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29/08/05
FOREX – Australian Dollar Market Comment
Thin market conditions led to range bound trading for most of last week as is seen traditionally in August but it is more likely to be a lull before a storm as all majors are in neutral territory looking for a break out with this week’s heavy data calendar likely to provide enough fodder for some decisive movements.
At the moment Dollar’s problems start and end with Oil as prices have gone to a record high level of $70 pb in early Monday trading. The catalyst for this move came from Hurricane Katrina which is disrupting U.S. Oil production in the Gulf of Mexico and has led to the shutdown of the operations. The bad news is that more hurricanes are forecasted to hit the U.S. coast while geo-political problems are also adding to the support for the prices. But among all this, demand hasn’t died down and it remains steady which is giving confidence to push prices further up as no cutbacks are seen in this product but it would translate to less demand for non essential items.
Of course high oil prices are not just a U.S. problem but a global conundrum and it’s a case of which economy is able to sustain these high prices and maintain their growth outlook. Households are affected across the globe in one way or another and this would lead to a slowdown in global demand. The recent recovery seen in the export dependant economies of Euro-Zone and Japan is seriously threatened by American consumers cutting back on their spending for non essential items. While Trade balances across the globe would shrink further on the high import costs with the American deficit likely to hit a new record high which would spark another round of selling on concerns of the structural imbalances in the U.S. economy.
There is no doubt that the U.S. would be the first one to be affected by these record high prices for which the market is completely unprepared for, but other economies are likely to be harmed from this in the long term. An analogy of this situation could be given by the fact that just because a mountain due to its height gets hit by a hail storm first, doesn’t mean that it and not the houses below it would be the ones to be most affected.
The recovery seen in the Euro-Zone has been led by the increase in exports with demand from U.S. consumers making up a substantial portion of the exports. A fall in profit margins of the European corporates would obviously lead to cost cutting which translates to job layoffs and the record high post World War 2 unemployment levels would continue to remain around those levels in the Euro-zone. Consumer spending already affected by record high oil prices would be hit further and we are back to square one. Japan has been affected immediately with strong run on the Nikkei halted by fears of corporate profits dwindling away. Unlike the Euro-Zone the recent pick up in the Japanese economy has been led by domestic demand rather than exports. And Consumers, in the second largest importer of oil, would also cut on their spending for durable goods.
If oil prices manage to ease back and focus is shifted back to data releases then the yield factor coupled with a robust employment sector and healthy income and spending levels seen in the U.S. should help the dollar strengthen back again. The real problems for the Greenback could come next year when Greenspan retires, housing market starts to ease back and interest rates would have peaked. But for now key sectors of the economy are in a healthy state but oil prices have to ease back.
A heavy data calendar data week could help in breaking out of the ranges which would be rounded off with U.S. Payrolls report and across the globe effects of high oil prices would be reflected in the data.
FOREX RelatedKey Economic Releases
Forex USA
| Day | GMT | Release | Previous | Forecast | Comment |
| Tuesday | 14:00 | August Consumer Confidence | 103.2 | 101.5 | Confidence to decline on record high oil prices |
| Tuesday | 14:00 | July Factory Orders | 1.0% | -2.2% | Seasonal cyclical factors to lead to easing in orders |
| Wednesday | 12:30 | Q2 GDP | 3.4% | 3.4% | Growth to stay around steady levels with consumption expected to increase |
| Wednesday | 14:00 | September Chicago PMI | 63.5 | 61.0 | Expected to ease back on decline In orders but still around steady levels. |
| Thursday | 12:30 | July Personal Spending | 0.8% | 1.0% | Spending to inch higher as income remains steady. |
| Thursday | 12:30 | July PCE core m/m | 0.0% | 0.1% | Spike in energy prices to increase core rate. |
| Thursday | 14:00 | August ISM Manufacturing | 56.6 | 57.0 | Good domestic demand to help manufacturing inch higher but oil prices threatens to stall recovery. |
| Friday | 12:30 | August Non Farm Payrolls | 207K | 200k | Labour market to remain robust. |
Forex Euro-Zone
| Monday | 06:00 | German GFK Consumer Confidence | 2.9 | 2.7 | Confidence to decline on high oil prices. |
| Wednesday | 06 00 | July German Retail Sales | -0.3% | 0.4% | Sales to rebound on summer discountshopping. |
| Wednesday | 09:00 | Q2 GDP | 0.3% | 0.3% | Should be line with expectations but outlook remains mixed |
| Wednesday | 09:00 | August CPI m/m | 2.2% | 2.2% | Inflation to stay above ECB’s target. |
| Thursday | 08:00 | August PMI Manufacturing | 50.8 | 51.0 | Increased export orders should help in rise manufacturing. |
| Thursday | 11:45 | ECB Interest Rate Decision | 2.00% | 2.00% | Rates to stay on hold with inflationary concerns. |
| Friday | 09:00 | July PPI m/m | 0.5% | 0.5% | Inflation to remain high on soaring oil prices. |
Forex Japan
| Monday | 23:30 | July Workers Household Spending m/m | -1.4% | 0.9% | Spending to increase as labour market has improved. |
| Monday | 23:50 | July Retail Trade m/m | 0.1% | -0.5% | Sales to ease back with high oil costs curbing luxury spending. |
| Tuesday | 23:50 | July Industrial Production m/m | 1.6% | -0.5% | Global demand remains mixed leading to fall in export orders and production |
| Wednesday | 05:00 | July housing starts | 2.45 | -1.3% | Housing market is showing mixed signals |
| Wednesday | 05:00 | August Small Business Confidence | 48.8 | 49.0 | Biz confidence to inch higher on improved domestic demand. |
Forex U.K.
