Weekly Outlook – 20.06.2005
If Earth had a single currency paired against other planets in a galaxy exchange, then it would have crashed last week as most currencies across the globe had more bearish factors around it while the outlook doesn’t look that promising either. Deficit concerns for the Dollar, Disagreement among its members for the Euro and record high oil prices for the Yen.
The main problem of course is Oil prices going to its highest level ever, the sharp spike were also due also due to the disappointment emanating from the OPEC meeting. They have done their bit to bring prices down and are operating at full capacity but their hands are tied in regards to other driving forces for the prices. There is no point in the market being flooded by excess Crude oil when it can’t be refined. This is due to inexplicable reasons like the United States, the world’s largest energy consumer, having not built a new refinery since 1976, and even the current refineries are running at full capacity or need urgent repairs. The complex rules and regulations across U.S. states are such that a new refinery can’t be built without crossing major hurdles and this would of course make sense if the entity in charge of making these rules and regulations would also own Oil companies and profit from the high prices.
Recent strong data from China especially in the manufacturing sector has also added a bullish feel for Commodities with Copper prices going to a 16 year high and Gold touching the crucial $440 mark. Many, who were wary of the ability of the Chinese economy to grow at the same pace as it has done the last few years and feared a substantial slowdown, were pleasantly surprised and went bullish on key commodities again after months of uncertainty. The commodity bloc currencies have duly benefited and in spite of a slow down in Consumer spending and decline in Business confidence in Australia and New Zealand, the high yield offered by them coupled with greater stability compared to the uncertainty surrounding European currencies have added to its recent bullish feel.
The Dollar also slipped due to its inability to crack below major barriers against the Euro and the Pound with 1.20 and 1.80 respectively in spite of technical factors and speculators behind it. This led to disappointment towards last week’s close and profit taking duly ensued. Fundamentally it was a bad week for the Dollar, with its Capital inflow amount lower than its Trade deficit while the Current Account Deficit jumping to a new record high. These deficits are here to stay as American consumers demand for imported products will not decline while their only hope lies in the Europeans and Japanese responding in kind for American products. But instead their demand is decreasing both for U.S. exports as well as assets as their own economies are going through soft patches. The Pound in spite of its high yield is plagued by uncertainty surrounding the maintenance of that yield, as current conditions point towards a need for a cut with further clues to be gathered form BoE’s meeting minutes released this week.
It is ironic that the Euro’s best rally in weeks against the Greenback eventuated on a day which had huge long term bearish implications for the Zone’s future. The EU summit can be confidently termed as a failure with the U. K. and France refusing to budge from their stands and the incumbent Presidency of the EU, Luxembourg’s Juncker saying that the EU was in profound crisis. It is to be seen what the stand the members take in days to come.
A fairly light data week could see some directionless trading with bearish factors for most majors creating a bit of uncertainty. Next week could see some strong U.S. data numbers and the Fed raising rates by 25 bps points but the Dollar has to weather high oil prices and deficit concerns before that.
