Australian FOREX Weekly Outlook 17/09/2007

Euro reaches and all time high as focus shifts to FOMC,

17/09/07

last week’s currency trading review

The Dollar began the week heavily pressured on growing market views that a rate cut will be seen on September 18. Much of the market sentiment surrounded the view that monetary loosening would materialize with the only question being either a 25 or 50 basis point cut. The Greenback eased for 7 consecutive sessions before rebounding on Friday. Reports had shown a jump in consumer confidence and stable Retail Sales figures, which gave support to the idea that the US economy may not be heading towards a recession. The Euro rallied in the early part of the week as views the FOMC would loosen provided a bearish sentiment to USD demand. The Euro was boosted by hawkish comments from ECB Trichet, who emphasized risks to price stability remained on the upside, suggesting that ECB could still tighten rates. In a relatively light data week the EURUSD traded at an all time high of 1.3927 on Thursday before flat CPI figures on Friday. The EURO closed last week at 1.3874 up from the 1.3768 open. The Japanese moved on the back of rebounding equity prices with a return to carry trades. The JPY closed last week at 115.32 having opened at 113.46. The GBP gained to begin the week before market views had changed, in that UK rates may have peaked following tight lending conditions. Reports on Friday that the UK fourth largest mortgage lender, Northern Rock, had sought emergency funds from the BoE following their exposure to the sub prime issues, ensured the worst weekly decline in almost two years for the Sterling Pound. The GBP closed last week at 2.0079 having opened at 2.0282. The AUD gained on increased demand from Japanese investors for high yielding currencies. The Aud broke through key 0.8400 levels on views that the FOMC will decide upon a rate cut on September 18. The AUD closed last week at 0.8419 having opened at 0.8264.

The forex trading week preview

In the States all markets will pay attention to Tuesdays FOMC rate decision in which expectations surround a 25 basis point cut, although questions arise on the possibility of 50 point cut. Accompanying the FOMC, a heavy data week will include PPI, TIC Flows (Tuesday), Core CPI and Housing Starts (Wednesday), whilst Philly Fed survey and Chairman Bernanke’s testifying to congress on the mortgage market will round off the data slate on Thursday. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone will have a quiet week scheduled, with only the German ZEW survey (Tuesday) and Current Account (Friday) worthy of mention. In the UK not to be outdone, and with views that UK rates have peaked, plenty of focus will surround CPI (Tuesday) and the BoE minutes (Sept 6) on Wednesday will give a clearer indication of whether rates will remain unchanged for the remainder of the year. Other key data includes Retail Sales on Thursday. We will provide our previews and reviews of these data releases in the daily summary.

In Japan the BoJ will follow suit with their rate announcement on Wednesday followed by the usual press conference and monthly report. We will provide our previews and reviews of these data releases in the daily summary.

In Australia a light data week is scheduled with only RBA Governor Stevens speech worthy of noting. We will provide our previews and reviews of these data releases in the daily summary.