Australian FOREX Weekly Outlook 30/07/2007

Risk Aversion prompts unwinding of carry trades with high yield dropping. Production data key this week ahead of ECB and BoE rate announcements.

30/07/07

last week’s currency trading review

The Dollar began the week pressured before correcting in latter sessions. Although Housing data in the form of Existing and New home sales did very little to support the dollar, the greenback was relieved of much of its pressure as uncertainty in the credit markets and an unwinding of carry trades saw plenty of relief from other majors. The USD also gained on the back of positive GDP data on Friday which ensured the dollar traded well away from multi year lows against a basket of currencies. The Euro was quiet through out the week in terms of data easing on the back of other majors and a sell off in JPY crosses. On a brighter note the EURUSD pair did trade at a record high of 1.3853 on Tuesday before traders moved away from high yielding trades. The EURUSD closed last week at 1.3641 having opened at 1.3821. The Japanese was key in movements across the board as risk aversion ensured a major sell off in Japanese Yen crosses. In data news the Japanese Yen was also supported by buoyant Trade Balance and a steady CPI figure. The USDJPY closed last week at 118.81 and a high of 120.21. The GBP traded above 2.06 levels for the first time in 26 years in the early part of the week before a 500 point drop against the Japanese Yen on Thursday ensured the sterling moved away from multi year highs. The GBPUSD closed last week at 2.0259 well down on the open of 2.0589. The AUD was worst affected on Friday dropping more than 200 points against the dollar as a 600 point sell off in the AUDJPY ensured the Aussie dollar was one of the first to suffer from the risk aversion. The AUDUSD closed last week at 0.8535 having opened at .8818.

The forex trading week preview

In the States Consumer Confidence on Tuesday will begin proceeding as Wednesday sees the release of Manufacturing ISM. Friday is undoubtedly the highlight of the week with the release of NFP, Unemployment Rate and Services ISM. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone CPI will be released on Tuesday. Manufacturing PMI and ECB rate announcement on Thursday. Services PMI out on Friday. In the UK sees consumer confidence released on Tuesday ahead Wednesday’s Manufacturing PMI and Thursday’s BoE rate announcement. We will provide our previews and reviews of these data releases in the daily summary.

In Japan Industrial Production will start the week on Monday. Before focus shifts to Wednesday’s Unemployment rate and Household spending. We will provide our previews and reviews of these data releases in the daily summary.

In Australia is expecting a quiet data week with only Retail Sales and Trade Balance expected to generate interest on Thursday We will provide our previews and reviews of these data releases in the daily summary.

The currency in focus

AUD/JPY With the credit issues in the US taking precedence last week, there was a bout of carry trade unwinding which entered the market. With the AUD and the NZD leaders on the way up when carry trades were in favour, they were the leaders on the way down when unwinding occurred. AUD/JPY was sold off particularly hard. As such, any further credit/sub-prime mortgage issues from the US could continue hurting the high yielding AUD when expressed against the Yen. Aussie retail sales and trade balance due out this week could provide some temporary relief whilst the Japanese unemployment rate and household spending data could provide support to the JPY. With the big drop in the AUD/JPY, support seemed to have surfaced at the psychological 100.00 level while initial resistance could be met at 102.00.

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