FX Trading Australia Market Weekly Outlook 12/04/2

FX Trading Australia – Weekly FOREX Market Summary

It’s that time of the month that Dollar bulls dread, a time when the structural imbalances in the U.S. economy are highlighted by the magnamity of its huge Trade deficits. Some quarters expect deficits to hit a new record high while Treasury Capital net inflow is expected to ease back towards somewhere around $60 Bn. Oil prices remain directionless with an upside bias and the market has adopted a neutral position coming into these crucial data releases.

Also weighing in on the Greenback is the upcoming G7 meeting on Friday with officials from around the globe likely to repeat their concern on U.S. deficits which would hamper short term sentiment for the Greenback.

The release of the minutes of the FOMC’s meeting could be silver lining for the Greenback as the tone of the meeting is expected to be on very hawkish lines. While Greenspan did not divulge much into this topic in his speeches, other Fed members have been more vocal and hawkish in their tone.

Fears of Central Banks trying to sell the Dollar were also set aside after Bank of Korea’s Gov said they would diversify away from the Dollar as that would push the Won higher while Japan reiterated that since its reserves were so large they would move very cautiously in its management of those reserves.

The Yen remains on the back foot as in spite of reassuring comments from the government the economy is not showing concrete signs of a solid recovery. However, bad U.S. data would help it by default while IMM positioning results show that speculators have the biggest net short positions since January 2001. This could lead to some volatile movements with break of key levels likely to accelerate movements.

The European Union’s Finance Ministers meeting starting from Monday would also be eyed for any comments regarding the Euro or any discussions on the recent changes in the Growth and Stability Pact. Data from the zone is expected to remain on the weak side but the market would be paying little attention to it as they eagerly await the outcome of Tuesday’s events as well as the TIC’s data on Friday.

Economic Releases

USA – Key data starts from Tuesday with the Trade Balance figures with deficit expected to inch higher and could go to a new record. Also on tap are the minutes from the FOMC meeting which are likely to show concern expressed by members on inflationary pressures while Fed’s Santomero speaks on the economy. Wednesday has Retail Sales which is expected to inch higher as consumer confidence remains steady leading to healthy consumption. Thursday has Business Inventories which should decline on increased consumption while Fed’s Bernanke speaks on the Current Account gap. Friday has the Net Capital Inflow data with flows expected to decline but should be higher than the deficit. Industrial Production is expected to remain unchanged while Univ. of Michigan Consumer Confidence data should decline largely due to high oil prices.

Euro-Zone – Key data starts from Monday with the French Industrial and Manufacturing Production which should decline on poor domestic demand and low export orders. Also on tap are a couple of speeches from ECB officials. Tuesday has French Trade Balance with deficit expected to increase as exports have declined while high oil prices have increased import costs. Wednesday has French CPI which should stay unchanged as high oil prices offset drop in common item prices while Industrial Production is expected to inch higher. Thursday has Italian CPI expected to be unchanged while the zone’s 4Q GDP should stay unrevised.

Japan – Key data starts from Monday with the release of the Current Account surplus with deficit expected to reduce. Tuesday has Money Supply and Liquidity which should stay around recent levels. Wednesday has Import and Export Price index with higher oil prices likely to increase import costs. Friday has Industrial Production which should stay unchanged as orders remain poor. Consumer Confidence is expected to inch slightly higher but overall confidence remains mixed.

U.K. – Key data starts from Monday with the PPI Input and Output data with expectations of a rise as oil and energy prices have increased. The Trade Balance is expected to show a decline in deficit as exports have increased while ODPM House Price survey should show a slight decline. The BRC Retail Sales Monitor should increase but consumer spending remains patchy. Wednesday has Unemployment rate which should stay unchanged while the unemployment numbers are expected to inch higher. On Thursday BCC releases its latest quarterly survey.

FOREX Technical Scenario

EUR/USD – 1.2810-25 provided a solid base for the pair and it has broken back above 1.29 with 1.2955 as the first line of resistance. A decisive break above leads us to the resistance zone of 1.3010-25. Key U.S. data outcomes will drive the pair with a bad result having the potential to send the pair towards 1.3175-1.32. On the downside decent support exists around 1.2855 with a break below bring the strong support zone into focus with very strong buying interest in the 1.2755-75 zone.

USD/JPY – The Yen remains in the 108 region locked between strong Dollar bids around 107.75 and stronger offers in the 108.85-109.10 zone. A break above 109 could lead to some profit taking with strong offers laced all the way up to 110. On the downside a decisive break below the 107.75 mark brings into focus the mild support mark of 107.50 with strong Dollar buying interest on dips down to 106.75-107.

GBP/USD – The Pound has been confined to a broad range and is close to the first resistance zone around 1.8855-70. A break above brings into focus the resistance mark at 1.8915 with 1.8940-55 the pivot region. U.S. and local data are eyed for further direction with good support around 1.8755-70 for the Pound with a break below likely to accelerate losses till 1.8675 where strong buying demand exists.

Kunal ‘Kris’ Sharma
Forex Analyst

Australian Financial Services License 246566

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