The Forex Pattern Price Time Report - All Currencies - Evening Session

On Friday the U.S. government reported that growth in Personal Spending declined to 0.2 in July as Personal Income declined 0.7 percent.  These reports reflected the impact of high energy costs and the tight credit markets.  Concerns about employment and the future of the economy also played a part in lower consumer spending activity. These reports are indicating that the pressure is mounting on the consumer to bail out the economy.  

Earlier this week a series of better than expected reports showed that the economic slowdown is showing signs of improvement.  Durable goods and 2nd quarter GDP showed better than estimated gains.  Consumer Confidence was also higher reflecting optimism because of the decline in energy prices and the stronger Dollar in July.

Next week the markets may return to reality with the release of the August Unemployment Report.  Although this week was friendly to the U.S. Dollar, after the holiday the markets are going to be asking for stronger evidence that the economy is bottoming.

The Dollar remains firm against the Euro, but hawkish comments by an ECB member last week may be enough to keep the EUR USD in a range until Euro Zone economic data is convincing enough for the ECB to act.  At this time the market is anticipating ECB rates to remain unchanged despite lower business and consumer confidence and a weakening economy.  
 
The USD JPY traded lower this week as an economic stimulus package in Japan is boosting support for the Yen.  Inflation also rose in Japan, exceeding 2% for the first time in 10-years.  This brought talk of a possible rate hike from 0.50% if inflation continues to rise.  With the economic stimulus package just starting, it is unlikely that the Bank of Japan would raise rates in the near term.  Carry-traders were mostly absent from the U.S. equity markets this week.  This may be a sign of lack of confidence in the current stock market rally.  
 
Downside pressure from a worsening housing market continues to mount on the GBP USD.  With the U.S. economy showing signs of bottoming, and the Fed getting closer to hiking interest rates, the British Pound should feel more pressure as the Bank of England is being projected to cut rates by as much as 1.5% by the end of the year. Traders are waiting for the housing market weakness to spread throughout the U.K. and are awaiting signs that business and consumer confidence is declining along with consumer spending and income.  

The USD CHF felt downside pressure this week mostly because of concerns over the U.S. credit crisis and a weaker stock market.  Although earlier this week U.S. economic reports showed some signs of bottoming, the week ended on a poor note because of declining consumer spending and lower consumer income.  The sell-off on Friday in the USD CHF reflected the lack of confidence in the U.S. economy.  Swiss traders chose to liquidate their established positions ahead of the long week-end instead of chasing higher-yielding U.S. assets. Instability in the U.S. credit markets is seen as the biggest detriment to the USD CHF.  
 
The USD CAD rallied sharply higher as Canadian GDP came in softer than expected.  Canadian financial market traders are now increasing bets that the Bank of Canada will have to cut rates before the end of the year.  The Bank of Canada meets on September 3, but traders have already factored in no change.  The comments after the rate decision will be watched closely to see if the BOC gives any clues as to when they will reduce rates next.  Higher crude prices may temper gains in the USD CAD, but it looks as if the long-term trend has regained its bullishness.

AUD USD traders are awaiting the interest rate announcement by the Reserve Bank of Australia on September 2.  Trading has been narrow and thin this week as some traders feel a rate cut has already been priced into the market.  Technically the main trend is down, but a little oversold.  A stronger U.S. economy and a rate cut by the RBA should keep pressure on the Aussie in the long-run.  This market needs sharply higher commodity prices to form a bottom.  As long as commodity prices remain weak especially gold, look for more downside pressure.
 
The NZD USD has held the low for the month at .6823 for the last two weeks.  This is not a sign of the economy improving, but rather a lack of selling pressure.  At this time there are no signs that the economy is bottoming.  Commodity prices which make up a large portion of the countries production are under pressure.  Interest rates also seem too high to stimulate any economic activity.  The huge sell-off in this market since July reflects the need for an interest rate cut. The first sign of a change in trend to up will be a breakout over .7215.  Until that happens, look for selling on rallies.