FX Trading Australia Market Weekly Outlook – 10.01

Thus there are two chains of thoughts that the market is following for now and that are the key drivers of prices. One is the growth potential of nations across the globe for 2005, in this regard the Dollar comes up trumps as other regions have below par growth prospects. The Dollar also has yield advantage heading its way with the potential of rate cuts in other regions. The other is the structural imbalance in U.S. economy namely the high twin deficits. This has been left on the back burner since start of this year but Wednesday’s Trade Balance release could bring this issue back to the fore.

The sheer momentum of the Euro’s rally during last days of the previous year could have taken it towards the crucial level of 1.40 by now. But judging by the concerning comments of Euro-Zone’s officials and run of poor data from across the zone the market wasn’t ready to send it towards that 1.40 mark just yet. But instead the strong Dollar mantra from Snow and hawkish tone from Fed officials in terms of rate hikes provided a good opportunity to book profits on Euro longs. In fact last week saw the largest fall within a week for the Euro against the Greenback since its inception in 1999. The pair could also be locked in a range play between 1.30-1.35 before the market is confident to send the pair higher towards 1.40. Break of crucial support levels is likely to accelerate the losses but the focus is bound to shift back to U.S. deficit concerns, which could see the Dollar losing ground fast as witnessed in the second half of last year

Key data for the U.S. kicks off on Monday with the release of Wholesale Inventories and Sales, the data should remain on healthy levels, as consumer spending has been good. Wednesday has the crucial Trade Balance numbers with deficit expected to stay above $50 Bn. Retail Sales is on Thursday, data is expected to bounce back as robust sales are expected in the holiday season. Friday has PPI, which should decline since oil & energy prices have eased while Industrial Production should inch higher as export orders have increased.

For the Euro-Zone, German Trade Balance is on Monday, it should stay steady. Tuesday has French Trade Balance with deficit expected to decline, French Industrial Production should bounce back up as domestic demand has picked up, German ZEW Economic Sentiment survey should increase as there is optimism for key sectors, German Industrial Production is expected to decline as export orders have declined. Wednesday has German CPI, which should show a rise as the fall in oil prices has been more than offset by the price rise in common items. Also on the day is the Euro-Zone’s third quarter GDP, which could show a slight decline. Thursday has French CPI which should remain unchanged while the ECB announces their rate decision with rates expected to stay on hold at 2.00%.

For the U.K. key data kicks on Monday with the release of ODPM House Prices which should decline again, PPI should remain steady. Wednesday has the Trade Balance figures with deficit expected to decline slightly. Thursday has Industrial & Manufacturing Production, which should rebound as domestic demand has increased. Bank of England is expected to keep rates steady at 4.75%.

For Japan, the markets are closed on Monday. Tuesday has Leading Economic & Coincident index with data expected to rebound. Wednesday has Money supply, which should stay steady while Machine tool orders could increase slightly. Thursday has Trade Balance figure with surplus expected to increase. Friday has Industrial Production, which should remain unchanged while Machine orders should rise on strong domestic and foreign demand.

The Euro is lying at crucial levels with a break of the support zone of 1.3020-50 could lead to losses towards 1.2925 where stronger support exists. Resistance is strong around 1.33 with any rallies above 1.34 expected to bring strong selling interest. The pair could be range bound if it can stay above 1.30.

The Yen has maintained its range in spite of the broad movements on other majors. Resistance around 105.25-40 for the pair has held firm so far with a break likely to extend the rally towards 106.15-30 but this could act as a strong offered zone. Decent bids for the Dollar remain around 103.50 wit the pair likely to be range bound.

The Pound looks vulnerable and further losses seem likely with a break of 1.8650 support mark could lead to losses down towards 1.8525-50. Fears of possible rate cuts are keeping the Pound under pressure with any rallies above 1.89 expected to bring in strong selling interest.

The Aussie has started the week just above the solid support zone of 0.7520-50. Evidence is needed of a strong economic growth this year to send the Aussie higher with the easing of commodity prices keeping it under pressure. For now any forays towards 0.77 are leading to keen selling interest with stiffer resistance around 0.7850.