Monday October 25, 2004 - 12:57:38 GMT
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GFT Weekly Forex Market Commentary Monday, October 25, 2004
Weekly Commentary by Cornelius Luca, currencies anlayst, Global Forex Trading (source: https://www.gftforex.com/resources/weekly.asp?date=10252004)
The dollar collapsed last week amid concern that the relentless high gasoline and heating oil prices will burn a hole in consumers’ pockets, diminishing their confidence ahead of a precarious economy in 2005. Barring an unexpected political coup, the negative sentiment for the dollar should persist in the week before the Presidential elections.
Past Week's Data and Events
The dollar failed to recover early last week and this triggered a more sustained decline that started last Tuesday.
The economic data were mixed and not terribly impacting.
Housing starts fell 6 percent in September to an annual rate of 1.898 million from an upwardly revised 2.020 million pace in August. However, building permits rose 1.8 percent to a 2.005 million unit rate.
The index of leading US economic indicators fell 0.1 percent in September, a fourth consecutive month, suggesting slower growth early 2005. Three consecutive decreases in the index are generally supposed to predict recession. The index of coincident indicators rose 0.2 percent, while the index of lagging indicators was unchanged in September compared with a fall of 0.3 percent in August.
Meanwhile, there was additional evidence that inflation remains subdued, but there are some minor noises that the core inflation will rise. Consumer prices rose 0.2 percent in September from +0.1 percent in August, while the core rate rose 0.3 percent, the biggest rise since April, after rising 0.1 percent in the prior three months. On a year-on-year basis the CPI grew 2.5 percent in September, down from 2.7 percent in August.
The Federal Reserve Bank of Philadelphia's gauge of manufacturing in the region rose to 28.5 in October from 13.4 in September. The reading was well above forecasts of +18.
The weekly jobless claims for benefits declined by a seasonally adjusted 25,000 to 329,000 for the week ending October 16.
The gains of the euro/dollar were not undermined by the general bleak economic reports.
Eurozone industrial production fell 0.4 percent in August, while July’s gain was revised down to +0.2 percent from +0.4 percent.
Meanwhile, Germany’s six economic institutes left their forecasts unchanged.
French household spending declined 0.7 percent in the third quarter amid high unemployment and surging oil prices. In September, spending unexpectedly fell 0.6 percent.
Italy’s consumer confidence index, based on a survey of 2,000 households, today increased to a seasonally adjusted 105.6 in October, the highest in a year, from a revised 102.9 in September.
Italian retail sales fell 0.1 percent in August after a 0.4 percent fall in July.
The Eurozone CPI rose 0.2 percent, with the core-CPI up 0.3 percent in September, and by 2.1 percent from last year. Consumer prices in three German states rose in October amid record-breaking oil prices. Prices in the Brandenburg state rose 0.4 percent, while Saxony and Baden-Wuerttemberg also said prices rose in the month.
Dollar/yen collapsed last week amid mixed strong Japanese economic data.
Trade surplus expanded 12.7 percent to 1.24 trillion yen in September, as exports .5 percent to record levels. On a year-on-year basis, the surplus expanded 12.7 percent as exports rose 12.5 percent to a record in September and imports gained 12.4 percent.
In other news, the tertiary index rose 0.4 percent in August after a 0.8 percent decline in July.
The pound posted solid gains last week, but it wasn’t a one-way street.
The pound first sank on Monday amid further evidence that the bubble in the UK housing sector is deflating. An index of house prices fell to -30 percent in the three months through September, the lowest since June 1995, from -12 in the August, according to the Royal Institution of Chartered Surveyors (RICS).
It then recovered and rallied sharply starting last Tuesday.
The rally was underpinned by some positive data. The retail sales unexpectedly rose 1 percent in September from a revised 0.7 percent rise a month earlier,
This strength was then stymied on Friday by news that the UK economy grew only 0.4 percent in the third quarter, the slowest pace in 1 1/2 years, amid higher borrowing costs. That’s down from 0.9 percent in the previous quarter. Annual growth slowed to 3 percent from 3.6 percent.
The Canadian dollar rallied sharply to reach a new 11 ½-yer high against the US dollar. The rally was underpinned by a Bank of Canada monetary-policy report saying that rising commodity prices and economic growth are strengthening the currency, rather than speculative bets.
