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25/07/05
FOREX – Australian Dollar Market Comment
Most majors ended the week around the same levels as it started it and one could be excused in thinking that an uneventful week passed by where in reality we witnessed a historic step, be it a small one, undertaken by China. Yuan was finally revalued and the decade long peg to the U.S. dollar was removed in favour of a basket of currencies which are yet to be announced.
The jury is still out there in terms of the actual effects of this move and who stands to gain the most from it. Well for starters it would lead to less demand for
Now in terms of the dreaded U.S. Trade Deficit, it can be said with near certainty that the effect of this move would be negligible. In simple terms the Deficit is a huge mountain while this modest revaluation step is like a small stone, thus the latter is unlikely to budge the former. What it might do though is reduce the bilateral deficit with
Dollar had yet another strong data week which can’t be ignored and continuous weak data results from other regions presented the market with an easy decision to buy back the Greenback towards the end of last week. Apart from poor fundamentals, geo-political factors are also turning sentiment against the Euro and the Pound. German elections are announced for September with even chances of Schroeder retaining his presidency. One of the main election issues would be the slow economic conditions and record post world war unemployment levels which would weigh heavily against the incumbent government. For the Pound the market is almost certain on a rate cut next month while the continuous terror threats is not exactly a confidence booster for an economy which is slipping rapidly into a sluggish state.
The effect of Yuan revaluation on the Yen has some mixed connotations but overall very positive effects are seen for the economy but the main benefit stems from the fact from the huge consumption of Japanese products by
Two event risks for the market include a sudden announcement by
FOREX Related Key Economic Releases
Day |
GMT |
Release |
Previous |
Forecast |
Comment |
Tuesday |
14:00 |
Conference Board July Consumer Confidence |
105.8 |
106 |
Confidence is expected to inch higher as economy remains strong |
Wednesday |
12:30 |
June Durable Goods Orders |
5.5% |
-1.0% |
Expected to slip due to last month’s strong result on cyclical factors. |
Friday |
12:30 |
Q2 GDP |
3.8% |
3.5% |
To be revised lower with spike in oil prices the main reason |
Friday |
12:30 |
Q2 Personal Consumption |
3.6% |
3.4% |
High oil prices to blame for drop in consumption. |
Friday |
14:00 |
July |
53.6 |
55.0 |
The recent rebound in the manufacturing sector |
Forex Euro-Zone
Tuesday |
08:00 |
July German IFO Business Climate |
93.3 |
93.9 |
Increase in exports has boosted biz confidence |
Wednesday |
06:00 |
German GFK Consumer Confidence |
3.5 |
3.5 |
Confidence to remain steady on mixed economic conditions. |
Wednesday |
09:00 |
Q1 Current Account |
4.5Bn |
4.1Bn |
Surplus expected to shrink on high import costs |
Thursday |
07:55 |
German July Unemployment Rate |
11.7% |
11.7% |
High unemployment rate not expected to improve. |
Friday |
09:00 |
July Consumer Confidence |
-15 |
-15 |
Improvement in confidence in some nations to be offset by decline in others |
Friday |
09:00 |
July CPI y/y |
2.1% |
2.2% |
Spike in oil prices to inch inflation higher. |
Monday |
05:30 |
June Nationwide Dept. Store Sales |
-1.3% |
-0.5% |
Sales expected to improve but should stay in negative territory. |
Wednesday |
23:50 |
June Retail Trade m/m |
-1.5% |
0.5% |
Sales should rebound due to seasonal factors |
Thursday |
23:30 |
June Workers Household Spending |
-2.0% |
0.2% |
Spending to improve to improved labour market and seasonal factors. |
Thursday |
23:30 |
June National CPI m/m |
0.1% |
0.1% |
Inflation to remain unchanged. |
Thursday |
23:30 |
June Industrial Production m/m |
-2.8% |
-1.0% |
Production to improve but conditions still on the sluggish side |
Tuesday |
10:00 |
CBI industrial Trends Survey |
-25 |
-20 |
Slight improvement seen but trend points to more downside |
Thursday |
06:00 |
July Nationwide House Prices |
-0.2% |
0.2% |
House prices to rebound on mixed trend of stabilization and decline. |
Friday |
08:30 |
June Consumer Credit |
1.8Bn |
1.7Bn |
Credit to decline as spending declines |
Friday |
09:30 |
July GFK Consumer Confidence Survey |
-3 |
-4 |
Confidence should inch lower on recent events in the |
FOREX (Foreign Exchange) Technical Scenario
EUR/USD – The pair has retraced all its gains post Yuan revaluation with strong offers above 1.2250 again proving too much to handle and a sell off towards 1.20 ensued, thus ending the week around the same levels as it started. Immediate support is seen in the 1.1930-45 support zone with decent buying orders around 1.19. A decisive break below could accelerate its losses which should bring into focus the crucial pivot support zone of 1.1850-75. The Euro has managed to make an impressive recovery from this level in the past and a break below would send it towards its lowest level in 2 years and would accelerate its losses with distant support around 1.1755. On the upside, 1.2145 holds immediate resistance with the 1.2145-1.2250 region holds mixed technical interest. Stronger resistance exists around the 1.2255 mark with decent offers lined up to 1.23. Very strong resistance lies in the 1.23 region but a deep foray into this region could shift the momentum in the Euro’s favour.
USD/JPY – The pair as expected experienced the most volatile moves post the Chinese decision with a 300 point rally breaking key support levels. In the end it took the very strong support zone of 109.70-85 to lead a reversal with pair back in the technically mixed interest region of 111. For now, mild Dollar bids persist around 110.45-60 with a break below likely to again bring into focus the support zone at 109.70-85 with strong Dollar bids around that region. Only a decisive break below that region could shift the weekly sentiment back in the Yen’s favour, with any foray below the 109 mark to accelerate its gains. Resistance has moved down to the 112.10-25 with a decisive break above likely to bring into focus the strong resistance zone at 112.95-113.10. Only a deep foray into the 113 region would shift the sentiment against the Yen otherwise direction is a bit mixed.
GBP/USD – The pair remains in deep negative territory and is failing to reverse its losses with immediate support seen in the 1.7320-35 region with decent bottom picking buying interest around 1.73 with a break below likely to accelerate its losses. Distant support is seen in the 1.7230-50 region with a break below risks broad liquidation and could lead bulls to throw in the towel. On the upside mild resistance lies in the 1.7475-90 zone with a break above bringing into focus the 1.7555 strong resistance mark with decent selling interest above. Any break into the 1.76 region would lead to strong offers which are lined all the way up to 1.77. Only a break above 1.77 would subside the risks of further losses for the Pound.
AUD/USD – The Australian Dollar in spite of its impressive rally would struggle to break decisively deep into the 0.77 region with strong selling orders intensifying within the 0.7750-0.78 region. Only a break above 0.78 raises hopes of a strong rally otherwise it would struggle to inch higher from here on. On the downside, support has moved up to the 0.7540-55 region with a break below brings into focus the very strong support and buying interest around the 0.7475-90 region. A decisive break below this zone would accelerate losses for the Aussie with distant support and bottom picking interest seen around 0.7390.
Kunal Sharma
Easy Forex Pty Ltd. (
E-mail: kunal@easy-forex.com
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