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Forex Trading Strategies - July 8th 2004
GBP/USD pulls back to 1.8500 -1.8480, should resume the uptrend later in the day; USD/CHF set to break 1.2260 support
Bank of England may leave its benchmark rate unchanged today, awaiting evidence that four increases since November are reining in consumer borrowing and house prices. New increase may come in August.
DEVELOPMENTS TO WATCH TODAY: July 8 - EUROPE
- The Bank of England may leave its benchmark interest rate unchanged today, awaiting evidence that four increases since November are reining in consumer borrowing and house prices. The next increase in the securities-repurchase rate, currently at 4.5 percent, won't come until August, according to most economists surveyed. There are two forecast of a quarter-point increase when the bank announces its decision at noon in London.
- Australia's economy unexpectedly shed jobs for a second month in June as part-time employment fell, supporting the central bank's decision to keep interest rates unchanged. The Australian dollar fell and bonds rose. Employment fell 3,800 last month following a decline of 43,000 in May, the Australian Bureau of Statistics said in Sydney. The median forecast in a survey of economists was for 25,000 new jobs. The unemployment rate rose to 5.6 percent from a 23- year low of 5.5 percent. The Reserve Bank of Australia yesterday left its benchmark interest rate at 5.25 percent for a seventh month as economic growth slowed, house prices declined and inflation fell to a four-year low.
- Crude oil futures rose in New York on concern that supplies from Russia, the world's second-largest exporter, may fall if the country's tax dispute with its biggest oil producer isn't resolved quickly. Crude oil for August delivery rose as much as 27 cents, or 0.7 percent, to $39.35 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $39.29 at 12:28 p.m. Sydney time.
- Gold futures in New York were little changed after posting their biggest gain in 13 months yesterday as economists scaled back estimates of U.S. economic growth and the pace of Federal Reserve interest-rate increase. The estimates cut, following a smaller-than-expected employment gain last month and rising energy costs, sent the dollar to a near three-month low against the euro. Gold rose 2.5 percent yesterday to close at $402.70 an ounce as a falling U.S. currency makes the dollar-priced metal cheaper for buyers using other currencies. Gold for August delivery fell 90 cents, or 0.2 percent, to $401.80 an ounce in after-hours trading on the Comex division of the New York Mercantile Exchange at 11:03 a.m. Sydney time.
- A survey from the U.S. National Association of Business Economists reports that a net 22% of employers increased headcount in Q2. This is up from 7% last year, and is in the top 10% of historical responses. 41% of respondents plan to increase further employment over the next six months, up from 34% last quarter. Such readings have historically been consistent with very upbeat labor market trends. Plans for capital spending also remain robust. Inevitably, cost pressures were a problem in the second quarter: a net 56% of businesses reported higher material costs. Moreover, a net 52% expect prices to rise further in Q3; this seems elevated in light of the recent declines in commodity prices. There was also evidence of pass-through from higher materials costs to final goods prices: a net 20% of respondents reported higher product prices, still an elevated reading although down from Q1ís 25%. The outlook, according to this survey, is not comforting: 35% of respondents expect to increase product prices in Q3, while only 4% anticipate price declines.
FX Market Summary
The dollar traded near a three-month low against the euro in Asia today as economists scaled back estimates for U.S. economic growth and the pace of Federal Reserve interest-rate increases. A smaller-than-expected employment gain last month prompted some analysts to cut their forecasts for 2004 growth, bringing the median prediction down to 4.1 percent from 4.5 percent before the report. Confidence in the economy among chief executives in the U.S. slipped from the highest in 20 years in the second quarter, a report yesterday showed.
Against the euro, the dollar was trading at $1.2359 in Tokyo today, from $1.2373 late yesterday. It was also at 108.70 yen from 108.65 yen. The U.S. currency yesterday traded as low as $1.2388, its weakest since April 1, and had its biggest drop versus the yen in two weeks.
