FX Trading Australia Market Weekly Outlook 18/04/2

An interesting week saw the Dollar end days on a strong note after a record high Trade deficit and weak retail sales data but fell on Friday in spite of the Net Capital inflow data coming in much higher than expected.

Since dollar’s recent rally has been on the back off having better growth prospects than other regions, with Fed maintaining a hawkish tone on inflation concerns, other data released on Friday spooked some sections of the market. Consumer Confidence index declined, NY State Manufacturing index recorded its biggest fall in 2 years while the stock market had the single largest day drop in 2 years as Tech companies led by IBM released poor earnings report. Another reason for the Dollar sell off were the G7 and IMF meets over the weekend.

With the meets out of the way and traders having the weekend to digest events from the last week, it is quite clear that the Dollar was oversold on Friday. The G7 & IMF meets had nothing new to offer and played on familiar lines of urging China to revalue the Yuan while IMF director Rato feared that markets could suffers an abrupt correction if imbalances in world economy persist.

The Euro remains vulnerable and is reluctant, as well as not even close to being ready to assume the mantle of being the world’s dominant currency from the Dollar. The already low growth forecasts for this year are in danger of being revised further down for the Euro-zone. High unemployment and poor consumer confidence leading to low spending is now followed by big corporations hurt by rising energy prices, thus the economy remains sluggish.

U.S. inflation data released this week should show a sharp rise reflecting the spike in oil & energy prices witnessed last week, this should reinforce Fed’s recent concern on surge in inflation. Low consumer spending leading to slow growth is a global phenomenon at the moment and it is a question of which economy is better adept at handling these slowdowns and the surprises associated with it. And in the current scenario of U.S. rates likely to be twice as much as the Euro-Zone and much higher than Japan’s zero interest stance as well as the World Bank and OECD forecasting higher growth rates for the U.S., it is hard to see the Dollar crashing in the near term as did towards the end of last year.

Commodity bloc remains hostage to further profit selling on key commodities while signs of slowdown in global demand would hit them hard in months to come. Early trading has seen the Aussie and Kiwi Dollar slip with key resource company stocks being subjected to a round of profit taking.

Economic Releases

USA – Key data starts from Monday with the NAHB Housing market index with the outcome expected to show that the sector remains on a firm footing. Also on tap are a couple of speeches by Fed’s Bies. Tuesday has PPI data with an increase seen on high energy prices and the increase in common item prices. Fed speak from Poole & Pianalto is also on the agenda. Wednesday has CPI data with rise in energy and food prices to inch inflation higher, some more Fed speak from Snow and Ferguson. Thursday has Jobless claims which should inch lower while Leading indicators should decline with high oil prices one of the main factors. Philly Manufacturing index is expected to rebound while Greenspan addresses the senate budget committee.

Euro-Zone – Key data starts from Monday with CPI which like the rest of the world should inch higher on spike in oil & energy costs. Tuesday has German ZEW surveys with economic sentiment as well as current conditions index expected to decline while the Zone’s Industrial Production is expected to fall on poor domestic demand and low export orders. Wednesday has the zone’s Trade balance with surplus expected to increase. Thursday ha French Consumer spending expected to remain around low levels while Italian Consumer Confidence should decline. Friday has Italian Retail Sales where a decline is expected as well as the Industrial new orders for the Zone.

Japan – Key data starts from Tuesday with Leading Economic & Coincident Index with the outcome expected to remain unrevised. Wednesday has Convenience store sales which should decline in line with the recent low spending. Thursday has Merchandise Trade Balance data with surplus expected to increase as exports offset the high import costs of oil. Friday has Tertiary Industry and All Industry activity index with forecast of decline in both.

U.K. – Key data starts from Monday with the RICS House Price Balance data with signs of stabilization expected. Tuesday has CPI with a slight rise to unchanged result seen. Wednesday has minutes from BoE’s meeting with clues eyed for its future rate hike stance while Lending data should show a slight increase. Thursday has Retail sales with pick in consumer spending expected. Friday has the initial Q1 GDP with a slight decline seen as spending has slowed while wag e growth has stagnated.

FOREX Technical Scenario

EUR/USD – The pair strengthened towards the end going back towards the strong resistance zone of 1.2940-55. But downside risks remain and is likely to pullback towards its first support line of 1.2855. A decisive break below would lead to the acceleration of losses down to 1.2750-75 which has provided a good base for this pair so far this year. A strong Dollar rally could see the Euro going down to news with 1.2670-85 a key region. On the upside any foray towards 1.3010 should involve selling with stiff resistance in the 1.3175-1.32 zone

USD/JPY – The pair remains locked between strong Dollar bids above 107 while equally strong offers around 109. First line of support for the pair comes at 107.45 which has held well in the past week, a decisive break below could see it testing strong Dollar bids in the 106.90-107.10 zone. On the upside mild resistance exists at 108.55 with a break above bringing into focus the strong resistance zone of 108.85-109.10 with a break above likely to accelerate losses for the Yen.

GBP/USD – The pair remains confined within its recent broad range with 1.8945-60 the very strong resistance zone to overcome. A break above could lead to a foray into the 1.90 region where selling could intensify. On the downside, a pullback towards the first line of support at 1.8855 is likely with a break below likely to accelerate losses towards 1.8750-75 region. While buyers are expected around that level with 1.8640-55 the very strong distinct support level.

AUD/USD – The pair has pulled back into the 0.76 region after a brief foray above 0.77 with the profit selling in commodities weighing in on it. Strong offers lie in the 0.7725-55 region with a break above likely to accelerate gains toward 0.78 where second line of resistance lies. On the downside 0.7610-25 hold decent buying interest for the Aussie with a decisive break below likely to accelerate losses towards 0.7555.

Kunal ‘Kris’ Sharma
Forex Analyst

Australian Financial Services License 246566

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