Key Economic Releases
USA
| Day | GMT | Release | Previous | Forecast | Comment |
| Monday | 14:00 | May Leading Indicators | -0.2% | -0.3% | High oil prices and weak manufacturing sector should weigh against it. |
| Tuesday | 21:00 | ABC Consumer Confidence | -9 | -2 | Should improve but following Univ of Michigan survey |
| Thursday | 14:00 | May Existing Home Sales | 7.18M | 7.14M | Sales remain at healthy levels |
| Friday | 12:30 | May Durable Goods Orders | 1.9% | 1.0% | Orders are expected to stay around steady levels |
| Friday | 14:00 | May New Home Sales | 1316K | 1325K | Housing market is robust with sales expected to inch higher |
Euro-Zone
| Tuesday | 06:45 | May French Consumer Spending | 1.0% | -0.4% | Sharp decline in confidence should reflect in stiffened spending. |
| Tuesday | 09:00 | June German ZEW Econ. Sentiment Survey | 13.9 | 18.0 | Several sectors of the economy have outperformed last month thus survey should inch higher. |
| Tuesday | 09:00 | June ZEW Econ. Sentiment Survey | 14.8 | 15.0 | Should be helped by German rise but other regions surveys remain mixed |
| Wednesday | 09:00 | April Trade Balance | 4.2Mn | 4.4Mn | The zone’s trade balance is expected to stay around recent levels with surplus to be maintained |
| Thursday | 07:00 | June German CPI m/m | 0.2% | 0.2% | Inflation should remain tame. |
Japan
| Monday | 07:00 | May Convenience Store Sales | -0.9% | 0.0% | Sales have picked but overall picture remains patchy |
| Tuesday | 23:50 | May Trade Balance | 962.8 Bn | 499.1 Bn | Exports have slowed while import costs remain with surplus to decline. |
| Wednesday | 23:50 | April Tertiary Industry Index | -1.0% | 1.5% | Should rebound as healthy labour market has increased demand for goods |
| Friday | 05:30 | May Nationwide Department Sales | 0.0% | 0.0% | Expected to remain unchanged with demand patchy. |
U.K.
| Sunday | 23:30 | June Rightmove House prices | 4.9% | 4.5% | Prices should continue on its trend of steady decline |
| Monday | 08:30 | May Public Sector Net Borrowing | 1.3 Bn | 6.5 Bn | Borrowing expected to rebound on cyclical factors but overall trend remains on the downside. |
| Wednesday | 08:30 | Bank of England meeting minutes | _ | _ | All members are likely to have voted for on hold stance |
Technical Scenario
EUR/USD – The Euro got its own back towards the end of last week but technical factors are still against it, with resistance around 1.2315 and decent sized selling orders on any foray above 1.23. 1.2355 is the pivot resistance mark and stronger selling orders lie all the way up to 1.2425. A decisive break above that mark could shift the momentum in the Euro’s favour in the short term. On the downside 1.2175 has mild support followed by good support in the 1.2110-20 zone. A break below should bring into focus the very strong support zone of 1.2035-55 in to focus with decent buying interest around that region. A decisive break below the crucial 1.20 mark will lead to the acceleration of losses with next distant support seen around 1.1875.
USD/JPY – The pair did manage to break above the crucial 109 mark but the Dollar couldn’t extend its gains on other majors and weak U.S. also prevented further gains. The region of 108.75-109.75 holds mixed technical interest with mild support around 109.75 and strong resistance around 109.75. A break above the resistance mark could lead to the acceleration of losses for the Yen with next distant resistance around 111. Strong support les around 108.25 with 107.75 the pivot support mark. Oil price direction is eyed with the Yen likely to remain under pressure on its crosses.
GBP/USD – The pair took cue from the Euro but its gains were stiffened due to the Pound’s losses on its crosses and anticipation of BoE’s meeting minutes. For now mild resistance exists around 1.8315 followed by decent sized selling orders above 1.8350 with resistance in the 1.8355-70 zone. Any foray above 1.84 should lead to a strong selling interest but a decisive break above 1.8425 could lead to a shift in sentiment in the Pound’s favour. On the downside 1.8215 has mild support followed by decent support around 1.8155, a break below should bring into focus the strong support zone of 1.8055-70. The pair should maintain its broad range trading but a break below 1.80 could accelerate its losses.
AUD/USD – The pair is showing good resilience and had its second straight weekly gain against the Greenback and managed to close above the strong resistance mark of 0.7755. For now mild support exists around 0.78 followed by very strong resistance in the 0.7845-60 zone. Strong commodity prices are helping the Aussie as well as good real money demand. Support has now cropped up around 0.7715 with strong support and good buying interest around 0.7655 followed by a stronger one around 0.76.
Kunal Sharma
Forex Analyst
E-mail: kunal@easy-forex.com
Australian Financial Services License 246566
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