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Weekly Outlook – 27.06.2005
FOREX – Australian Dollar Market Comment
Dollar’s brief break below the crucial psychological mark of 1.20 against the Euro proved to be a mirage and it failed to capitalize on the break in spite of momentum behind it. This indicates that the market is not yet ready to shift its weight entirely behind the Greenback and rightly so. In the current environment of Oil prices inching higher above $60 pb to its highest level ever, creates grave doubts on the ability of the U.S. economy to sustain its strong growth performance in the second half of the year if oil prices keeping spiking at this rate.
At the moment the sore point for the Dollar is U.S. manufacturing sector which was beginning to rebound slightly before yet another spike in energy prices has decreased orders and we are likely to witness a weak ISM survey this week. Euro after hitting the bottom, thanks to the surprise rate cut by Sweden of 50 bps and the minutes of Bank of England’s meeting revealing 2 members in favour of a cut fueling large scale speculation that the ECB will follow suit, has stabilized back above 1.21. ECB President Trichet yet again dismissed any rate cut action stating that rates were at their historic lows and in the current scenario of high oil and energy prices likely to exert inflationary pressures, rates are best left on hold. The Inflation of the Euro-Zone this week is likely to confirm this and its expected to inch higher than the ECB’s 2% target. This would make the market realize that any rate cut might not eventuate in the short term and the Euro might witness a mild relief rally.
However either way the yield advantage for the Greenback is set to increase with the Fed likely to raise rates yet again this Thursday. Contrary to the belief of a few quarters they are not likely to give hints of halting their measured rate hike stance in the current scenario of low unemployment and strong labour market as well as robust consumer spending. Like other regions spike in oil and energy prices would increase inflationary pressures and the Fed will be mindful of this. Of course at this stage data outcomes will dictate their future stance with U.S. consumption data eyed.
China through a couple of moves asserted its growing clout in the world economic stage, first by bidding for the U.S. Oil co. Unocal Corp. with its bid higher than its rival Chevron Corp. This move created a bit of a flutter and unease among the American policy makers but with China holding abundant Dollar holdings and its oil demand increasing by the day, buying a few American energy companies seems to be the natural course of action. It remains to be seen if their bid is successful with political factors likely to tilt the balance in Chevron’s favour. Second was comments by Chinese Premier Jiabao as he rejected any immediate shift in its currency regime thus maintaining its ‘we will revalue Yuan at are own convenience’ stance
Commodity prices have soared with Gold breaking above the crucial $440 mark and it remains supported on various counts. However, direction from here on is a bit mixed and it remains prone to large volatile moves with the Aussie and the Kiwi Dollar plagued by softening local fundamentals also likely to witness volatile moves.
The sharp fall in the Euro and the Pound in the last couple of weeks has been on the assertion that interest rates would be cut in the short term thus any signs that point towards otherwise would see a relief rally for both while the U.S. manufacturing and consumption data will eyed keenly to see if the Fed will maintain its rate hike stance leading the Dollar to maintain the positive sentiment around it.
FOREX RelatedKey Economic Releases
Forex USA
| Day | GMT | Release | Previous | Forecast | Comment |
| Tuesday | 14:00 | June Consumer Confidence |
102.2 | 104.3 | Economy grows steadily with strength in the labor market to increase confidence |
| Wednesday | 12:30 | Q1 GDP Final | 3.5% | 3.7% | Increase in consumer spending should lead upward revision. |
| Thursday | 12:30 | May Personal Income | 0.7% | 0.3% | Income should stay around steady levels. |
| Thursday | 14:00 | June Chicago PMI | 54.1 | 54.8 | Taking cue from other regional data index should inch higher. |
| Thursday | 18:15 | FOMC Interest Rate decision | 3.00% | 3.25% | Fed should continue on its measured path. |
| Friday | 14:00 | June ISM Manufacturing | 51.4 | 51.5 | Expected to stay unchanged but trend looks mixed. |
Forex Euro-Zone
| Monday | 08:00 | June IFO German business climate | 92.9 | 93.4 | Should inch higher as weaker Euro has increased export demand |
| Tuesday | 06:50 | June French Biz Climate Indicator | 96.0 | 95.5 | Expected to slip slightly as domestic demand has failed to pick up. |
| Wednesday | 06:50 | May French PPI m/m | 0.2% | 0.2% | Should remain steady as high oil prices offset fall in other items |
| Thursday | 09:00 | June Biz Climate Indicator | -0.37 | -0.35 | Indicator should remain at weak levels with conditions still sluggish |
| Thursday | 09:00 | June CPI y/y | 1.9% | 2.1% | Record high oil prices should inch inflation higher. |
| Friday | 08:00 | June PMI Manufacturing survey | 51.4 | 51.5 | Expected to stay steady but downside risks remain |
Forex Japan
| Monday | 23:50 | May Retail Trade m/m | 2.9% | -1.4% | Expected to slip again as consumer demand remains stiffened. |
| Tuesday | 23:50 | May Industrial Production m/m | 1.9% | -2.3% | Slowdown in global growth has decreased export orders. |
| Wednesday | 23:30 | May Unemployment Rate | 4.4% | 4.4% | Labour market remains steady. |
| Thursday | 05:00 | May Housing Stats y/y | 0.6% | -01% | Expected to decline form last year due to cyclical demand factors |
| Thursday | 23:50 | June Tankan Large Manufacturers Index | 14 | 18 | Domesticspending has increased leading to higher demand for goods |
| Thursday | 23:50 | June Tankan Non Manufacturers Index | 11 | 12 | Services sector should improve as well with Labour market improving. |
Forex U.K.
