FX Trading Australia Market Weekly Outlook 04/04/2

FX Trading Australia – Weekly FOREX Market Summary

You could be excused for thinking that Friday’s Payrolls result was an April fool’s joke. The final outcome was 110 K where even the lowest of estimates were above 150 K with general consensus of above 200 K, the Dollar subsequently crashed. But in true Dollar style it managed to hit a home run of the last pitch and had the final say. Since the prospect of high U.S. interest rates continues to be the short term driving factor and the surge in ISM Prices Paid index confirms Fed’s concern on inflationary pressures. While the jobs report has its underlying strengths as unemployment rate declined while wage growth increased. So does a 100 K outcome change the Fed’s stance? The answer is a big No.

Dollar should be further boosted at the start of the new week as one of Fed Reserve’s key members William Poole expressed strong concern on risk of inflation in coming months and hinted at a more aggressive rate hike stance. Early Monday comments from Japanese officials stating that they have no plans to sell any Dollars add another reason to cheer for Dollar bulls.

However, it is in Japan and other nation’s best interest to not make a hue and cry about diversification. The last thing any entity needs is to see one of their biggest asset holdings lose its value and disclosing intentions to diversify would be akin to shooting oneself on the foot. Many Central Banks might hold off its aggressive selling of Dollars till the current rate hike cycle has peaked.

The spike in Oil prices which has led to a new record are major source of concern with a report last from a major investment bank forecasting prices to go up to $ 100 pb stating that oil prices might have entered a “super spike” period. OPEC is expected to come up with a response which is likely to be an increase in output. But the forecast in spike of prices is based on demand from emerging nations which continues to project mixed signals in the supply and demand equation.

The Trade Balance data is released next week thus the Dollar should breathe easy this week with couple of speeches from Greenspan the main focus. IMM positioning results suggest the pairing back of a significant number of Dollar shorts with many looking to add new long positions.

The Aussie faces a crucial test this week with RBA’s meeting, Trade Balance and employment data the highlight. If rates stay on hold and deficit increases then it faces the prospect of massive liquidation of longs. The Yen too is under broad pressure on the spike in oil prices and the continuous stream of poor data. Expectations are for the data to remain weak and is likely to go to new lows against many currencies this week.

Economic Releases

USA – Key data starts from Tuesday with Redbook and ABC consumer Confidence index which is expected to inch higher. Also on tap is a speech by Greenspan on Energy. Wednesday as EIA Crude oil stocks data with a mixed result expected. Thursday has Jobless claims which should decrease following last week’s surprise surge. Wholesale Sales and Inventories should remain around recent levels while Consumer Credit is expected to decline. Also on the agenda are Fed speak from Snow and Santomero. Friday has a speech from Greenspan at Consumer Affairs Conference.

Euro-Zone – Key data starts from Monday with PPI, a decline is expected as oil prices eased last month while common item prices remain low. Tuesday has PMI services with a decline expected from across the zone. Wednesday has Retail Trade which should decline as consumer spending remains low across the zone while German Factory Orders are expected to decline. Thursday has German Industrial Production with the decline in orders to lead to fall in production while European Central Bank is expected to keep rates on hold at 2%. Friday has German Trade Balance with the high costs of oil imports set to reduce the surplus while German CPI is should decline as Producers are reluctant to pass on costs to consumers.

Japan – Key data starts from Monday with Monetary base which is expected to increase. Tuesday has Household Spending data with spending expected to remain on the low side also Bank of Japan’s Monetary Policy meeting starts on that day. Wednesday has Leading Economic & Co-incident Index with a sharp fall expected in both. Thursday has BoJ’s Monetary Policy Monthly report as well as Machine Tools orders which is expected to decline. Friday has Trade Balance with a decline in surplus expected on high oil prices while Machine orders is expected to increase due to rise in exports.

U.K. – Key data starts from Monday with Money supply which is expected to stay steady. Tuesday has PMI services which are expected to remain unchanged. Bank of England’s Policy meeting begins on Wednesday. Thursday has Industrial Production with expectations of a rise as domestic demand has picked up while Interest rates should stay put at 4.75%. Friday has BRC shop Price index which should with a decline estimated.

Australia – Key data starts from Monday with Retail Sales which should increase as consumer spending remains solid. Tuesday has Trade Balance figures with a slight decline in deficit expected but the figure should remain around concerning levels. Reserve Bank of Australia starts its Policy setting meeting on that Tuesday with a decision of a 25 bps hike expected the following day. Thursday has Employment data with a 10 K increase expected while unemployment rate should stay unchanged at 5.1%.

FOREX Technical Scenario

EUR/USD – The pair remains on a weak footing with a decisive break below the 1.2840-55 support zone likely to accelerate losses down to 1.2775 with the pair likely to target its yearly low set during Dollar’s rally in February. Very strong support and buying interest exists on move down to 1.2750 with 1.2685-1.2910 the next strong support zone. On the upside mild resistance exists around 1.2955 with any break above 1.30 should bring selling interest with strong resistance around 1.3055.

USD/JPY – Sentiment has turned against the Yen on the main pair as well as on its crosses. A decisive break past the 108 mark could accelerate its losses with the next support mark around 108.75 and very strong resistance in the 109.30-50 zone. Yen buyers should come up on any move towards this mark. On the downside decent Dollar bid interest remains in the 106.85-107.10 zone with strong support above 106.

GBP/USD – The pair remains prone to volatile movements and as of now has decent support in the 1.8725-40 region with a break below bring the pivot mark of 1.8640 into focus. A decisive break below this mark could accelerate losses down to 1.8510 where Pound buyers should resurface. On the upside mild resistance exists around 1.8855 with a strong one in the 1.8945-60 zone. A break above brings into focus the key resistance mark of 1.9015 which holds many offers.

AUD/USD – The pair has held well around 0.77 and is awaiting key local data to drive it further. A decisive break below the strong support zone of 0.7655-70 could accelerate losses down to 0.76 where very strong buying interest exists. 0.7550-65 is support zone further down. On the upside 0.7775 continues to hold stiff resistance while a break above would bring into focus the resistance zone at 0.7830-55.

Kunal ‘Kris’ Sharma
Forex Analyst

Australian Financial Services License 246566

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