Monday June 21, 2004 - 12:54:31 GMT
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Weekly Forex Market Commentary by Global Forex Trading
Weekly Commentary By Cornelius Luca, GFT Analyst
The dollar started a choppy recovery versus the European currencies on Tuesday after Chairman Alan Greenspan said that the Federal Reserve will do what is required to keep inflation in check. This should mean that the Fed will start a tightening cycle starting at the end the month. The dollar should continue to struggle higher against these currencies on technical strength, while dollar/yen should trade sideways to lower.
Past Week's Data and Events
The dollar made a difficult advance last week against the euro, pound and franc during a week shortened by the funeral ceremony for former President Reagan.
Prices of imports into the US rose 1.6 percent in May, the most in more than a year, from a 0.2 percent rise in April. Ex-petroleum, import prices rose 3 percent in May.
The market ignored news that the jobless claims rose 12,000 to 352,000 last week.
The euro/dollar failed its recovery attempt and fell sharply last week, suggesting further losses.
The Ifo World Economic Climate quarterly index fell to 110.1 points in the second quarter from 111 points in the first, the highest since 2000.
German unemployment rose a seasonally adjusted 9,000 in May, but the adjusted unemployment rate remained unchanged at 10.5 percent.
German industrial production surged 2.2 percent in April, a welcome reading that only managed to balance the losses encountered in the previous month.
French industrial production unexpectedly contracted 0.4 percent in April. However, manufacturing output rose 0.4 percent in April.
German exports rose 5.2 percent in April, the most in 20 months, due to the recovery in the US and Asia.
Meanwhile, German consumer prices rose 2 percent in May from a year ago after 1.6 percent in April.
Dollar/yen fell sharply last week amid generally strong economic data before trimming losses.
Japan revised upward both its first and previous quarters GDP to 1.5 percent, more than the earlier estimate of a 1.4 percent gain and to 1.8 percent, respectively. This means first-quarter economic growth reached a 6.1 percent annual and the fourth-quarter growth was revised to an annual 7.1 percent pace, the fastest since June 1990.
The Japanese current account surplus widened 5.1 percent in April.
Also on a positive note, machinery orders soared 11.8 percent in April.
On this background, consumer confidence rose to 48.3 in May from 45.1 in April. Also on a positive note, confidence in Tokyo climbed to 50.8 from 47.7 percent.
However, the current conditions index fell to 52.8 from 55.7 in April, while the expectations index slipped to 55.0 from 55.3.
Despite the support of its high interest rates, the pound melted on Friday.
The Bank of England met the market expectations and raised its base rate once again by 25 basis points to 4.5 percent in an effort to thwart inflation. The increasing yield advantage should support the pound across the board.
UK retail sales rose 6.5 percent in May following a 4.9 percent gain in April and 3.7 percent from a year earlier, from 1.9 percent in April, according to the British Retail Consortium.
Manufacturing output rose in the current quarter, with the balance of manufacturers saying sales increased minus those reporting a decline was 17 percent, from with 14 percent in the previous quarter, according to the EEF manufacturers' lobby group.
UK manufacturers increased production rose 0.9 percent in April, its fastest rate in over 1 1/2 years, after contracting a 0.3 percent in March. Industrial production expanded 0.7 percent, the most since October.
Meanwhile, the trade deficit in goods widened to 4.7 billion pounds in April from 4.2 billion pounds in the previous month.
UK house prices rose 2.2 percent in May.
The dollar/Canada formed a strong bottom last Monday and then mounted a solid recovery every day of last week.
The Bank of Canada left its benchmark lending rate at a four-decade low of 2 percent, as expected, after trimming it by 25 basis points in April.
Canadian construction permits rose 6.3 percent in April to the highest level since July, while housing starts fell 1.2 percent in May, as work on apartments and condominiums decreased.
New home prices rose 5.6 percent in April on a year-on-year basis, the fastest pace since March 1990, due to rising costs of labor and materials.
