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| Daily Forecast |  | ||||||||||||||||||||||||||||||||
FX Market Outlook for Week of 29 August - 2 September 2005Dollar had a spectacular winning week which saw it not only claw its way out from negative territory but it has positioned itself to make further in roads. The main catalyst for this impressive recovery, after suffering consecutive weekly losses before that, came from the robust outcome in the Capital inflow data last Monday which set the tone for the Greenback to pare back its losses. The solid result was especially crucial as most majors were close to breaking key technical barriers against the Dollar which could have accelerated its losses and made it very hard to make a reversal. But in the end the higher yield offered by U.S. corporate bonds has attracted healthy interest from foreign investors chasing a high yield in the back drop of other central banks across the globe looking to reduce interest rates. Expect this renewed enthusiasm for U.S. assets to increase as the Fed is not even close to stopping the rate hike cycle.Summer thin trading markets have also played their part in the volatile moves seen throughout August but September is likely to be a different ball game with most majors looking to break out of its recent ranges. The shift of the markets attention to yield factor has also come about due to the commonality seen in the data outcomes from across the globe. Consumer spending has started to pick up with the employment sector looking steady and manufacturing rebounding but the record high oil prices threaten to disrupt this global recovery and the market remains mixed in its opinion of the ramifications of prices staying solidly above $60 pb. It has also realized that this is not just an American problem but a global conundrum which threatens to eat into the average beleaguered consumer’s spending habits. Thus with no clear winner emerging from this, the Dollar’s higher yield and prospect of more rate increases to come has instead garnered more attention. The second largest importer of oil, Japan has seen an impressive recovery in the last few weeks and the outlook seems very promising as well. One of the factors of its resilience this time around on the spike in oil prices has been due to the pick up in domestic demand. In the current environment, global demand for durable goods is likely to slowdown which translates to less Japanese exports, thus it is very important for domestic spending to stay around healthy levels. Support is also being garnered from the latest pre election opinion polls which have the incumbent Prime Minister Koizumi’s approval rating increase and the market is more confident of the pro reform leader to be reelected with an increased majority and push his liberalization plans with less opposition through the parliament. The strong performance on the Nikkei is emanating from the return in foreigners confidence in the Japanese economy but oil prices are eyed for any potential setbacks. In spite of its losses, the Pound held firm reasonably well on a few upside surprises in the data outcomes which started with Bank of England’s meeting minutes with the 5 to 4 vote in favour of a rate cut with Gov. King voting against it. It also suggested that there might not be any cuts in the foreseeable future with concerns on inflationary pressures. Their concern was justified when consumer inflation recorded its largest annual rate of growth in 8 years with core rate increasing as well. Thin market conditions should persists this week with the data calendar reasonably light and most majors are expected to trade in narrow ranges barring any geo-political shocks which seem to have increased in recent times. Economic ReleasesDay GMT Release Previous Forecast CommentUSATuesday 14:00 July Existing Home Sales 7.33Mn 7.25MnHome sales should remain around steady levels. Wednesday 12:30 July Durable Orders 1.4% -1.2% Orders expected to ease back on seasonal factors but overall trend remains positive. Wednesday 14:00 July New Home Sales 1374K 1325K New home sales should also remain robust. Friday 13:45 Univ. of Michigan Consumer Confidence 92.7 92.7 Confidence to remain low on high oil price concerns. EuropeMonday 08:00 June Current Account 0.9Bn 0.5BnSurplus should decline on high import costs of oil Tuesday 09:00 German ZEW Economic Sentiment survey 37.0 39.0 Improvement in domestic demand and exports should increase sentiment Wednesday 09:00 June Industrial Orders -1.5% 2.0% Orders to rebound on good export demand. Thursday 08:00 August German IFO Business Climate 95.0 95.2 In line with recent improvement biz climate should improve. Friday 06:45 July Consumer Spending 0.5% 0.3% Spending to decline as high oil costs are denting confidence JapanMonday 23:50 June Tertiary Industry Index m/m -1.5% 1.0%Recent improved conditions in key sectors of the economy. Wednesday 05:00 July Consumer Confidence 46.8 48,2 Confidence should inch higher on improved conditions. Wednesday 23:50 July Trade Balance 873.1Bn 750.0Bn Surplus to decline on high import costs of oil Thursday 23:30 July National CPI m/m -0.5% 0.2% Inflation to spike on high oil costs UKWednesday 10:00 CBI Industrial Orders -20 -25Orders to remain weak as domestic demand is failing to pick up. Thursday 06:00 August Nationwide House Prices m/m 0.2% 0.0% House prices to continue declining. Friday 08:30 Q2 GDP q/q 0.4% 0.5% Conditions still remain mixed but rate cut to spur growth Technical AnalysisEUR/USD – The pair has experienced a sharp turnaround in sentiment and the momentum has shifted back to the Dollar. The continuous inability to break past the very strong pivot resistance mark of 1.25 also led to a substantial bout of liquidation. Immediate support lies in the 1.2075-90 zone with a clear and decisive break below likely to accelerate losses before stronger support comes up around 1.2010. Decent bottom picking bid interest lies on any mild breaks below 1.20 but a decisive break below that mark would shift the pair back into deep negative territory and risks further acceleration of losses, In case of this distant support marks are seen around 1.1925 followed by 1.1850. On the upside, immediate resistance comes up around 1.2260-75 above lies a mixed interest region with no clear bias up to 1.2365 mark. On a break above brings strong resistance around 1.2425 followed by very strong resistance in the 1.2475-1.25 region which is laced with strong offers.USD/JPY – The pair is in semi neutral territory with mild bias towards the Dollar and it starts the week within the technically mixed interest region of 109.75-110.75 with no clear bias and patchy directionless trading likely within it. Immediate support comes up around 109.45 with a break below to bring into focus the 108.90-109.05 pivot strong support region with decent bid interest around that mark. A clear break below could accelerate its losses and shift the sentiment back in the Yen’s favour before finding distant support around 108. On the upside immediate resistance comes around 111.05 with decent offers around that mark, mixed interest is also seen within the 111 region followed by very strong resistance around 112 and strong selling orders lined above it all the way up to 113 and this would also push the momentum squarely in the Greenback’s favour. GBP/USD – The pair is prone to exaggeratory movements and has pared back some of its recent gains. Immediate resistance les around the 1.8045 mark with a break below to bring into focus the technically mixed interest region up to 1.8175 with mild bias towards the Dollar. A break above brings very strongresistance in the 1.8210-35 zone and selling orders are very strong above 1.82 with gains if any likely to be stiffened and slow. On the downside immediate resistance comes up around the 1.7875 mark with mixed technical interest down till 1.7755 where very strong support exists and the Pound has decent buying interest. Only a break below this mark would shift the sentiment solely in the dollar’s favour otherwise broad range bound trading should ensue. AUD/USD – The pair’s losses accelerated as it took cue from other majors with key support levels havingbroken below. Immediate support has seen in the 0.7475-90 zone with decent bid interest around it. A clear break below risks acceleration of losses towards 0.7420 which holds very strong support and decent bottom picking bid interest lies around 0.74 with any moves below it to shift sentiment completely in the Dollar’s favour and make it hard for the Aussie to reverse its losses. On the upside, resistance levels have moved down significantly with first line coming up around 0.7610 followed by stronger resistance in the 0.7675-90 zone. Any foray above 0.77 should lead to strong selling interest. Have a Great Week!
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