| Monday | 08:30 | May BBA Mortgage Approvals | 69.3K | 74.0K | Should inch higher but overall trend points to the downside. |
| Wednesday | 08:30 | May Net Consumer Credit | 1.3Bn | 1.5Bn | Lending expected to increase on seasonal factors |
| Thursday | 06:00 | June Nationwide House Prices | 0.3% | -0.2% | House prices should continue to decline. |
| Thursday | 08:30 | Q1 GDP Revision | 0.7% | 0.5% | Lower spending and slow manufacturing sector should lead to downward revision |
| Friday | 08:30 | CIPS Manufacturing PMI | 47.3 | 47.0 | Decline in domestic demand has reduced manufacturing activity. |
FOREX (Foreign Exchange) Technical Scenario
EUR/USD – The pair did manage to slip below the crucial 1.20 mark but only briefly and a strong rebound followed. It is currently above 1.21 with mild resistance around 1.2175 with a break above to target the 1.2245-60 zone with mixed technical interest around it. Any break above 1.23 should see decent selling interest with 1.2355 holding strong resistance. Any break above 1.2425, which is unlikely, could shift the momentum back in the Euro’s favour. On the downside mild support exists in the 1.2030-45 zone with the break below targeting the strong support zone of 1.980-95 which held well last week. A decisive break below could accelerate losses for the Euro with distant support around 1.1875.
USD/JPY – The pair remains largely unchanged form last week and continues to meander directionless in the technically mixed region of 108.75-109.45. It has mild resistance around 109.55 followed by strong resistance and decent selling interest in the 109.80-95 zone which has held well so far. A decisive break higher will accelerate losses for the Yen with distant resistance around 110.85. On the downside mild support lies around 108.55 followed by strong Dollar buying interest and support in the 107.95-108.10 zone. A break below targets support at 107.25 with any moves in the 106 region could shift the sentiment back in the Yen’s favour.
GBP/USD – The pair took cue from the Euro for most of the week with fundamentals remaining on the soft side. It is currently hovering around the technically mixed interest region of 1.8190-1.8255. Decent selling interest exists on any moves above 1.83 with strong resistance around 1.8355. A break above will target the 1.8395-1.8410 zone which has stronger resistance and equally stronger selling interest. Any decisive move above the 1.8455 mark could shift the momentum back in the Pound’s favour. On the downside the 1.8155-70 zone continues to hold mild support with a break below bringing into focus the 1.8070 support mark with decent buying interest around it. Bottom pickers have buying orders down to 1.80 but a break below that crucial mark could accelerate losses.
AUD/USD – The Australian Dollarslipped back below 0.77 after staying resilient for most of the week above it. Profit taking on key commodities was the main reason but trend of commodities remains mildly bullish keeping the Aussie supported for now above the 0.7655 support mark. A decisive break below targets the 0.7575-90 strong support zone and has decent buying interest in that zone. On the upside 0.7755 continues to hold resistance with strong selling interest on any foray above 0.78 with resistance around 0.7825. Key data from both sides is eyed towards the end of the week to for a break from current ranges.
Kunal Sharma
Forex Analyst
Forex Analyst
Easy Forex Pty Ltd. (
E-mail: kunal@easy-forex.com
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