Canada trade surplus soared to C$7.58 billion in April, as exports rose 4.4 percent and imports rose only 0.7 percent.
The Swiss franc weakened sharply last week in line with the falling euro.
The Swiss unadjusted jobless rate fell to 3.8 percent in May from 3.9 percent.
The Australian unemployment rate fell to 5.5 percent in May, the lowest rate since June 1981, from 5.6 percent in April.
This Week's Data and Events
The US economic agenda will come to life on Monday with the release of the closely watched retail sales report. The April data saw a contraction after five consecutive months of gains and a strong showing in March, so it’s important to see whether sales recovered in May. A good number would add to expectations for a rate hike at the end of the month.
Monday will also see the release of the trade balance for April and the PPI for May, which were postponed from Friday; expect another large deficit.
All eyes will be on the inflation numbers, which will make the difference on the timing of a rate hike.
Tuesday will further information on inflation, and all eyes will be on the core CPI to see if the high-rising oil prices have seeped through in May.
Also on Tuesday there will be the reports of business inventories for April, the preliminary University of Michigan consumer sentiment and Empire Manufacturing Survey for June.
Wednesday will be a very busy day, with the release of the housing starts and the industrial production reports for May.
Housing starts should be close to peaking, but this should not be a sudden process.
Also on Wednesday, the Fed will release its Beige Book for use at their meeting at the end of the month, so pay attention to all details.
On Thursday, outside the weekly jobless claims, the leading indicators for May and the Philly Fed Survey for June will be released.
The Eurozone economic data will get started with the release of the French consumer prices for May and the Italian industrial production report for April.
Italy will announce its CPI for May on Tuesday, while the Eurozone will show its CPI for May on Wednesday.
On Thursday, there will be the Eurozone industrial production report for April.
Italy will release its trade balance and industrial orders for April on Friday.
In addition to the BoJ Monetary Policy announcement, Japan will also release its final leading economic index on Tuesday.
The BoJ will release its monthly report on Wednesday.
The UK will announce its PPI figures on Monday and CPI report on Tuesday.
Expect another good reading on the local unemployment situation on Wednesday.
The UK retail sales are due on Thursday.
Canada will announce its manufacturing shipments report for April on Tuesday.
Last week's range: 1.1965 – 1.2351 (Down)
Previous range: 1.2135 – 1.2304 (Up)
Euro/dollar fell sharply last week from a 2 ˝-month high of 1.2351, with a big slide on Wednesday and an unexpected second leg of the decline on Friday. The pair formed a bearish reversal pattern of the weekly chart, suggesting that further losses are in store.
Below 1.1965, the pair has support at around 1.1920. Below the 1.1893 low there is a pivotal floor at 1.1771 and a break lower would further accelerate this decline. The euro/dollar would then likely fall to the 1.1590 area, but this weakness remains unlikely.
The euro/dollar has resistance at a Fibonacci retracement level at 1.2097. A close above its 20-day moving average at around 1.2115 would signal the end of the decline, but this is unlikely. In that case, the pair would encounter an obstacle 1.2231. A run to the 1.2351 high and to the 1.2387 level would be unlikely.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Slightly bearish
Last week's range: 108.64 – 111.07 (Down)
Previous range: 109.05 – 111.96 (Up)
Dollar/yen collapsed last Monday to a five-week low of 108.64 and its sharp recovery the same day brought back memories of Bank of Japan’s massive interventions. But that wasn’t the case. The pair another recovery on Friday, but remains under mild selling pressure.
The pair still finds strong support at 109.15 from the 50-point pivot, which targets 109.65 and 108.65. Further support comes from the Fibonacci retracement level at 107.75. A slide to the 106.50 area is unlikely.
Any recovery faces an initial obstacle at 111.07 and a break higher opens the gates to a test of the 111.85 retracement level. The key level to watch remains the 50-point pivot at 111.60 that targets 112.10 and 111.10. Above 112.10 there is strong resistance from another 50-point pivot at 112.90, which targets 113.40 and 112.40. Distant resistance comes at 113.94 from a long-term Fibonacci retracement level.
