Australian FOREX Weekly Outlook 23/06/2008

Dollar on the back foot as Oil remains stubbornly High

23/06/08

last week’s currency trading review

The Dollar was unable to hold recent gains this week as US economic data weakened dampening Fed rate hike expectations. High oil prices are leading to a deteriorating economic outlook with stocks hitting 3 month lows on earning outlooks. Consensus is that the market was a little too eager in pricing US Fed interest rate hikes into the rest of the year. May PPI was higher at 1.4% month on month although the core was at expectations at 0.2%. Poor survey data weighed the most with New York State Manufacturing dropping to -8.68 vs. expectations of -3 and the Philly Fed Index dropped to -17.1 vs. market forecasts of -10. The Euro had a good rally this week as oil hit record highs of $139.89 per barrel and High CPI data supported. May HICP was revised up to 3.7% vs. Aprils 3.3% which combined with a German PPI number 1.0% month on month all but cemented a rate rise in July. The German ZEW survey dropped to -52.4 but as the decline was due concerns about inflation and interest rate rises the effect on the Euro was muted. The Euro closed up 1.44% at 1.5603 having opened at 1.5379. The Japanese Yen weakened considerably for the third week as neutral Bank of Japan minutes showed little chance of a rate rise in the near future. Strong demand for the AUD/JPY and EUR/JPY kept the USD/JPY buoyed but very weak equities finally weighed supporting the yen into the weekend. Japanese Tertiary Index climbed to 0.8% in April. The USD/JPY lost 0.82% closing at 107.29, after opening the week at 108.17. The GBP had a rollercoaster ride this week as interest rate expectations gyrated and data surprised. May CPI accelerated to 3.3% year on year with any figure above 3% requiring Governor King to write an open letter to Chancellor Darling. Lack of a clear plan in that letter sent the pound lower with BoE Minutes reinforcing the inability to raise rates on forecasts showing slowing demand. Losses in the GBP were short lived however as a shockingly strong record May Retail sales of 3.5% month on month argued against the assumed slowdown. The GBP/USD gained 1.43% closing at 1.9756 after opening at 1.9473. The AUD grinded higher as commodities enjoyed a broad rally. The RBA minutes showed a more neutral tone as the bank noted that rates seem appropriate and that demand is softening. The AUD/USD closed up 1.50% at 0.9531 after opening at 0.9388.

The forex trading week preview

In the States FOMC is the highlight this week expected to remain at 2.00% on Wednesday. Core Durable Orders are expected to fall 0.9% this month after a surprising 2.5% rise in April. May New Home Sales completes Wednesday’s trifecta forecasted at 512K. Friday sees the Core PCE prices expected to rise 0.2% in May. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone Monday see a flurry of data with Euro-zones Service and Manufacturing PMI’s for June. German IFO Business climate also out on Monday with economist expecting 102.3. On Tuesday Trichet speaks and German consumer confidence expected at 4.6. Wednesday sees German preliminary CPI for June, expected to further accelerate to 3.3% year on year. We will provide our previews and reviews of these data releases in the daily summary.

In Japan Tuesday sees May trade surplus at 23.1billion yen down from 479 billion in April. Thursday is a big data day with May jobless rate (expected 4.0%) and Core CPI (expected 1.4% Y/Y) along with industrial production (expected 2.8%) and Retail Sales (expected -0.1%) We will provide our previews and reviews of these data releases in the daily summary.

In Australia light data week with May job vacancies the highlight on Thursday forecasted at -2.0%. We will provide our previews and reviews of these data releases in the daily summary.

Key Pivot levels

·Euro – 1.5610

Initial support at 1.5461 (June 17 low) followed by 1.5303 (June 13 low). Initial resistance is now located 1.5657 (Jun 10 High) at followed by 1.5844 (Jun 9 high).

·Yen – 107.40

Initial support is located at 107.13 (June 20 low) followed by 106.8 (Jun 12 low). Initial resistance is now at 108.61 (Feb 14 high) followed by 108.98 (Jan 14 high).

·Pound – 1.9750

Initial support at 1.9701 (June 20 low) followed by 1.9580 (Jun 19 low). Initial resistance is now at 1.9801 (Jun 9 high) followed by 1.9852 (May 23 high)

·Australian Dollar – 0.9550

Initial support at 0.9491 (June 20 low) followed by 0.9448 (June 19 low). Initial resistance is now at 0.9578 (76.4% retracement of the 0.9655 to .9328 decline) followed by 0.9648 (Jun 9 high).

·Gold – 904

Initial support at 858 (Jun 12 low) followed by 850 (Psychological Number). Initial resistance is now at 908 (June 20 high) followed by 909 (June 9 high).