Australian FOREX Weekly Outlook 07/07/2008

ECB Trichet puts the brakes on EURO longs. US FED Bernanke’s turn?

07/07/08

last week’s currency trading review

The Dollar was able to make good gains as the weeks big data events provided an opportunity for a dollar bounce. On the back foot most of the week in anticipation of poor US data, almost all of the majors hit multi-month highs along with Crude Oil spiking above $145 per barrel. June ISM manufacturing data edged back into expansionary territory at 50.2 from 49.6 in May. The US labor market continued to show weakness with June Nonfarm Payroll report indicating a loss of -62K last month and a continuing Unemployment rate of 5.5%. The most disappointing data was the Non-manufacturing ISM coming in at a contractionary 48.2 vs. expectations of 51.1. The main impetus for the large dollar bounce on Thursday was the change in European interest rate expectations. The Euro traded at multi-month highs above 1.5900 as the ECB increased rates to 4.25% from 4.00%. At the follow up press conference ECB President Trichet was very neutral stating the ECB “had no bias” on future interest rate direction. On the Economic front, data was generally Euro positive. June CPI flash estimates were at the high end of expectations at 4.0% and May German Retail Sales rebounded strongly to 1.3% m/m from -0.6% in April. Eurozone PMI’s were contractionary in June with services at 49.1 and manufacturing at 49.2.The Euro closed down 0.53% at 1.5707 having opened at 1.5791. The Japanese Yen had a mixed week as weakening equities and rising risk aversion lead to Yen strength early before broad greenback strength supported the USD/JPY. The second quarter Japanese Tankan came in at 5 slightly higher than forecasts of 3 but well off the 1^st quarter of 11. The USD/JPY gained 0.61% closing at 106.77, after opening the week at 106.12. The GBP found the going tough as relentlessly poor data continued to undermine the pound and UK economic outlook. In spite of the weak data though, USD weakness early in the weak allowed the pound to piggy back on the Euros gains sending the cable for a brief look above 2.0000. Gfk Consumer Confidence was -34 in June sliding further from May’s -29 reading. June Manufacturing PMI dropped to 45.8 the lowest reading in 6 years and the services PMI hit 47.1. The GBP/USD fell 0.64% closing at 1.9820 after opening at 1.9947. The AUD was the star performer of the week able to hold onto gains against the USD and all other majors. The main catalysts were a sharp rally in gold and solid economic data. The RBA did hold rates at 7.25% and although the accompanying statement was more neutral than the market expected the AUD pullback was limited. On Thursday, May’s Trade Balance came in near expectations at -965 Million but April’s was revised up to a 12 million surplus from -950 million originally released. Post float highs of 0.9667 were equaled on Monday. The AUD/USD closed up 0.25% at 0.9632 after opening at 0.9608.

The forex trading week preview

In the States Tuesday sees May Pending Home Sales star in a light data week expected at -2.5% falling from Aprils 6.3% increase. US Fed Chief Bernanke speaks on financial regulation along with Treasury’s Paulson on mortgage lending both on Tuesday. Weekly jobless claims released on Thursday are expected to dip below last weeks 404K to 394K. Also on Thursday Bernanke and Paulson testify before House Committee. Finally on Friday the University of Michigan Consumer Confidence for July is expected at 55.5 slightly lower than 56.4 in June. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone with no tier 1 data focus will be on ECB President Trichet’s two speeches on Wednesday and Thursday. Final 1^st quarter GDP is expected to be confirmed at 0.8%. Monday sees the May German Industrial Production firming at 0.2% up from -0.8% in April. In the UK Monday sees the Industrial and Manufacturing Production for May both at -0.1%. On Tuesday we see the DCLG UK House Price Index forecast at 3.5% down from 4.9% in April. The June Nationwide Consumer Confidence is set to continue to decline seen at 65 vs. 69 in May. Thursday the Bank of England announces its Interest Rate widely expected to hold at 5.00%. We will provide our previews and reviews of these data releases in the daily summary.

In Japan Although data releases are limited this week Japan is hosting the G8 3 day summit from Monday to Wednesday. On Tuesday we have May Core Machinery Orders expected to rise 1.1% after last months 5.5% jump. Also of note Friday see the Final Industrial Production for May at 2.9% We will provide our previews and reviews of these data releases in the daily summary.

In Australia Australian Jobs data will be in focus with Thursday seeing the June Employment change at +10K rebounding from May’s surprise -19.7K loss. Also released on Thursday is the Unemployment Rate expected to remain at 4.3%. We will provide our previews and reviews of these data releases in the daily summary.

Key Pivot levels

·Euro – 1.5695

Initial support at 1.5628 (Jun 26 low) followed by 1.5535 (61.8% retracement 1.5303 to 1.5910). Initial resistance is now located 1.5910 (July 3 high) at followed by 1.6019 (April 22 high).

·Yen – 106.80

Initial support is located at 105.78 (July 3 low) followed by 104.99 (Jun 3 low). Initial resistance is now at 107.22 (Jun 27 high) followed by 108.19 (Jun 26 high).

·Pound – 1.9820

Initial support at 1.9780 (38.2% retracement of 1.9410 to 2.008) followed by 1.9709 (50% retracement of 1.9410 to 2.008). Initial resistance is now at 1.9938 (July 3 high) followed by 2.0008 (July 1 high)

·Australian Dollar – 0.9630

Initial support at 0.9582 (July 3 low) followed by 0.9535 (Jul 2 low). Initial resistance is now at 0.9670 (Jun 30 high) followed by 0.9700 (Round number resistance).

·Gold – 932

Initial support at 922.3 (July 1 low) followed by 910.6 (Jun 27 low). Initial resistance is now at 946.5 (July 3 high) followed by 953.0 (April 17 high).