FX Market Weekly Outlook 14/03/2005
FX Trading Australia – Weekly FOREX Market Summary
Dollar ended last week on a very weak note with Japanese PM Koizumi’s comments suggesting diversification from its Dollar holdings which acted as a catalyst for another round of Dollar selling. It remained under pressure on estimation of increase in deficit which was confirmed on Friday ensuring that the Dollar remains on the back foot.
First, remarks from South Korea and then Japan have bought to the fore the topic of Asian Central Banks, who have the highest Dollar reserves in the world, intention to reduce their holdings. Although these comments were quickly clarified the damage had been done, Japanese MoF officials were definitely not impressed and Watanabe hinted intervention if Yen continued to strengthen. Other Central Banks in the form of
Since there is no smoke without fire, in spite of the clarifications, it is pretty apparent that the action of reduction in Dollar holdings is in motion but obviously has been kept under wraps to avoid the market going into a panic Dollar selling mode. Historically, Asian economies dependant on selling their goods to the lucrative American market have remained heavy buyers of the Dollar to make their goods cheaper. But as other economies around the world are gaining ground and American led globalization has helped other markets open up, Asian nations are probably looking to have their holdings in a more diversified basket to make their exports competitive in other lucrative markets of the world, which were always there but the attention was too focused on the USA to notice them before.
The Euro obviously is the natural choice by default but the high yielding Commodity bloc has been the market’s favorite in recent times. And they haven’t been disappointed as rates have increased against expectations in both Australia & New Zealand. With commodity prices expected to increase and consumer confidence and spending on high levels, at least for now sentiment is very positive.
A stumbling block to other currencies continuing on their steady rise against the Greenback is the likelihood of strong official rhetoric expressing displeasure on their currency’s rise against the Dollar. The New Zealand Dollar having gone towards its 23 yr high saw Finance Minister Cullen expressing grave concern. Similar comments are likely from
Economic Releases
Euro-Zone – Key data starts from Monday with German PPI which should decline on drop in common item prices. Tuesday has French CPI estimated to rise up on high oil & energy prices. Italian Industrial Production should increase as well as German ZEW Economic Sentiment. Wednesday has CPI for the zone with expectations of a slight increase. Thursday has French Current Account with deficit expected to decline while Industrial Production should increase on higher export demand.
FOREX Technical Scenario
EUR/USD – It finished last week strongly closing above 1.3450 with resistance in the 1.3485-1.3510 zone a break above leads us to 1.3555-70. Profit taking is likely on any approach to this level. A decisive break above brings all time highs into focus with strong resistance around 1.3650. On the downside easing towards 1.3350-75 is likely with the next support level at 1.3275. A strong break below brings 1.31 into focus where strong buying interest should come up.
USD/JPY – Dollar bids have remained strong in the 103.50-75 zone with the Yen unable to break below it. Its weakness on the crosses has also prevented any major gains against the Dollar. A decisive break below this zone brings 102.75-90 into focus with good support in the region; a break below that zone would see warnings from BoJ. On the upside, for now any Dollar move above 104.75 should attract selling interest with stronger resistance above 105.50.
GBP/USD – The Pound has found strong resistance in the 1.9320-40 zone but has found a good base above 1.9150. Dips towards that region is leading to good buying interest with a break below bringing 1.9050-75 into focus with very strong support in that zone. On the upside clearance of the stiff resistance around 1.9350 leads us to 1.9425 followed by 1.95 where selling interest could intensify.
AUD/USD – The Aussie has failed to break above 0.80 with its strong pullback from the 0.7990 has soured sentiment a bit. With speculators record long on the Aussie in anticipation of a break above 0.80, in ability to do so soon could lead to liquidation. For now any dip down towards 0.7850 should bring up strong buying interest and support. 0.7950 has mild resistance while option barriers are laced till 0.80. A break above brings 0.8055 resistance into focus. Strong support exists in the 0.7775-0.78.
Kunal ‘Kris’ Sharma
Forex Analyst
Australian Financial Services License 246566
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