FX Trading Australia Market Weekly Outlook – 17/01

His comments were significant and reminded the market of the substantial yield advantage heading the Greenback’s way especially after the ECB kept the Euro-Zone’s rates on hold for the 19th consecutive month with no rate hike looking likely in the near term horizon, same is the case in the U.K., Japan & Australia.

Hence the Dollar could remain supported this week as well, more so against the European currencies. Towards the end of last year speculation of Chinese revaluation helped the Yen rally against the Greenback which in turn led other currencies gain as well. But comments from ECB’s President Trichet and Chief Economist Issing putting pressure on Asian currencies to shoulder the burden of a soft U.S. Dollar environment while at the same time stating that gains by the Euro have gone too far, have sent the Yen soaring while stiffening the Euro.

Thus all these factors are keeping sentiment mixed presently, with the soaring deficits there for all to see and no matter how optimistic the comments are from American officials, the market needs to see some concrete steps in motion. Until then the broader sentiment remains against the Greenback and this would be reignited if the crucial TICS data on Tuesday indicating capital inflow can’t cover the record high deficit.

U.S. markets are closed on Monday, key data kicks from Tuesday with the release of Empire state Manufacturing, and it is expected to decline slightly. Some Fed speak is also on the agenda. Wednesday has CPI, which should decline especially after the sharp fall in the PPI while Housing starts is expected to inch higher. Thursday has Leading Indicators, which should stay steady while Philly Fed survey is expected to decline slightly also on tap are speeches from Fed members. Friday has Univ. of Michigan Confidence survey, which is expected to inch slightly higher.

For the Euro-Zone key data starts from Tuesday with the zone’s Industrial Production data, it should improve slightly from last period but overall the result remains poor. Wednesday has German PPI, which should increase, as rise in common items should offset fall in energy prices. Also on the day is a speech from Chief economist Issing on Monetary Policy. Thursday has CPI data, which should increase while the Trade surplus is expected to shrink due to fall in exports. Friday has French Consumer Spending which should fall as confidence remains low.

For the U.K. key kicks off Tuesday with the release of RICS House Price Balance with prices expected to decline further while CPI is expected to inch slightly higher. Wednesday has Unemployment rate which should stay unchanged as should Average earnings. Friday has Retail Sales data and is expected to decline slightly.

For Japan, key data kicks off on Monday with the release of Consumer Confidence survey, which is expected to decline slightly. Tuesday has the Final Leading Economic & Coincident index both are expected to stay unrevised. Thursday has Bank of Japan’s Monthly Monetary Policy report. Friday has Tertiary Industry Index expected to decline but the All Industry Activity index should inch higher. Also tap are the Trade balance figures with surplus expected to increase.

The Euro is lying at crucial levels with a break of the support zone of 1.3020-50 could lead to losses towards 1.2925-40 where stronger support exists. Resistance is strong around 1.3275-1.33 with any rallies above 1.34 expected to bring strong selling interest. The pair could be range bound if it can stay above 1.30.

The Yen has gained broadly but the market will wary of intervention by Japanese authorities now that it has gone into the 101 region. Support for the pair exists at 101.50 followed by 100.90-100. For now any Dollar rallies towards 103.50 will bring in selling interest a decisive break could lead to a rally towards 104.25-50 where resistance is strong.

The Pound was vulnerable and lost a fair bit last week with the strong support zone of 1.8640-55 holding well, a break of, which could lead losses down towards 1.8555-75. Resistance should come up on any rally towards 1.8875-1.89 followed by 1.90. Data is expected to be mixed from both sides of the Atlantic and the pair could be confined to a broad range.

The Aussie has started the week just above the solid support zone of 0.7530-50. For now any forays towards 0.77 are leading to keen selling interest with stiffer resistance around 0.7850. Commodity prices are expected to inch higher which could support the Aussie but overall Dollar strength could send the pair down towards the second support zone of 0.7415-30.