FX Trading Australia Market Weekly Outlook – 24/01

The prospect of regular rate hikes and better growth prospects are supporting the Greenback however the mixed results in the stock market and the uptick in oil prices has become a cause for worry as was witnessed by the drop in consumer confidence last Friday.

The huge Trade deficit might have slipped out of the speculators mind but the risk of Central Banks shifting their reserves to other currencies from their current Dollar holdings remains. In absence of some concrete actions or a solution to solve the problem the Dollar’s downtrend could start again but the timing of that is unclear at this stage.

The commodity bloc has held firm and Dollar’s gains have been more against the European ones, but in spite of rise in inflation and a mixed housing market, rates have most likely peaked out in Australia and New Zealand. Support could wane for these currencies once the market gets confirmation of this, with only a pick up in consumer consumption differing the on hold scenario.

Comments from officials will continue to act as a key-driving factor with recent statements from Euro-Zone officials of being satisfied with the Euro at these levels and majority of U.S. Fed members speaking of a measured hike stance rather than a more aggressive one could renew support for Euro and other currencies against the Greenback. While the G7 summit would bring the Asian currencies revaluation story back to the spotlight.

Key data for the U.S. kicks of from Tuesday with the release of the Consumer Confidence survey, a slight decline is expected while existing home sales are expected to inch lower. Thursday has Durable goods orders which is expected to be lower but decline could be much larger as the poor Empire State and Philly Fed data has been due to fall in orders. Friday has GDP expected to inch lower while Personal Consumption should also decline.

For the Euro-Zone, Monday has Industrial new orders, which are expected to decline while another key event is Chief economist Issing’ speech. Tuesday has Italian Consumer Confidence index with a slight increase expected. Wednesday has the zone’s Current Account Balance with surplus expected to increase while the German IFO Industrial survey should stay around recent levels. Thursday has Italian Biz confidence expected to inch higher while GFK German Consumer Confidence report should also show a rise. Friday has French unemployment rate, which should stay unchanged, as should the Biz confidence indicator while PPI could increase slightly.

For the U.K., Bank of England’s Barker speaks about the housing market on Monday. Wednesday has the GDP release with expectations of an unchanged figure. Also on tap is the release of the minutes of MPC’s meeting. Thursday has the CBI Industrial Trends survey with a slight decline expected. Friday has mortgage lending figures, which are expected to decline.

For Japan, the minutes of BoJ’s monetary policy meeting release on Monday. Tuesday has Small Biz Confidence, which should stay around recent levels. Wednesday has Merchandise Trade Balance with an increase in surplus expected. Thursday has Retail trade with a decline estimated. Friday has Workers Household spending which is expected to increase. CPI is forecasted to decline while the Jobless rate should stay unchanged. Industrial Production is expected to decline.

The Euro in spite of its losses has managed to start the week above 1.30 with good support above 1.29 holding well last week. A break below that level brings us to second strong support zone around 1.2825-40. On the upside resistance is seen around 1.3150-75 and 1.33 above it. If the pair stays above 1.2950 then range trading is the likely scenario.

The Yen lost ground against the Greenback late last week as the pair went towards but managed to start the week in the 102 region. Very stiff resistance exits on any rallies above the 104 mark. On the downside decent Dollar bids are seen around 102.50 and 102 further down. Any foray towards 101.50 would bring intervention fears back in focus and price action could be choppy.

The Pound held firm due to good real money demand and managed to start the week just below 1.88. Very strong support zone exists around 1.8640-55 as was seen all of last week, a break of which could lead to losses towards 1.8550. Resistance is seen around 1.8835-50 a break of which could accelerate moves towards 1.8950. But the likely scenario for the pair is the continuation of the broad recent range trading.

The Aussie made late rally last week and broke its range going above 0.77 but resistance is very stiff around 0.7730-50 and pullback is the likely scenario. Good support should come up around 0.76 and 0.7550 further down. Unless there is a major breakthrough on other majors the pair should continue its range trading.