Australian FOREX Weekly Outlook 09/07/2007

Japanese Yen crosses the flavor of the month as EURJPY and GBPJPY reach all time highs. BoJ interest rate announcement ahead.

09/07/07

last week’s currency trading review

The Dollar began the week with ongoing concerns surrounding the housing sector on recent sub prime defaults. This was further highlighted by Pending Home Sales data released on Tuesday reached its lowest level since September 2001. The USD continued to trade near multi year highs against a basket of currencies as further concerns surround the outlook of the Federal Reserve’s monetary policy bias. In other wise a quiet week for the U.S. markets (July 4^th holidays), Friday proved to be the most eventful session, despite Unemployment Rate coming in flat. Many investors were focused on Non Farm Payrolls, which surprised coming in better than expectations aided by an upward revision of the previous. The jobs data gave initial support to the dollar before failing to sustain its gains. The Euro was subject to a quiet week with plenty of focus surrounding the ECB interest rate announcement on Thursday. As widely expected, rates were kept on hold with comments from ECB President Trichet indicating a leniency towards a tightening bias. Further more the EURJPY cross reached an all time high of 168.10 on Friday as markets priced a two out of three chance that the central Bank will hike at least once by October. The EURUSD closed last week at 1.3621. The Japanese continued to fund carry trades as a number of high yielder’s traded near multi year highs against the Yen. In data specific news, the Quarter two Tankan report was released on expectations on Monday. The Japanese Yen closed last week at 123.38. The GBP rallied in the early part of the week ahead of expectations that the BoE would hike in their July meeting. The MPC did not disappoint on Thursday increasing rates by 25 basis points, to lift the cash target to 5.75%. Markets are now beginning to price in a 6% rate by the year end. The GBP closed last week at 2.0105. The AUD the currency pair hold firm despite a poor Retail Sales figure on Tuesday. Further more, with no Surprise the RBA chose to keep rates on hold on Wednesday. The AUD closed last week at 0.8575.

The forex trading week preview

In the States will see a slow start to the week for the US, before things heat up with Thursday release of the Trade Balance. Retail Sales will also be an eagerly watched data release on Friday. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone also has a quiet start to the week. Thursday, Industrial Production will be released. In the UK sees Industrial Production out Monday. We will provide our previews and reviews of these data releases in the daily summary.

In Japan is by far the busiest economy this week, as recent multi year lows against a basket of currencies will ensure that plenty of attention will surround the low yielding currency. In data news, Machinery Orders is out on Monday, ahead of Thursday’s monthly BoJ meeting and accompanying report. We will provide our previews and reviews of these data releases in the daily summary.

In Australia all eyes will be on Thursday’s Unemployment data release. We will provide our previews and reviews of these data releases in the daily summary.

The currency in focus

GBP/JPY hit new record highs of 248.11 last Friday and soon again Asian session Monday, as the market continues selling JPY and buying GBP on the expectation of a further widening in the interest rate differential between the two currencies. GBP has been well supported recently considering the rate hike given by the Bank of England last week, and the market expecting a further rate hike this year which would take interest rates in the UK to 6.0%. With no definite word yet on monetary policy moves from Japan and the market expecting the Bank of Japan to keep rates steady at 0.50% this week, GBP/JPY could yet make further new highs going forward. Key support in this pair is situated at 247.50 with strong support seen at 247.00. Resistance could be found at the psychological levels of 249.00 heading towards 250.00.

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