The Bank of Canada matched the market expectations and raised the target rate for overnight loans between commercial banks rate by 25 basis points to 2.5 percent. The central bank warned of further rate tightening in order to slow the growth of the economy and avoid inflation. The local consumer price index rose 1.9 percent in August from the previous year, while core inflation was 1.5 percent.
Canada's economy is close to full capacity, and will grow about 3 percent next year and in 2006, the Bank of Canada added.
Also underpinning the local dollar was the fact that retail sales increased 0.8 percent in August from July to a record C$29.1 billion.
Canada’s September leading index rose 0.3 percent and August wholesale sales rose 0.7 percent.
The Swiss franc rallied last week amid a weak dollar and mixed official signals.
Swiss National Bank President Jean-Pierre Roth said that oil price hikes had raised question marks about growth in 2005 and said that while the central bank’s policy stance is neutral, further tightening is possible.
Roth added that the SNB expects growth to come at 2.0% in both 2004 and 2005.
This Week's Data and Events
The US economic agenda will start on Monday with the release of the Existing Home Sales for September, and this will not be a market mover.
All eyes will be on Tuesday’s release of the Consumer confidence report for October, and this can be a market mover, especially if it comes in below September’s readings.
Wednesday will be a busy day for the followers of the US economic indicators.
Durable Goods Orders for September are on the list, and they are expected to show an even worse contraction than in August.
The New Homes Sales are likely to remain strong for the September reading, even though will probably show a smaller increase than in the previous month.
Traders will surely focus on the Beige Book for signs of whether the Fed will refrain from hiking rates at the November 10 meeting.
Friday will be another busy day.
The preliminary report on the third quarter GDP is expected to show a strong performance of the economy – just in time for the elections. The market is shooting for a reading of about 4.0 percent, up from 3.3 percent in the second quarter.
The Chicago PMI could be a market-moving indicator as well, particularly as it dips below a reading of 60.
Also of interest will be the final reading of the University of Michigan Consumer Sentiment Index for October.
The Eurozone economic agenda will begin on Monday with the release of the all important Ifo survey of German Business Climate in Industry and Trade for October. Expect a minor decline.
Monday will also see the release of Germany’s preliminary CPI report for October.
On Wednesday, Italy will release its Business Confidence for October, while France will announce its Business Confidence and Production Outlook for October on Thursday.
Friday will see the French Unemployment for September and Consumer Confidence for October. Don’t hope for any improvement in unemployment.
Japan’s Industrial Production for September is due on Thursday.
On Friday, all eyes will be on the Unemployment rate for September.
Also on Friday, there will be the reports for the September Housing Starts and the October CPI.
The CBI quarterly Industrial Trends Survey is due on Tuesday and the Consumer Confidence survey for October on Thursday.
The National House Prices for October will be released on Friday.
Canada will announce its Business Conditions for the fourth quarter and Industrial PPI for September on Thursday.
Finally, Friday will see the release of the monthly GDP for August.
Last week's range: 1.2452 – 1.2657 (Up)
Previous range: 1.2225 – 1.2504 (Up)
Euro/dollar surged last week to a new eight-month high of 1.2657 and this strength was in line with last week’s forecast. The pair is in a rising channel that is likely to persist this week as well.
Above 1.2657, resistance is now seen at the February peak of 1.2710. A break higher would call for a test of the further resistance at 1.2800. The pair should peak before testing the pivotal area between 1.2840 and 1.2895. Distant resistance is at 1.2926.
Immediate support is now seen between 1.2600 and 1.2570. A break below this area would signal a decline to 1.2500. Below 1.2450, the euro/dollar would likely test 1.2400 but this aggressive decline is very unlikely.
NEAR-TERM: Mixed to slightly higher
Last week's range: 107.18 – 109.58 (Down)
Previous range: 108.79 – 110.20 (Down)
Dollar/yen collapsed last week to a four-month low of 107.18 and this aggressive decline surpassed expectations. This weakness should persist.
Below 107.00, there is the key to 50-point pivot at 106.75, which targets 106.25 and 107.25. Distant support then comes at 105.94 from a Fibonacci retracement level. There is a further 50-point pivot at 105.60, which targets 105.10 and 106.10.
