FX Trading Australia Market Weekly Outlook 25/04/2

FX Trading Australia – Weekly FOREX Market Summary

The Dollar has seen interesting prices action against Asian currencies as the Chinese revaluation story is beginning to mirror the ‘boy who cried wolf’ story. For the nth time we have seen pressure from all quarters and this time from Greenspan for the Chinese to move quickly on this issue and once again we have seen strong denials by Chinese officials for any such move in the near term.

However, China does acknowledge the need to revalue and would definitely do so in the future. They know it, the Americans know it and by know even the vendor down the street knows it. Greenspan’s said the sooner such a move can happen the better, but the question for the Chinese is, better for whom? Certainly not for China and while steps are heading in that direction, such an important event is not likely to be done in a hasty manner to satisfy a few quarters. Thus keep on expecting the unexpected on this issue.

The Dollar has a few bearish factors to deal with this week, the prospect of slower growth taking the sheen of recent speculation of much stronger growth compared to other regions. The Q1 GDP outcome is expected to confirm this, with low consumer spending weighing in on it. Oil prices have gone back above $55 pb as in spite of innumerable assurances of steady supply there is no measure of the ever increasing demand for this commodity especially from emerging nations. Oil prices are expected to test new highs and are looking to break above $60 pb.

IMM positioning results show speculators net long positions to be around its highest in a year and these have been built on the anticipation of aggressive rate hikes by the Fed and strong growth prospects. Thus the realization by the market that the Fed would only go for a measured hike stance which has already been priced in, could lead to another bout of broad based Dollar weakness.

Dollar’s resilience has also been in part due to the continuous stream of poor data from the Euro-Zone with Monday’s German IFO survey to further emphasize the sluggish state of the zone’s largest economy while the likelihood of the French rejecting the EU constitution in a referendum next month is causing jitters for Euro bulls. For Japan, the focus shifts back on to data releases after a formal apology from Prime Minister Koizumi should help subside Chinese protests.

The Commodity bloc is likely to see volatile price action with key data outcomes and mixed expectations for commodity prices, the catalyst for such moves. Apart the Yuan revaluation story helping the Aussie and the Kiwi Dollar, expectations of a higher than expected inflation outcome leading to a rate hike by the RBA has pushed the Aussie higher while some quarters are hoping for the RBNZ to raise rates in their meeting on Thursday. Among all of this, the risk of sudden bouts of broad based profit taking on commodity prices persists. The long term trend for prices is mixed and these currencies need good data from their side for a decisive push higher rather just rely on Dollar weakness.

Economic Releases

USA – Key data starts from Tuesday with Consumer Confidence which should decline given recent conditions of high oil prices and rise in rates curbing spending. New home sales are also expected to decline slightly. Wednesday has Durable Goods orders with expectations of an unchanged figure while some Fed speak are also on the agenda. Thursday has Q1 GDP which is expected to decline on the back of low spending and increase in deficits, also on tap is some more Fed speak. Friday has Personal Income and Spending which should stay around recent levels while Chicago PMI could surprise to the upside.

Euro-Zone – Key data starts from Monday with the German IFO Biz Climate. Current assessment and expectations index with a decline expected in all as high unemployment and spike in oil prices continue to pose problems. Wednesday has French PPI which should increase due to high oil prices while the French Biz Confidence Indicator is expected to decline as domestic demand fails to pick up. Thursday has German employment data with unemployment rate expected to stay unchanged at the current high level while Italian Biz Confidence should decline. Friday has German Retail Sales expected to show a sharp fall as post holiday sales remain suppressed. French unemployment rate should stay unchanged while Consumer confidence is expected to decline. Euro-zone’s Biz climate indicator as well as Industrial, Services, Consumer and Economic Confidence are all expected to decline.

Japan – Key data starts from Tuesday with Jobless rate expected to stay unchanged while Worker’s household spending should increase. CPI is expected to stay around recent levels. Bank of Japan starts its Monetary Policy meeting on Wednesday. Thursday has Industrial Production data which is expected to rebound while Retail Trade should also improve but remains weak in the broader context. Japanese markets are closed on Friday.

U.K. – Key data starts from Tuesday with the CBI Industrial Trends survey with expectations of a slight improvement but still on the weak side. Wednesday has Mortgage Approvals data which should show a slight increase. Friday has Money Supply and lending data which should stay steady around recent levels.

Australia & N.Z. – Markets are closed on Monday due to Anzac day holiday with key Australian data starting from Tuesday with PPI with expectations of a slight increase. Wednesday has CPI which should also inch slightly higher. Both PPI & CPI could come in higher than the expected outcome. For New Zealand, Thursday’s Trade Balance data is expected to show a surplus after last period’s deficit, while the Reserve Bank is expected to keep rates on hold at 6.75%.

FOREX Technical Scenario

EUR/USD – The pair has closed above 1.30 with mild resistance around 1.3075 followed by a stronger resistance zone around 1.3125-40. A break above could accelerate gains towards 1.32 which should see some profit taking. On the downside good support exists around 1.2955 with a break below likely to accelerate losses down to 1.2875 where strong buying interest should come up. The Euro seems to have found a good base above 1.2775-1.28 and as long as this remains intact, it should continue to inch higher.

USD/JPY – The pair has volatile price action last which continued over the weekend on the Yuan revaluation issue. It broke towards 105.20 before stabilizing around 106 on Chinese denials but the pair could still test the support zone around 105. Since speculators have been record net short on the Yen, a liquidation rally was natural. A break below 105 could accelerate gains towards 104.25-55 where strong support for the Dollar should come up. On the upside mild resistance exists around 106.75 followed by strong offers around 107.55.

GBP/USD – Its better growth prospects compared to other region helped it rally towards 1.92 before poor retail sales led to some profit taking. Good support exists in the 1.9050-65 region with a break below likely to accelerate losses towards 1.8975 where strong buying interest should come up. On the upside mild resistance exists around 1.9155 followed by very strong resistance in the 1.9210-25 zone. A break above would lead to the yearly high levels of 1.9275-1.93 which should witness profit taking. Broad range bound trading is possible for this pair.

AUD/USD – The pair accelerated towards 0.7825 after the strong resistance barrier at 0.7775 was broken. For now mild resistance exists in the 0.7825-40 zone followed by very strong resistance around 0.7880-0.79. A break above 0.79 could lead to profit taking but key local data is eyed. On the downside decent support exists around 0.7755 with very strong buying interest on any dips towards 0.7710-25.

Kunal ‘Kris’ Sharma
Forex Analyst

Australian Financial Services License 246566

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