

An interest-rate increase next month is “possible,” Trichet said in Frankfurt last week. It was a message that the markets have understood “quite well,” ECB council member Nout Wellink, who also heads the Dutch central bank, was quoted as saying in an interview with market News International. - Bloomberg

The dollar saw signs of recovery last week, spurred on by comments made by Fed chairman Ben Bernanke and treasury secretary Henry Paulson. However, this temporary strength has seen a sharp reversal since June 5th.

Despite the Fed’s concern at the weakening dollar, many traders remain bearish for the dollar, and are looking for a strengthening euro. This would especially be the case if the ECB raise interest rates at their next meeting.

Technical Chart: EURUSD 1-hour

Looking at the 1-hour chart for the EURUSD, we can see that the price has just broken below the rising support line.

A look at the stochastic shows some negative divergence, which would indicate a slow-down in the rising trend. The recent peaks on the stochastic are much lower than previous peaks, this is in contrast to the price action, where the price has continued to rise.

Now that the price is below the rising support line, we may be seeing a retracement that could reach down towards the 23.6% or even the 38.2% Fibonacci line.

With the ECB likely to raise interest rates along with speculation favouring a stronger euro, looking for long positions looks like the better trading option.

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Euro Interest Rate Speculation Raises Value