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Wednesday July 14, 2004 - 08:05:15 GMT
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Forex Trading Strategies - July 14th 2004

AUD/USD finds support at .7220 -- currency is set to break through .7280 top, which confirms .7500 objective

Consumer confidence among Australians surged in July, to its highest level in a decade. The index of consumer sentiment rose 4.5% in July from the prior month; its highest level since July 1994.



DEVELOPMENTS TO WATCH TODAY: July 14 - Europe


- Intel Corp., the world's biggest semiconductor maker, said second-quarter earnings almost doubled to the highest in four years. Profit margins may be narrower than forecast this year as Intel boosts sales of low-priced components and discounts other products to shift inventory. Net income rose to $1.76 billion, or 27 cents a share, from $896 million, or 14 cents, a year earlier, Santa Clara, California-based Intel said in a statement. Sales increased 18 percent to $8.05 billion. Intel Chief Executive Craig Barrett said revenue this quarter will rise to $8.6 billion to $9.2 billion, higher than some analysts expected.

- Australian consumer confidence surged to a 10-year high in July, spurred by income tax cuts, government cash handouts to families, lower gasoline prices and the central bank keeping interest rates unchanged. The consumer confidence index rose 4.5 percent from June to 119.5, the highest since July 1994, according to a Westpac Banking Corp. and Melbourne Institute survey released in Sydney. A reading above 100 shows optimists outnumber pessimists. From a year earlier, sentiment gained 2.9 percent. Stronger confidence will underpin consumer spending and help the economy rebound from its slowest growth in a year.

- Gold and silver futures in New York had their biggest declines in two weeks as the narrowing U.S. trade deficit boosted the dollar and made precious metals priced in the currency more costly for buyers using the euro. Gold's decline ends a rally in which prices reached a three- month closing high yesterday as the dollar slid against the euro. Gold for August delivery fell $6.10, or 1.5 percent, to $402.30 an ounce on the Comex division of the New York Mercantile Exchange, the biggest one-day decline since June 29 and the lowest closing price since July 6. Silver for September delivery on the Comex fell 15 cents, or 2.3 percent, to $6.392 an ounce, the largest decline for a most- active contract since June 28. Prices are up 33 percent from a year ago.




FX Market Summary


The yen was weaker in Asia today even as Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc. said they are considering a merger, spurring optimism the nation's financial system is strengthening. UFJ, Japan's fourth-largest lender, said it will hold a board meeting today before seeking merger negotiations. Against the dollar, the yen was weaker at 108.92 from 108.60 late yesterday in New York. The yen was also at 134.47 from 133.95.

The euro was firmer in late Asian trading today, and has risen back to 1.2350; sterling currently trades at 1.8578 after finding support at 1.8538.

Consumer confidence among Australians surged in July. Post-budget, confidence among consumers rose to its highest level in a decade. The index of consumer sentiment rose 4.5% in July from the prior month; its highest level since July 1994. Indexes above 100 shows optimists outnumber pessimists. Yet, an immediate rate hike by the RBA is still unlikely prior to the upcoming Federal election, which has yet to be announced; despite the new taxes that have spurred an increase in retail sales and consumer spending, and the cooling housing market. The RBA last amended its monetary policy in November and December last year, two consecutive quarter of a point rate hikes, which were followed by economic growth of only 0.2% in the first quarter of 2004. A rate hike is a possibility, although we may see the RBA leave rates on hold until early 2005. The Aussie remains firm -- currently trades at .7265.

The dollar had the biggest gain against the euro in two weeks and advanced against the yen on Tuesday after the U.S. trade deficit narrowed for the first time in six months as exports surged to a record. Demand for the dollar helped the currency rebound from a four-month low against the euro and sent it higher against other currencies, including the South African rand, British pound and the Canadian and Australian dollars. The dollar strengthened to 1.2330 per euro at 5 p.m. in New York from $1.2409 yesterday. It was the biggest advance against the euro since June 29. The currency rose to 108.67 yen from 108.26.