| Tuesday | 08:30 | July Net Consumer Credit | 1.3Bn | 1.5Bn | Credit to increase with rate cut leading to slight increase |
| Wednesday | 09:30 | August GFK Consumer Confidence survey | -1 | -1 | Confidence to remain low on declining house prices and oil inching higher |
| Thursday | 06:00 | August Nationwide House Price | 0.2% | 0.0% | House prices should continue on their downward trend. |
| Thursday | 08:30 | August PMI Manufacturing | 49.2 | 49.5 | Manufacturing to inch higher on increased export orders |
| Friday | 08:30 | August Construction PMI | 54.7 | 54.5 | Index to slip back as decline in house prices is reducing activity. |
Forex Australia
| Tuesday | 01:30 | July Trade Balance | -1371Mn | -1400Mn | Deficit should increase on high import costs. |
| Tuesday | 01:30 | July Retail Sales | 1.3% | 0.3% | Sales to decline as consumer spending remains mixed. |
| Wednesday | 01:30 | July Building Approvals | 0.9% | -1.0% | Housing market is slightly easing back |
| Thursday | 01:30 | Q2 House Prices | 0.2% | 0.0% | Prices to ease back as housing market may have peaked. |
FOREX (Foreign Exchange) TechnicalScenario
EUR/USD – The pair is in neutral territory and is well positioned for a break out with the heavy data week having the potential to push it either way. On the upside, immediate resistance comes about around 1.2415 a break would lead to decent selling orders which are lined all the way up to 1.25 with their strength intensifying as we move up. 1.25 is the crucial pivot mark with the pair below this region for the last 3 months and a clear decisive break above could to the acceleration of gains with next distant resistance around 1.2625. On the downside, mild support lies around 1.2240 with mixed technical interest and no clear bias seen below it down towards 1.2160-75 zone where decent bid interest is seen. Any move lower would shift the sentiment back in the dollar’s favour and make it hard for the Euro pare back its losses.
USD/JPY – The pair has been locked between the 109-111 region and continues to resonate between the two levels. Contradictory fundamentals are also leading to these stiffened movements with immediate resistance seen in the 110.90-111.10 zone with any move higher to lead to mixed interest up to the 112 region where very strong resistance lies around 112.45 and decent selling interest on any moves above it. Only a break into the 113 region would shift the momentum in the Dollar’s favour else the trend remains mixed in the short term. On the downside immediate support comes up around 109.40 with a break below to bring into focus very strong support around 108.50-65 zone. This level has held well for more than two months and a break below has the potential to accelerate losses for the pair with next distant support around 107.55.
GBP/USD – The pair is trading within a broad range and is prone to exaggeratory movements and for now is lying between a mixed interest region of 1.80 with decent selling orders above 1.81. Strong resistance lies around 1.8175-1.82 zone which has held well for the last two months and is littered with strong selling orders. Only a break above 1.82 raises hopes of a fresh uptrend otherwise the Pound is vulnerable for further losses. On the downside, immediate support has moved up to the 1.7940-55 support zone with decent bottom picking bid interest around 1.79 followed mild support around the 1.7875 mark. A break below could accelerate losses down to the 1.79 mark which holds strong resistance and decent bottom picking bid interest and only a break below this mark would shift the momentum back in the Dollar’s favour.
AUD/USD – The Australian Dollarhas traded within a very narrow range as key data is eyed from both sides for a breakout. Immediate support is seen around 0.75 with decent bottom picking bid interest around that mark. Mixed technical interest lies between 0.75-0.76 with mild resistance around 0.7610 followed by strong resistance in the 0.7645-60 zone. Above this region lies strong selling interest and only a break above 0.77 raises hopes of a uptrend otherwise the pair remains vulnerable for losses. A break below 0.75 brings into focus strong support zone of 0.7425-40 with has held well in recent times but a break below would shift the momentum back in the Dollar’s favour.
Kunal Sharma
Forex Analyst
Easy Forex Pty Ltd. (
E-mail: kunal@easy-forex.com
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