FX Trading Australia Market Weekly Outlook 07/03/2

Dollar starts the week under pressure as the strong Payrolls outcome in the end turned out to be not strong enough. With the market building on its Dollar positions days prior to the release and whispers of a result above 300 K circulating in the market, the eventual result led to disappointment with the Dollar going back towards its starting levels of the week. The increase in the unemployment rate and the sluggish wage growth probably negated the 262K Payrolls result.

The Payrolls outcome does however add to the hawkish stance of the Fed, who are likely to at least go towards 4% before revaluating their stance. Apart from this cyclical yield advantage providing a fair degree of support, the Dollar might have crashed further if the market wasn’t skeptical about the growth prospects of other regions. A report prepared by German Finance & Economy Ministry experts have revised down this year’s GDP growth. Recent data from the Euro-zone has flattered to deceive with unemployment rate high and consumer spending stagnant.

The Commodity bloc continues to being favored with Australian rates rising and expectations of another rate hike. This has re instilled hope of a hike in New Zealand as well, with the Kiwi Dollar going past its 22 year high against the Greenback and unlike its Aussie counterpart it does not have a huge Trade deficit to work against it. Its geographic isolation coupled with non involvement in any global conflicts is making it the Switzerland of the Southern hemisphere which is adding to its lure.

With the recent data coming out of Japan on the weak side, the Yen has been helped by Dollar weakness. However, the data results were more reflective of last year and this years growth prospects are much better. Oil prices remain a concern but post Northern hemisphere winter could see Oil prices stabilizing below $50 per barrel for the rest of the year. China has commented that it will not shift its Dollar holdings saying that their foreign exchange reserve portfolio is diversified enough, while any revaluation would be in a slow and gradual manner.

The Pound’s impressive rally, from around 1.8550 to 1.9250 in about a month, has been on expectations of another rate hike soon given the recent strong data from all sectors. But Housing market continues to give mixed signals but more is likely to cool off then show any significant increase in prices. Bank of England’s meeting mid week will attract a fair bit of attention more so to see if more than 1 member votes for a hike.

Economic Releases

USA – A fairly light data week, with key data kicking off from Monday in the form of Consumer Credit which is expected to increase. On Tuesday Fed members Poole and Bernanke are scheduled to speak while Wednesday has a speech from Fed’s Moskow. Thursday has Jobless claims expected to remain steady as well as the monthly budget statement. Also on tap is a speech on Globalization from Greenspan. Friday has the Trade Balance figures with deficit expected to stay below $60 Bn while Greenspan speaks again this time on Bank regulations.

Euro-Zone – Key data starts from Monday with the release of the Retail PMI with expectations of slight easing from across the zone. Wednesday has German Industrial Production which is expected to pullback while ECB President Trichet speaks on EU expansion. Thursday has German Trade Balance with surplus expected to increase. French Industrial Production is expected to decline as new orders remain subdued while Italian GDP is expected to decline as consumer spending remains suppressed. Friday has the Current Account as surplus is expected to increase.

Japan – Key data starts on Monday with Q4 Capital Spending which is expected to stay steady. Tuesday has Household Spending which is expected to rebound. Wednesday has Leading economic and Coincident index with expectations of a strong rebound. Thursday has machine orders with expectations of an increase. Friday has Consumer Confidence with a slight rise in the index expected.

U.K. – Key data starts from Tuesday with BRC Retail Sales monitor with expectations of a slight increase. Wednesday has Industrial Production which is expected to decline as exports orders remain subdued while the Trade Balance should show an increase in deficit. Thursday has Bank of England’s rate decision which should stay on hold at 4.75%.

FOREX Technical Scenario

EUR/USD – The Euro starts the week above 1.32 but it has failed to go back above 1.33 for two months now. 1.3285-1.3310 continues to hold stiff resistance. A clearance would lead us to 1.3390-1.3420 where resistance is stronger. On the downside, dips down towards 1.3150-75 are likely where good buying interest should come up, a break below brings 1.3050 support line into focus. The Euro is likely to stay above 1.30 but broad range trading is possible.

USD/JPY – The Yen has gone back into the 104 region as irrespective of Dollar’s weakness, any foray towards 105.75 is attracting strong buying interest for the Yen with resistance stronger around 106.25. On the downside mild support exists around 104.40 for this pair with a stronger one at 103.75. A break below that mark could accelerate Yen’s gains with next resistance around 102.90.

GBP/USD – The Pound starts the week above 1.92 as it looks to break past the resistance zone at 1.9270-90 with a break above leading us to 1.9355-75 which could attract some profit taking. On the downside first support zone is seen at 1.9140-60 with a break below bringing into focus 1.9050 where support is strong as the market has been looking to buy on dips down to that level. Only a broad Dollar rally threatens to send it below 1.90 with the pair likely to be locked in a broad range.

AUD/USD – The Aussie starts the week above 0.79 looking to go towards its look awaited target of 0.80. However, resistance in the 0.7950-0.80 region remains strong with many option barriers and strong offers. Broad Dollar weakness would eventually lead to the shifting of these offers but the Aussie needs strong data from its side and another rate hike. On the downside good support exists around 0.7825 with very strong buying interest on any dips down towards 0.7750-75.

Kunal ‘Kris’ Sharma
Forex Analyst

Australian Financial Services License 246566

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