13/03/06
last week’s recap
The Dollar had a solid week as it made impressive gains against the major currencies. The Dollar pushed to a 1-week high against the Euro, a 4-week high against the Japanese yen and an 8-week high against the Sterling. The reason for the rally is due to increasing expectations of further rate rises, with the bond market pricing rates above the 5% level. The release of a record $68.5 billion US trade deficit mid-week had little impact on the dollar’s strength as interest rates continue to be the main focus by investors. The Euro was range bound against the dollar for the majority of the week, only weakening later in the week. However, hawkish remarks by an ECB President Trichet helped the Euro rally versus Sterling and the Japanese yen. The Japanese yen weakened during the week against the dollar. Following the ‘no change’ announcement and comments by the BoJ Governor Fukui saying that they are focused on keeping inflation between 0 and 2% and that rates would move higher by the end of 2006, saw the Japanese yen sold off across the board. Sterling had a large decline following the release of a negative survey of the retail sector by the British Retail Consortium. The Aussie dollar lost ground last week after a strong US non-farm payrolls report on Friday saw the Aussie dollar drop to its lowest level for the year.
The week ahead
There has not been much by the way of news recently to dent the fairly upbeat mood that still pervades the outlook for the global economy. In the US, the Eurozone and Japan, the upswing still appears to have momentum, with Central banks waiting to get involved in the action again. Interestingly, data this week in both the US (retail sales) and the Eurozone (German ZEW) has been more subdued, and this trend is expected to continue for the remainder of the week.
In the States the expectations components of both the Conference Board and the University of Michigan surveys have declined recently. Analysts expect this trend to continue in early March with another drop in the provisional estimate of consumer sentiment (Friday). The key guides to the outlook to the US industrial sector will come from the regional Fed surveys – out of New York (Wednesday) and Philadelphia (Thursday). Both are expected to have recorded modest declines. Industrial production is expected to have risen in February (Friday) in part due to the weather-related rebound in utility output. Analysts are also looking for a drop in housing starts (Thursday). In addition to all the activity data, this week also sees the release of February inflation data (Thursday). The regional overview of the inflation and growth assessment of the US economy will come from the Beige Book (Wednesday), acting as a reminder of the pending FOMC meeting on March 28th. We will provide our previews of these data releases in the daily summary.
In the Eurozone the calendar is the Eurozone is a lighter one, with the main guide to sentiment (German ZEW survey) released yesterday and coming in below expectations. In the UK the key release in the UK is expected to be the retail sales report for February (Thursday). Retail sales took a dive in January, with a reported drop of 1.2% on the month. The interest in the February report is to see whether this was an erratic dip or the start of more sustained period of weakness.Pressure on real incomes has been due to the rise in unemployment and the January drop in the claimant count came as a surprise – but is expected to be more than reversed in February (Wednesday). The rate of growth of average earnings (Wednesday) has also dropped in the passed three months. We will provide our previews and reviews of these data releases in the daily summary.
In Japan after the hype of activity last week, there is nothing due in the coming week that is expected to change market opinions.
Key Weekly Pivot levels
| Currency |
Sup 2 |
Sup 1 |
Spot |
Res 1 |
Res 2 |
| EUR/USD |
1.1859 |
1.1916 |
1.2020 |
1.2039 |
1.2094 |
| USD/JPY |
116.89 |
117.08 |
117.50 |
119.41 |
119.52 |
| GBP/USD |
1.7129 |
1.7230 |
1.7470 |
1.7484 |
1.7509 |
| AUD/USD |
0.7233 |
0.7302 |
0.7390 |
0.7378 |
0.7406 |
Initial support at 1.1916 (Mar 13 reaction low) followed by 1.1859 (Mar 10 low). Initial resistance is now located at 1.2039 (76.4% retracement of 1.2094 to 1.1859) followed by 1.2094 (Mar 6 high).
Initial support is located at 117.08 (March 9 low) followed by 116.89 (61.8% retracement of 115.45 to 119.21). Initial resistance is now at 119.41 (Feb 3, 2006 high) followed by 119.52 (76.4% retracement of the 121.41 to 113.41 decline).
Initial support at 1.7230 (Mar 10 low) followed by 1.7129 (Dec 28 low). Initial resistance is now at 1.7484 (Mar 14 high) followed by 1.7509 (Mar 7 high).
Initial support at 0.7302 (Mar 10 low) followed by 0.7233 (Dec 27, 2005 low). Initial resistance at 0.7378 (Mar 9 high) followed by 0.7406 (Mar 7 high).