The Australian dollar fell to 72.10 U.S. cents at noon in Sydney today, from 72.26 cents after Australia's economy unexpectedly shed jobs for a second month in June, as part-time employment fell, supporting the central bank's decision to keep interest rates unchanged. Employment fell 3,800 last month following a decline of 43,000 in May, the Australian Bureau of Statistics said in Sydney. The median forecast was for 25,000 new jobs.
The U.S. dollar was the big mover on Wednesday, trading sharply lower against the major currencies as the recent slate of disappointing U.S. economic data caused some traders to reassess the outlook for an aggressive tightening cycle from the Fed. The greenback plunged 0.9% against the Japanese yen, lost 0.6% vs. the euro, and slipped 0.4% against the Canadian dollar. The gains by both the Canadian dollar and euro today pushed those currencies to more than three-month highs against the U.S. dollar.
Canada's dollar rose to a three-month high versus the U.S. dollar Wednesday as a report showed further evidence of economic expansion, boosting speculation the Bank of Canada will lift its key interest rate in September. Higher interest rates may boost demand for the currency from international investors. The Ivey School of Business purchasing managers index advanced to 66 in June from 64.7 in the prior month, the highest in a year. It was the 11th straight month the index has been above 50, which signals a net expansion. At 5 p.m. in Toronto, the Canadian dollar jumped 0.6 percent to 75.74 U.S cents, the highest closing since April 7. U.S.funds currently trade at 1.3220.
EUR/USD - the currency has been to as high as 1.2390 but pulled back slightly as the markets await further validation of the positive short-term and medium-term views. There are potential bullish developments later in the day -- the BoE's MPC is set to announce their decision today. However, odds of a another 25 basis point hike is very slim, but we could be in for a surprise. The currency has broken through the 1.2350 top, and should push through towards 1.2500 in the next few days -- if given a timely nudge soon. We would like to see 1.2500 taken out before venturing further positive comments, but looks like momentum is getting set for follow-through to 1.2900 further out.
GBP/USD - the currency has been to as high as 1.8580 ahead of the MPC announcement -- this despite the slim chances of a rate hike of any sort. Support may come at 1.8500. The uptrend should accelerate further from there. Positive fundamental developments likely to push the currency forward even further in the days to come. The rally through 1.8500 has reinstated the 1.9100 targets.
USD/JPY - no change in view -- the currency pair may yet find support at 108.00 area. Nonetheless, we may see further ascent towards 112.00 later in the week. This is a significant detour in the downtrend, but a rally in a bear market nonetheless. The downtrend should reassert thereafter and have another go at 107.00 trough. The next downside target is 105.70 then 103.50.
USD/CHF - the currency has been to 1.2260 but was stymied by lack of follow-through in the major Europeans. The currency pair should resume the downtrend soon, and itself follows through lower. We still expect to see further declines to 1.2150 base and then through 1.2000 much further out.
USD/CAD -- the currency pair consolidates , but a break of 1.3200 is due soon, as the downtrend resumes in earnest. The next downside target may still be the area of 1.3000.
AUD/USD - the uptrend has been to as high as .7245, but may correct back to .7175 later in the day. However, the rally should resume further as focus switches to .7500 objectives.
NZD/USD - the currency has been to .6575, but may dip back to .6520 area later in the day. The currency should accelerate higher thereafter towards the .6800 focus point further out.
EUR/JPY - no change in view -- the short-term scenario makes a substantial detour to the upside -- the current consolidation notwithstanding. The cross might rise to as high as 138.00 before significant resistance appears. The longer-term scenario takes on a large sideways consolidation requring a sell-off from 138.00 potential resistance.
EUR/CHF - the cross may have found new support at 1.5175,which should propel the cross higher -- we expect a rally to at least 1.5350. The cross is forming a broad bottom -- for the first time in many weeks, the cross shows signs of a longer-lasting reversal. Any rally above 1.5430 suggests that the long bear market is over.
EUR/GBP - no change in view -- the cross may yet fall to .6650/40 from here. But the cross should eventually resume the uptrend, which has .6820 as next upside focus.
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