If the pair can mount any recovery after last week’s slaughter, then look for the Fibonacci retracement level at 107.80 to hold. Strong resistance now comes at 107.95 from a 50-point pivot at 107.95, which targets 107.45 and 108.45. Distant resistance looms at the 50-pip pivot at 109.15, which targets either 108.65 or 109.65.
NEAR-TERM: Mixed to slightly bearish
LONG-TERM: Slightly bearish
Last week's range: 1.7921 – 1.8316 (Up)
Previous range: 1.7838 – 1.8064 (Up)
Sterling/dollar surged to a new two-month high of 1.8316 and triggered another bullish reversal formation, double bottoms, which targets the 1.8600 area.
If successful in plowing higher, the pair will then test the Fibonacci retracement level at 1.8390. Tough resistance now comes at the pivotal peak at 1.8464. A break above this pivotal peak would signal a test of 1.8511. Distant resistance is seen at 1.8769.
Any decline will face good support at 1.8160 on a closing basis. If the corrective decline accelerates, which is unlikely, then look for a slide to 1.8070 and possibly 1.8035. Next support levels to consider are 1.8000 and then at a distant 1.7920.
NEAR-TERM: Mixed to slightly higher
Last week's range: 1.2136 – 1.2366 (Down)
Previous range: 1.2314 – 1.2659 (Down)
Dollar/Swiss fell massively last week and hit an eight-year low at 1.2136, which reached the target of a medium-term bear flag.
Below 1.2050, support comes only in the 1.1900 area. Distant support then comes at 1.1874.
If it recovers, dollar/Swiss franc will face the resistance at 1.2210 and a break above this level would signal a recovery to 1.2265. Further resistance then follows at 1.2380, but this level should not be seen. Only a close above 1.2445 would confirm an aggressive upmove into the end of October, but this is unlikely.
NEAR-TERM: Mixed to slightly lower
Last week's range: 1.2328 – 1.2617 (Down)
Previous range: 1.2500 – 1.2686 (Mixed)
Dollar/Canada managed to break even lower last week and reached a new 11 ½-year low of 1.2328.
If this downtrend still continues, then dollar/Canada will test the 1.2250 area. Below 1.2150, good support comes only at a distant 1.1950.
If the pair recovers, then the pair will test the 1.2410, and a break higher will test 1.2500. Further resistance looms at 1.2600.
NEAR-TERM: Mixed to slightly lower
Last week's range: 135.34 – 136.86 (Down)
Previous range: 134.56 – 136.38 (Up)
The euro/yen trimmed its losses in choppy trading.
The cross has resistance is at 136.65 but only a close above 137.00 signals an upmove. Pivotal resistance remains from the 4 ½-month high of 137.53 and then there is another barrier at 137.84. Distant resistance still hovers in the 139.00 area.
If the cross heads lower, look for a test at 135.34. A break below 135.10 would call for a test of the strong support at 134.50. Distant support remains at 134.00.
LONG-TERM: Slightly bullish
Last week's range: 0.6888 – 0.6963 (Mixed)
Previous range: 0.6850 – 0.6924 (Mixed)
Once again, euro/sterling closed the week unchanged, but not after reaching a near 10-month high of 0.6963 on Wednesday. The pair remains within a rising channel, but here’s the problem: but the weekly candlestick chart gives a sell signal, but the daily candlestick chart points higher. So, remain long euro/sterling for as long as the rising 20-day moving average, currently at around 0.6890, holds on a closing basis.
If this line breaks, after all, then look for any corrective decline to find good support at 0.6850. If not, then the uptrend is over and the cross would probably make an aggressive slide toward the 0.6800 area. Euro/sterling would still have to close below 0.6780 to confirm a medium-term decline.
The key resistance to watch remains between 0.6943 and 0.6963. A close above this area would signal a further upmove to 0.7010 and eventually to 0.7087. The latter level is also the target of a bullish reversal formation. Further resistance remains from a pivotal high of 0.7116.
NEAR-TERM: Mixed to slightly higher
LONG-TERM: Mixed to slightly higher
DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.
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