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Forex Market Update
New USD lows seen in Asian session.
The USD sentiment is still negative, however, as we reach levels mentioned by several analysts as first targets, a little caution may be in order.
MAJOR HEADLINES â€“ PREVIOUS SESSION
Major headlines previous sessions:
â€¢ Norwegian unemployment rate Feb, out at 3.9% vs. 3.8% expected.
â€¢ Euro-Zone OECD leading indicators March, out at 109.0 vs. a revised target of 108.6 for Feb.
â€¢ Canadian international merchandise trade March, out at C$ 5.1B vs. C$ 6.1B expected.
â€¢ US trade balance March, out at -62.0B vs. -67.0B expected.
â€¢ US import price index (MoM) April, out at 2.1% vs. 1.2% expected.
â€¢ US U. of Michigan confidence (May P), out at 79 vs. 86 expected.
â€¢ Japan Machine Orders (March), out at -5.2% vs. +0.4% expected, YoY -1.6% vs. 6.5% expected.
â€¢ BOJ's govenor Fukui was out speaking this morning. He notes that "interest rate levels are determined by economic fundamentals and prices". He adds that "BoJ will likely keep interest rates very low for some time even when ZIRP ends", and adds that he sees no sudden surge in inflation but prices are likely to show gradual rise.
â€¢ The USD reached new lows during Asian session on the back of the Wall Street Journal report that the US was happy with recent USD weakness.
THEMES TO WATCH â€“ UPCOMING SESSION
USD/JPY traded lower overnight after China's forex authorities this morning set the daily USD-YUAN reference rate below the psychologically important 8.000 figure, its lowest since the YUAN was revalued in July last year. Worth watching this week is the possibility of a test of September 2005 lows of 108.75, and with the prevailing USD sentiment this important support level is not far of.
Generally, we still favour a weaker USD in the weeks to come, however, we feel that stops should be kept very close or alternatively USD weakness should be played using FX options.
Further, at the time of writing, TRY is weakening further so the unwinding of carry trades continue into this week. We recommend to be very cautious with entering this market just now.
Todays main economic release is the US Tics data (Net foreign security purchases) to be released at 1300 GMT. The expectation is 79.7 bln USD and an actual number below this may accelaerate USD weakness. Tuesday is an interesting day from a data perspective with both German and EU ZEW, UK CPI and RPI as well as US Housing Start numbers. Wednesday comes the US CPI.
Note: the support/resistance levels used in the matrixâ€™s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
15 May 06
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