Australian FOREX Weekly Outlook 18/08/2008

Plunging Gold support Dollar strength

18/08/08

last week’s currency trading review

The Dollar climbed to 7 month highs on the back of falling commodities and continued weakness in other economies. US data also surprised to the upside this week. US CPI climbed to its highest level in 17 years at 5.6%. The Trade Balance showed a slimming deficit as exports supported the US economy coming in at -$56.8 Billion. Retails Sales in July where negative but at expectations of -0.1%. Empire state Manufacturing Index jumped back into positive territory at +2.8 in August which along with an increase of 0.2% in July Industrial Production showed a resilient US manufacturing sector. UoM Consumer Sentiment remained at 61.7. Gold broke through support at $850 and $800 on route to multi month lows of $773 giving the Dollar a significant boost. The Euro continued to plumb new lows on the back of a weakening Eurozone growth outlook. Q2 GDP was seen lower at -0.2% which accompanied by a drop in the June Industrial Production of -0.5% weighed on the single currency. July HICP Inflation data saw a drop to 4.0% from 4.1%. The Euro closed down 2.17% at 1.4687 having opened at 1.5006. The Japanese Yen experienced a volatile week coming off highs as AUD/JPY and NZD/JPY capitulated on Wednesday and panic selling ensued. A recovery lead by stronger US stocks and Economic data allowed the USD/JPY to reclaim the 110 level and remove resistance around 110.50. On the Data Front Q2 GDP dropped to -0.6% and the Current Account grew to +493 Billion. The USD/JPY gained 0.28% closing at 110.48, after opening the week at 110.17. The GBP was the weakest currency last week falling heavily on the back of the BoE Quarterly Inflation Report which dropped Growth Projections and shaved their inflation horizon to 2010 for resumption of the 2% target range. This extremely bearish report shaved 300 pips off the cable as markets digested the outlook and pared rate hike expectations. UK CPI continued to beat expectations in July rising to 4.4% Y/Y. Also beating forecasts, July Claimant count jumping to 20K and the Unemployment rate climbing to 5.4%. The UK Trade Deficit also continued to expand in July hitting -4.7Billon. The GBP/USD lost 2.98% closing at 1.8654 after opening at 1.9210. The AUD was beaten down for a 4^th week this time as Gold broke through key levels dropping over $60 an ounce and closing below $800. The RBA Monetary Policy reaffirmed the market view that rates will be cut at September’s meeting commenting that there has been a significant moderation in Demand and Inflation is expected to fall as a result. The AUD/USD closed down -2.6% at 0.8660 after opening at 0.8886.

The forex trading week preview

In the States light data week with the Tuesday being the highlight. July PPI is seen up 0.6% with the Core at 0.2%. July Building Permits are seen at 970k along with Housing Starts at 960K. On Thursday we have weekly Jobless claims expected at 443K. Friday rounds up the week with the Philly Fed expected at -14.5 in August and the July Leading Indicators forecast at -0.1%. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone Important Survey data this week lead by the German ZEW Economic Sentiment on Tuesday expected at -62. Also on Tuesday German PPI for July forecasted at 0.70%. On Thursday a raft of PMI data with August Manufacturing PMI forecast at 47.0 and Services PMI seen at 48. On Friday, June Industrial Orders are seen -1.1% slightly better than -3.5% in May In the UK The Bank of England Minutes of Wednesday are forecast to remain 7-1-1 with at least one member still predicted to vote for a rate hike. On Thursday July Retail Sales are expected to rebound from the record drop in June to -0.2% vs. -3.9% in June. On Friday Q2 GDP is expected to show a rise of 0.2%. We will provide our previews and reviews of these data releases in the daily summary.

In Japan Tuesday we have the Bank of Japan Target rate widely expected to remain at 0.50% along with the All Industries Activity Index forecast at -0.8%. Friday see the Monetary Policy Minutes released containing details of Tuesday’s Meeting We will provide our previews and reviews of these data releases in the daily summary.

In Australia quiet week with Tuesday’s RBA minutes the highlight expected to reiterate rate cuts are on the table for September. We will provide our previews and reviews of these data releases in the daily summary.

·Euro – 1.4685

Initial support at 1.4664 (Aug 15 low) followed by 1.4611 (Feb 18 low). Initial resistance is now located 1.4808 (Aug 15 low) at followed by 1.4981 (Aug 13 high).

·Yen – 110.35

Initial support is located at 109.43 (Aug 15 low) followed by 109.04 (Aug 14 low). Initial resistance is now at 110.67 (Aug 15 high) followed by 112.15 (Jan 2 high).

·Pound – 1.8640

Initial support at 1.8513 (Aug 15 low) followed by 1.8385 (Jul 25, 2006). Initial resistance is now at 1.8686 (Aug 15 high) followed by 1.8787 (Aug 14 high).

·Australian Dollar – 0.8665

Initial support at 0.8593 (Aug 13 low) followed by 0.8503 (Jan 22 low). Initial resistance is now at 0.8709 (Aug 15 High) followed by 0.8797 (Aug 14 high).

·Gold – 791

Initial support at 773.5 (Aug 15 low) followed by 773 (Nov 20 reaction low). Initial resistance is now at 799.5 (Aug 15 low) followed by 836.8 (Aug 14 high).