Weekly Outlook – 13.06.2005
The market found the perfect excuse to dump the European currencies further and embrace the Greenback after the U.S. Trade Deficit came below forecasts and the previous month’s figure was revised lower. But the market was predetermined to buy the Dollar irrespective of the result as Greenspan was a bit hawkish in his speech the day before. Most were expecting him to be slightly dovish in his tone but he was very optimistic on the growth outlook of the economy and more importantly stated that interest rates could be continued to be raised on a measured pace.
The Dollar faces a heavy data stream mid-week and the focus will be on the Manufacturing sector, which after the recent slowdown is expected to rebound slightly. A much higher than expected result could give a surprise boost to the Greenback and prove that last few months slowdown was due to minor cyclical factors and overall the sector remains on firm footing. High Oil prices has increased input costs throughout the globe with raw material prices rising, thus the market is getting used to poor Manufacturing data from all nations.
However the market’s major focus should be on the Net Foreign Securities purchase data (TIC’s) on Wednesday, after last month’s sharp decline largely due to Asian Central Banks reducing their Dollar holdings, it would be interesting to see the result this month. The outcome is expected to inch higher but if it comes below the Deficit mark then some degree of profit taking could ensue on Dollar longs. Since speculation is rife of the Yuan being revalued by this year, the TIC’s data could also shed some light on actions of Asian Central Banks. If they continue to reduce their Dollar holdings in spite of the uncertainty around the Euro, pick up in U.S. growth as well as prospects of more rate rises, then it could be taken as a strong signal that Yuan revaluation is around the corner.
The data from other nations is not expected to be on the positive side thus the market is not likely to have any concrete reasons fundamentally as well as technically to aggressively buy other majors. This should ensure the continuous strengthening of the positive sentiment around the Greenback which should help it gain further. Of course we will be subjected to our customary profit taking sessions but overall the dollar tone remains positive for this week.
Technically we are close to a few pivot marks with 1.20 for the Euro, 1.80 for the Pound and 109 for the Yen. A decisive break of these levels, which could coincide at around the same time for all three, could accelerate the Dollar’s gains. Another positive for the Dollar is the easing of oil prices from $55 after comments from Saudi Oil Minister Ali al-Naimi that he backed a 500,000-barrel-per-day rise in OPEC’s output ceiling and that current prices above $50 a barrel were too high. OPEC ministers are meeting on Wednesday to discuss output policy for the second half of the year which should be bearish for oil prices.
Key Economic Releases
USA
| Day | GMT | Release | Previous | Forecast | Comment |
| Tuesday | 12:30 | May PPI m/m | 0.6% | -0.2% | Easing in oil prices and softer manufacturing sector should reduce inflation |
| Tuesday | 12:30 | May Retail Sales less Autos | 1.1% | 0.2% | Sales expected to ease back on cyclical factors |
| Wednesday | 12:30 | June Empire Manufacturing | -11.1 | 3.0 | Should rebound after last month’s sharp fall |
| Wednesday | 13:00 | April TIC’s data | $45.7Bn | $55.0Bn | Expected to inch higher and stay around the deficit levels. |
| Wednesday | 13:15 | May Industrial Production | -0.2% | 0.2% | Should rebound as easing in oil prices has increased confidence |
| Thursday | 16:00 | June Philly Fed Index | 7.3 | 10.0 | Like other regions index should rebound |
| Friday | 13:15 | Univ of Michigan Consumer Sentiment Index | 86.9 | 88.5 | Should continue to inch higher as economic growth continues |
Euro-Zone
| Tuesday | 06:45 | French CPI m/m | 0.2% | 0.2% | Inflation should remain tame. |
| Thursday | 09:00 | May CPI m/m | 0.4% | 0.3% | Easing in oil prices should reduce inflation |
| Friday | 06:00 | German PPI m/m | 0.7% | 0.0% | Raw materials as well as energy prices have declined. |
| Friday | 06:50 | April French Current Account | -1660M | -1750M | Imports continue to outstrip exports |
| Friday | 09:00 | April Industrial Production | -0.2% | 0.1% | Slight improvement seen but sector remains on weak footing |
Japan
| Sunday | 23:50 | Q1 GDP – Final | 1.3% | 1.4% | Likely to be revised up on pick up in consumer demand |
| Monday | 04:00 | April Industrial Production | 2.2% | 2.2% | Production to stay unrevised but the sector is seen picking up |
| Thursday | 05:00 | April Machine Orders | 1.9% | -2.0% | Orders have remain mixed with domestic demand increasing but exports patchy |
| Friday | 05:00 | April Leading Economic Index – Final | 25.0% | 31.8% | Index expected to be revised up but still in contraction territory |
U.K.
| Monday | 08:30 | May PPI m/m, | 0.3% | -0.5% | Easing in oil and energy prices should reduce inflation |
| Monday | 23:30 | May RICS House Price Balance | -40 | -38 | House prices should continue to decline |
| Tuesday | 08:30 | May CPI m/m | 0.4% | 0.3% | Producers haven’t passed their cuts on to consumer |
| Wednesday | 08:30 | April Average Earnings | 4.6% | 4.7% | Earnings seen increasing slightly but overall sector remains mixed. |
| Thursday | 08:30 | May Retail Sales m/m | 0.55 | 0.1% | Sales expected to inch higher but consumer spending remains patchy |
Technical Scenario
EUR/USD – Losses continued unabated for the pair and it has slipped below 1.21 with mild support around 1.2055 followed by very strong support around the crucial psychologically important mark of 1.20. The loss of the support zone of 1.1990-1.2110 could accelerate losses for the Euro with the next strong support in the 1.18 region. On the upside mild resistance exists around 1.2175 followed by strong resistance around the 1.2255 mark. Any break above 1.23 is likely to lead to strong selling interest for the Euro. If U.S. data mid week is positive then the Euro could go towards 1.1990-1.20 where bottom pickers could stabilize it for this week.
USD/JPY – In spite of the Dollar’s broad strength the strong resistance zone of 108.85-109.10 has held well for the Yen. The Dollar hasn’t broken above 109 for more than 6 months and it is a very crucial mark for this pair. A decisive break above 109.25 could accelerate losses for the Yen with the next strong resistance around 111. On the downside mild Dollar bids lie around 108 followed by strong buying interest around the pivot mark of 107.55, with any unexpected poor data from U.S. likely to cap the Yen’s gains in the 106.55-70 zone. The pair would continue in its recent range trade if 109.25 can’t be broken.
GBP/USD – The pair has maintained its broad range with the Dollar again failing to break below the strong support zone at 1.8055-70. But the weak data is expected from the U.K. on Monday and the pair could break below that support zone with decent buying interest around 1.80. The 1.7990-1.8010 zone has very strong buying interest but a break below could accelerate losses for the Pound. On the upside 1.8175 holds mild resistance followed by very strong resistance around 1.8255. Any foray above 1.83 should lead to strong selling interest fro the pair.
AUD/USD – The pair is showing good resilience and managed to close last week above 0.76 thanks to good real money demand and commodity prices inching higher. However its losses could accelerate if it can’t break above 0.77, with strong offers above that mark and very strong resistance around 0.7755 and has mild resistance around 0.7675 before that. On the downside mild bids lie around 0.7575 followed by the strong support zone of 0.7525-40. A break below 0.75 could accelerate losses for the Aussie.
Kunal Sharma
Forex Analyst
E-mail: kunal@easy-forex.com
Australian Financial Services License 246566
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