Forex Technicals:

EUR/USD - support did gel at 1.2300 and we expect the initial recovery to make further headway up north later in the day. The trade data induced decline should be fully digested by the time we have to contend with June Retail Sales data in early New York session. Odds seem to favor a larger-than-expected decline, which would be supportive of the euro and other major currencies, and would be one more nail in the greenback's coffin. No change in view then -- we still keep confidence on the view that positive medium-term scenario has been validated. The currency should push through to and beyond 1.2450 resistance towards 1.2500 in the next few days. Firmer resistance await near 1.2700. 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 may have found support above the 1.8522 trough and should pick up the pace later in the day. The uptrend should resume further and may finally go through the 1.8665 top. A double iteration of 4th and 5th waves later in the week may bring on 1.8750 as the next focus. Positive expectation of further rate hikes 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 - the currency trades erratically as competing fundamentals buffet the currency, ahead of the U.S.June retail sales data - it remains to be seen whether the uptrend is back on track. The previous fall to 107.60 may have seriously compromised the bullish scenario we had espoused earlier. The downtrend may have reasserted and may have another go at 107.00 trough further out. The next downside target is 105.70 then 103.50.

USD/CHF - the currency recovered further and has been to 1.2390 -- it may be a formidable resistance area. There's no change in the short-term view --the currency pair should eventually resume the downtrend, and follows through lower once more. We still expect to see further declines to 1.2150 base and then through 1.2000 much further out.

USD/CAD - the currency pair has been to as high as 1.3300 -- much higher than our modest 1.3250 upside target. But a sharp decline has ensued, which is fully consistent with our view that the recent uptick was merely corrective. The downtrend has likely resumed. The next downside target may still be the area of 1.3000 -1.2950. But much further out, focus now at 1.2700.

AUD/USD - the currency has probably ended the corrective decline at .7215, slightly lower than our more modest .7235 target. The rally may have resumed and should rise further to the ,7285 top, then towards the minor resistance at .7370 area, perhaps independently of the majors. Further out, the uptrend should focus at .7500 objectives.

NZD/USD - the currency ended the corrective fall at .6550 -- the currency should continue to trade higher from here towards .6620 , then onwards to the .6750, then to the .7050 new focal point further out.

EUR/JPY - the cross recovered 133.70 -- the cross should probe 135.00 top again, and might yet rise to as high as 137.00 thereafter before significant resistance appears. The longer-term scenario takes on a large sideways consolidation requiring a sell-off from 138.00 - 139.00 potential resistance.

EUR/CHF - the cross did find support at 1.5200. No change in view -- the uptrend should propel the cross to at least 1.5300, perhaps even to 1.5350 further out. The rally came after forming a broad bottom, so we should see some serious mileage to the upside from this pattern. Moreover, the stock market downward correction may have ended today, and that provides less grist for the CHF to grind as investment capital "fly out from quality". Any rally above 1.5430 suggests that the long bear market is over.

EUR/GBP - no change in view -- the cross fell to as low as .6640 and may yet extend the corrective decline to .6630. But no change in the general view -- the uptrend resumes soon, which has .6820 as next upside focus.




Market Data Preview:


RETAIL SALES (June) – Wednesday, July 14, 8:30 AM EST


Why it’s important – This is the first comprehensive look at consumer spending for June, giving the most complete sense to date on consumption conditions in the quarter just completed. Recall that retail sales jumped 1.2% in May, bouncing back from a 0.6% decline in April. Auto sales rose 2.7%, while retail excluding autos posted a solid 0.7% gain.

What to expect – Background data and mathematical odds favor a sizable decline. Expect a drop in retail sales of around 1.0%, which would be the largest decline in 16 months. The main force behind this likely to be disappointing number was the 13% plunge in unit light vehicle sales reported for June earlier. Excluding autos, expect sales to have risen a minimal 0.1%, a smaller gain than in May based on evidence that chain store sales slowed significantly last month. Falling gasoline prices also pulled down this nominal number for the month in all likelihood.

What the market expects – The market consensus is only for a 0.3% decline in the headline retail sales along with a 0.3% rise ex autos. The consensus far underestimates the likely impact of the month’s sizable drop in vehicle sales on the retail number.

The key risk – The key market risk is a bigger than expected decline -- which proves that the market consensus is too optimistic. Such a large negative number would reinforce the sense that the economic is cooling (apparently evident in other recent indicators such as factory orders, payroll employment, and the ISM business survey of service industries). This would keep downward pressure on bond yields and, obliquely, equity prices. The alternative market risk, though probably less likely, is a markedly better than expected retail sales number. Though it’s not clear how it would happen, another sizable jump in headline retail sales would send bond yields up sharply.

 

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Mon 18 Dec
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Tue 19 Dec
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13:30 US- Housing Starts/Permits
13:30 US- Current Account
Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude
Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
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Fri 22 Dec
09:30 US- GB- GDP
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15:00 US- New Homes Sales
15:00 US- final University of Michigan
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Mon 25 Dec
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  • POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.


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