The research highlighted the difficulty facing UK home owners, as the economy slows down and more and more home owners struggle to repay mortgage loans.

[Moody's] found that the number of mortgages in arrears has jumped from 7.3 per cent in the second quarter of 2007 to 10.2 per cent in the second quarter this year. - FT.com

With house prices falling, court action looks more likely for those falling into arrears. With mortgage lenders keen to sell on property before depreciation increases on the property value. UK house prices have fallen about 8.5 per cent so far in 2008 and mortgage lenders such as HBOS are predicting that house prices will fall 20 per cent by the end of 2009.

With mortgage security on the minds of many, particularly in the UK and US, there is a marked increase in individuals seeking a term insurance quote online. In some cases this is to cover mortgage repayments, and in others, this can include life insurance or critical illness cover.

The UK economy has been under pressure for a lengthy period of time, with some shouting “recession” and others adamant that the UK are going to turn the ship around. Various UK jobs sectors have been struggling including the construction sector - with the price of houses falling the necessity for new housing is becoming less popular.

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UK Subprime Mortgage Arrears Rising

According to Michael Woolfolk from Bank of New York Mellon, “the market is looking for any excuse to buy the dollar. Lower crude oil is the primary catalyst for the dollar to rally into the Fed meeting.” - Bloomberg

Yesterday the dollar reached $1.5576, however today it rose 0.6% to $1.5487. A recent fall in crude oil also favoured the dollar against the euro.

The euro isn’t helped either by a slowing economy in the eurozone. It is expected that the European Central Bank will retain interest rates at the next meeting, to help offset the slowdown.

Technical Chart: EURUSD 1-hour

We can see the sharp USD rise against the euro as the dollar climbs close to a seven-week high. The strong downtrend, in favour of the dollar is matched by the technical indicators.

The chart shows that the 200-day moving average and the 55-day moving average are bearish for the euro.

The Bollinger band however, shows that the price action has stepped outside the lower band, suggesting there will be a recovery. If the price breaks through the strong downtrend line (orange line) we could see a euro recovery. If this happens we could see the euro gain to the 23.6% Fibonacci line or even the 38.2% Fibo line.

Maintinaing the saying “the trend is your friend” suggests looking for short signals. With the imminent news release, it may be to early to enter at this time. Therefore waiting for the news release and subsequent spike would give us an idea of direction once it has settled. None-the-less short signals are what the technicals are suggesting over the coming day-or-so.

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Fed Expectations Fuel Greenback Gains

The Canadian dollar has also seen strength due to the countries high value commodities, including large oil reserves, copper and lumber - however now many experts are predicting a fall of up to 17% through 2009.

According to Steve Butler of Scotia Capital Inc. in Toronto, “the way energy prices and certain commodities have boomed, many thought we would weather the downturn better. You’ve got a pessimistic look at the economy by the market. It’s forced a lot of people to rethink that view.” - Bloomberg

Many experts feel the Canadian dollar is overvalued at present prices and feel that both the fundamentals and technicals indicate a weakened Canadian dollar. Recent statistics have shown that the Canadian economy dropped by 0.1% in May. A slowdown in car production and gas extraction saw the economy shrink for May.

Meanwhile the US dollar traded near a one-month high against the euro in expectation of the Federal Reserve meeting tomorrow. It is expected that the US benchmark rate will remain at 2%.

In the UK, GBP fell after poor construction index figures. A construction industry report showed that the the sector last month at the fastest pace in 11 years.
Earlier in July, one of the largest UK construction companies, Persimmon announced 4500 job losses, highlighting the tough business conditions for the UK construction industry. Certain sectors within the UK jobs sector look to continue to struggle through the difficult economic conditions, however, there are still areas of growth for job seekers.

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Canadian Dollar Set to Fall?

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