LONG-TERM: Slightly bearish
Last week's range: 1.8162 – 1.8476 (Down)
Previous range: 1.8276 – 1.8484 (Up)
Sterling/dollar failed to make new high last week, and after making a powerful recovery on Thursday, it tossed in the towel on Friday, when it collapsed.
The pair has initial support at around 1.8150 from its 20-day moving average and at
1.8117 from a Fibonacci retracement level. A break lower would signal a decline to 1.8040. A further floor remains in place at 1.7950. Distant support then remains in the 1.7850 area.
Above 1.8230, the sterling/dollar has resistance at 1.8312. A break above this Fibonacci retracement level would challenge the 1.8484 peak. A run up to 1.8603 remains unlikely.
NEAR-TERM: Mixed to slightly bearish
MEDIUM-TERM: Slightly bearish
Last week's range: 1.2320 – 1.2614 (Up)
Previous range: 1.2372 – 1.2570 (Down)
Dollar/Swiss franc established an important low last Tuesday at a 3 1/2-month low of 1.2320 and then made a very choppy advance into the end of the week. The weekly candlestick charts show a bullish reversal formation so this recovery should extend this week.
The pair has initial resistance at 1.2660 from a Fibonacci retracement level and a break higher would target 1.2740. The next barriers come at 1.2800 and then at 1.2890. A break above this level would target the Fibonacci retracement level at 1.2956. Further resistance remains at 1.3016 but this level should not be reached this week.
Dollar/Swiss franc has strong support at 1.2450. If its rally peters out and it breaks lower, then look for the pair to test the support at 1.2319. If this level gives way as well, then look for a test of the further support at 1.2265. Distant support remains in the 1.2182 area.
NEAR-TERM: Mixed to slightly bullish
MEDIUM-TERM: Slightly bullish
Last week's range: 1.3393 – 1.3690 (Up)
Previous range: 1.3477 – 1.3720 (Down)
Dollar/Canada extended the previous week’s losses into last Tuesday, when it bottomed at a two-month low of 1.3393. Its subsequent recovery formed a bullish reversal signal on the weekly charts and signals the end of the corrective decline.
Above 1.3690, the pair should now test the resistance at 1.3780. A break higher would signal a test at 1.3985. Dollar/Canada then has two distant resistance levels at 1.4080 and at 1.4166.
Any correction should hold above 1.3540. A break lower would then target a test the support at 1.3465. A break lower suggests a test at 1.3330. Distant support remains at the 1.3249 level.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Slightly bullish
Last week's range: 131.55 -136.68 (Down)
Previous range: 133.02 – 136.61 (Up)
The euro/yen traded collapsed to a five-week low of 131.55 last Thursday and the candlestick chart suggests further losses. However, some initial profit taking on short positions should be in order.
Below 131.55, the cross has initial support from a Fibonacci retracement level at 130.89. A break lower would send the cross to test the support level at 130.58. Further weakness would target 129.85. Distant support is seen at 128.32.
The euro/yen has initial resistance at 133.00 and a break higher would send the cross up to challenge the 133.95 Fibonacci retracement level. Next obstacle comes at around 135.00. Pivotal resistance looms at 137.84.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Mixed to slightly higher
LONG-TERM: Slightly bullish
Last week's range: 0.6542 – 0.6709 (Down)
Previous range: 0.6622 – 0.6680 (Up)
Euro/sterling collapsed on Friday to a 16-month low of 0.6542 before trimming losses. The oversold cross seems to be in the process of setting up a double bottom formation, but more confirmation is required.
The cross now has resistance at 0.6638 and a break higher would signal a test in the 0.6700 area. Once again, a close higher would target 0.6750. Further resistance levels remain at 0.6815, 0.6843 and 0.6900, with the first one of the most technical significance.
Below 0.6565, the euro/sterling has support at 0.6542. A break lower would signal a decline to 0.6517. Further support remains at 0.6433, with a distant level seen at 0.6275.
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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