Australian FOREX Weekly Outlook 14/05/2007

USD shows slight indication of rebound as FOMC and ECB keep rates on hold. BoE increase rates to 5.5%. Heavy data week for inflationary measures.

14/05/07

last week’s currency trading review

The Dollar showed a little revival towards the end of the week despite a general bearish sentiment surrounding the U.S. economy. With the FOMC keeping interest rates unchanged at 5.25% on Wednesday, it was comments made by officials that provided some support to the USD as “inflationary pressures will fail to moderate”. This caused the futures market to price in only one rate cut by the year end. Despite a further widening of the trade balance the dollar gained further support on Thursday as U.S. Treasury Secretary Paulson made mention of a strong USD was in the best interest of the people, which led to investors trimming there bearish dollar bets. The Euro had a relatively quiet week as plenty of attention was being placed on Thursday ECB interest rate announcement. Without any surprise rates were kept on hold as comments made by President Trichet incorporated the usage of the word “Strong Vigilance” yet was shrugged off by markets immediately, as expectations of a June rate hike is expected. The Euro closed last week at 1.3527 having opened at 1.3603. The Japanese Yen was relatively quiet for much of the week as little data was released from Japan. However the JPY did find support on Wednesday as investor’s appetite for risky carry trades began to diminish. Overall the JPY opened the week at 120.28 before closing at 120.13. The GBP also saw its respective central bank scheduled for an interest rate announcement. As expected the BoE did in fact increase its call rate to 5.5% (increase of 0.25%) to stand at the highest level of the G7 nations. Despite the rate hike, the GBP did in fact suffer as investors sought to trim there long sterling positions. The GBP traded with closed last week at 1.9822 having opened higher at 1.9933. The AUD was extremely volatile last week as positive data gave further indication of an interest rate hike to counter act inflationary pressures and economic growth. Positive Retail Sales on Monday (Actual: 1.1% Forecast: 0.5%) and surprising drop in unemployment rate to 4.4% (lowest in 32 years) saw the AUD trade over 0.8300 levels once again. Overall the AUD closed last week at 0.8315 having opened at 0.8246.

The forex trading week preview

In the States Fed chairman Bernanke will talk on Tuesday with reference to the slowing housing sector expected, as data release in the form of Core CPI and TIC flows also scheduled on the same day. Further more on the data front the Philly Fed and the Michigan Sentiment will be released on Wednesday and Thursday respectively ahead of the G7 summit this weekend. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone the data week begins on Monday with Industrial Production ahead of GDP on Tuesday. Core CPI for the EZ will be released on Wednesday. In the UK with plenty of interest surrounding the UK, focus will remain on the currency post interest rate hike with CPI (Tuesday) and the BoE quarterly report made public on Wednesday to give a further indication of future monetary policies, ahead of Friday’s Retail sales figure. We will provide our previews and reviews of these data releases in the daily summary.

In Japan following a fortnight of little data, a busier week for Japan is expected with GDP and BoJ rate announcement on Thursday. We will provide our previews and reviews of these data releases in the daily summary.

In Australia with plenty of volatility in recent times certain sense of stability is expected in a quiet trading week. We will provide our previews and reviews of these data releases in the daily summary.