BoE and BoC surprise with rate cuts. Federal Reserve expected to cut rates of 25 basis bpt.
10/12/07
last week’s currency trading review
The Dollar as focus in other markets surrounded several interest rate announcements by respective central banks, much of the U.S. concerns were centered on jobs data. The dollar began its week weighed upon as ISM Manufacturing recorded its lowest reading since January, confirming five consecutive months of declines, whilst ISM services also declined. On Wednesday ADP employment data was released well above consensus, the USD was able to find support as such data is considered an early indication to the central Non Farm Payrolls data. That said, NFP data (November) on Friday was released just above forecasts at 94k, in line with expectations of 90k with an upward revision of the previous release gave confidence that the labour sector appears to be on the rebound. In other news, President Bush confirmed a plan on Thursday to freeze interest rates on sub-prime mortgages, in an attempt to stem losses. The Euro saw the central bank hold rates on Wednesday, although surprisingly hawkish comments by President Trichet caught many off guard. The overnight borrowing costs were held at 4% as Trichet, claimed that “strong short-term upward pressures on inflation” were prominent, some of the committee members had indeed voted for a rate hike. In other data, PMI Manufacturing and Services had risen for the month, whilst Unemployment Rate fell from 7.3% to 7.2% for the month of October. The Euro closed last week at 1.4654 having opened at 1.4659. The Japanese Yen fell by 0.4% versus the USD as carry trades were back in favour in the latter part of the week. GD data out of Japan fell from 2.6% to 1.5% on a yearly figure. The Japanese Yen closed last week at 111.71 having opened at 110.43. The GBP was the most eventful currency throughout the week, as the BoE cut rates by 25 basis points for the first time in 2 years, to sit at 5.5%. Accompanying statements highlighted that inflation was likely to slow as higher credit costs hurt economic growth. The GBP closed last week at 2.0314 having opened at 2.0666. The AUD also had an eventful week, with plenty of data released compared to recent weeks. With a less than forecasted Retail Sales figure on Tuesday and poor GDP data on Wednesday, there was little surprise in the RBA keeping rates on hold at 6.75%. Accompanying statements did highlight growing concerns in the risks surrounding global credit markets. The Aussie Dollar closed last week at 0.8774 having begun the week at 0.8842.
The forex trading week preview
In the States much of the market focus will be in eager anticipation of the FOMC decision on Tuesday, with a 25 basis point cut fully priced in, with trimmed expectations on a 50 basis point cut. Statements and reference to inflation risks will also be key. Other key data releases out of the US include Trade Balance (Wednesday), PPI and Retail Sales (Thursday), CPI and Industrial Production (Friday). It is also worth mentioning that Secretary Treasurer Paulson will be in Beijing on Tuesday discussing US-China Strategic Economic Dialogue. We will provide our previews and reviews of these data releases in the daily summary.
In the Eurozone Have a heavy data week scheduled headed by the German ZEW survey on Tuesday. Amidst Industrial Production (Wednesday), Fridays HICP data will also be key to verifying recent hawkish statements made by President Trichet. In the UK in light of the recent rate cut, Jobs data (Wednesday) and House prices (Thursday) will be key in determining if the BoE is likely to cut once again in the near term. We will provide our previews and reviews of these data releases in the daily summary.
In Japan major focus will be placed on the Tankan Survey Q4 on Friday which is expected to show a decline. We will provide our previews and reviews of these data releases in the daily summary.
In Australia RBA Governor Stevens will be speaking on Tuesday, whilst Unemployment Rate will be released on Thursday. We will provide our previews and reviews of these data releases in the daily summary.
TECHNICAL COMMENTARY
| Currency |
Sup 2 |
Sup 1 |
Spot |
Res 1 |
Res 2 |
| EUR/USD |
1.4518 |
1.4527 |
1.4655 |
1.4770 |
1.4859 |
| USD/JPY |
108.27 |
109.48 |
111.55 |
111.79 |
112.88 |
| GBP/USD |
2.0086 |
2.0181 |
2.0305 |
2.0525 |
2.0612 |
| AUD/USD |
0.8654 |
0.8661 |
0.8750 |
0.8921 |
0.8939 |
| XAU/USD |
773.00 |
777.20 |
795.00 |
808.05 |
815.70 |
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·Euro – 1.4655
Initial support at 1.4527 (Dec 6 low) followed by 1.4518 (Nov 12 low). Initial resistance is now located at 1.4770 (Dec 12 high) followed by 1.4859 (Nov 28 high).
·Yen – 111.55
Initial support is located at 109.48 (Nov 28 low) followed by 108.27 (Nov 26 low). Initial resistance is now at 111.79 (Dec 7 high) followed by 112.88 (Nov 9 high)
·Pound – 2.0305
Initial support at 2.0181 (Dec 16 low) followed by 2.0086 (Sep 25 low). Initial resistance is now at 2.0525 (Dec 3 breakout low) followed by 2.0612 (Dec 5 high)
·Australian Dollar – 0.8750
Initial support a 0.8661 (Dec 5 low) followed by 0.8654 (Nov 28 low). Initial resistance is now at 0.8921 (Nov 28 high) followed by 0.8939 (38.2% retracement of the 0.9400 to 0.8654 decline)
·Gold – 795.00
Initial support at 777.20 (Dec 3 low) followed by 773.0 (Nov 20 low). Initial resistance is now at 808.05 (Nov 29 high) followed by 815.70 (November 27 high)
