FX Trading Australia Market Weekly Outlook – 07/02

All through January we have seen profit taking on Dollar shorts and current positioning results show this trend could continue. Key levels against the Euro and Swiss Franc were broken on Friday with danger of further losses against the Greenback. The Euro is looking very weak and has lost against the Pound as well as the Yen.

Dollar’s rally cannot be signaled as a broad based turnaround as gains have been against currencies with question marks on their growth prospects namely the Euro, Swiss Franc and the Canadian. The Aussie and the Kiwi Dollar have remained firm on prospects of hawkish rate hike stance by their respective Central banks while the Pound has stayed neutral with positives offsetting the negatives as relief of no potential rate cuts in the near term and recent positive data helping it remain supported in face off a slowing economy.

As long as attention seems away from the deficits the Dollar should continue to rally. However, Trade Balance figure is released mid week and another deficit figure close to $60 Bn likely to prompt a short down rally for the Dollar. Most majors are likely to locked in range bound movements be it a step lower from current levels in the Greenback’s favour. A downside to steady rate hikes is likely to felt in the housing sector with danger of eventual peaking and slowness towards the end of this year

A relatively light data week for the U.S. with key data kicking off on Monday with Consumer Credit which is expected to increase as America’s favourite plastic the Credit Card is used widely in the holiday season. Wednesday has Wholesale Sales & Inventories which is expected to stay around recent steady levels also Fed Gramlich speaks on Monetary Policy. On Thursday, deficit will be back in focus with Trade Balance figures a slight decrease is expected in the deficit; also on tap is Fed Yellen’s speech on the Economy. No key release on Friday but has a couple of Fed speakers.

For the Euro-Zone, Retail PMI is released on Monday with expectations of a slight improvement given the solid sales witnessed in the holiday season. Tuesday has Industrial Production from Germany with expectations of a rebound after a poor previous number. Thursday has German Trade Balance with surplus expected to remain unchanged while French Industrial Production should increase. Friday has French Trade Balance with a slight improvement in deficit seen while GDP is expected to rebound.

For the U.K., key data starts from Tuesday with the BRC Retail Sales monitor with a slight increase expected. On Wednesday Bank of England’s Monetary Policy Committee commences its two day meet. Industrial & Manufacturing Production is expected to increase slightly while Trade Balance should show the widening of deficit. On Thursday BoE announces its rate decision which is expected to remain on hold.

For Japan, key data kicks off from Tuesday with Money supply & Liquidity, it is expected to stay around recent levels while household spending is expected to decline. Thursday has Domestic CGPI which should stay unchanged while Machine orders could fall sharply. Japanese markets are closed on Friday.

For Australia, Reserve Bank releases its Monetary Policy statement with expectations rife of a more hawkish stance than seen in recent times. Business Sentiment survey is released on Tuesday with expectations of a slight improvement. Thursday has unemployment rate which is expected to remain unchanged while Housing Finance on Friday could inch a bit lower.

The Euro is under severe pressure as key lines of support have been broken 1.2810-25 is the next crucial support zone with a break exposing the 1.2745-65 support line. On the upside first resistance zone lies at 1.2980-1.30 with a break bringing the very strong resistance zone of 1.3110-25.

The Yen has started around the 104 region with 105 as the pivotal mark, decent Dollar bids and support exists around 103.50 with stronger ones in the 102.75-103 zone. The pair has strong resistance around 104.75 and a break could lead us to 105.35-50.

The Pound has been involved in broad range trade with 1.8640 support and 1.8940 resistance the two crucial pivotal marks to watch out for and range trade between the two remains the likely scenario. Key local events are eyed for further direction with a break below 1.8640 bringing in the second line of support at 1.8560.

The Aussie has remained supported on expectations of hawkish comments in RBA’s monetary policy statement, for now good support exists around 0.7650 followed by 0.7575-0.76. On the upside 0.78 continues to hold stiff resistance as it has failed to clear it on several attempts with many option barriers blocking it.