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Wednesday May 31, 2006 - 10:27:08 GMT
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Forex Trading Update

Published: May. 31 2006, 08:27 GMT

EURUSD attempted a break above 1.29 level but rejected at first attempt.

A new Treasury Secretary was temporarily USD positive – but strenght was not sustained.

MAJOR HEADLINES – PREVIOUS SESSION
• Canadian Industrial Product Price Index MoM (Apr) out at 1.3% vs. 0.5% exp.
• Canadian Raw Material Price Index MoM (Apr) out at 5.7% vs. 2.0% exp.
• Candian Current Account (BOP) (1Q) out at C$10.7B vs. C$8.4B exp.
• US Consumer Confidence (May) out as 103.2 vs. 100 exp., though the whisper number was for a higher number.
• US ABC Consumer Confidence (May 29) out as -17 vs. expected at -20.
• French Unemployment Rate (Apr) out as 9.3% vs. expected at 9.5%.
• French Unemployment Change (Apr) out as -39K vs. expected at -14K.

The USD weakening started yesterday with rumors of the next US Treasury Secretary. Then the White House confirmed Hank Paulson (from Goldman Sachs) as Secretary of the US Treasury, which had a bullish impact on the USD. Later though USD weakened again to new highs in EURUSD but we fell back from the highs.

BoC Govenor Dodge yesterday in a speech said "To keep inflation on target, the BOC tries to keep the economy operating at full capacity and aims for a balance between total demand and total supply to the economy." On CAD Mr. Dodge said; “Let me be clear; we do not have a target or preferred exchange rate for the Canadian dollar."

During the Asian session, Reuters carried a report that the German jobless data out later today has been leaked into the market. Germans out of work fell in May by 93K M/M while market expects a fall of just 20K. This lent some support to EUR.

THEMES TO WATCH – UPCOMING SESSION
With the USD in the middle of the recent ranges after having tested the high end yesterday, we are now back in uncertain terrain where options are the preferred tool. We remian convinced the overall longer term picture still supports a weaker USD in the months to come.

If history is any guidance for the future, the identity of the next Treasury Secretary could tell us much about the direction of the USD. In the past 30 years, a clear pattern has emerged linking the secretary's professional background with his currency policy. Candidates with a Wall Street past have tended to be energetic proponents of a strong exchange rate for the USD. By contrast, those with an industrial or political background have been quite happy or even eager to see the USD decline.

Economic releases are more interesting Wednesday with Australian Trade Balance, Japan Housing Starts and Constrution Orders, German ILO Unemployment and Unemployment rate and change, French Consumer Confidence, a streak of EU Indicators, US Chicago PMI, Canadian GDP and US FOMC Minutes.

Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.

Euro/US Dollar
EURUSD (1.2865 @ 08:27 GMT)

Weekly market update 29-05-2006
EURUSD spent the week in a rather choppy consolidation range where we have been unable to reach the old highs. We need a break of 1.2980 to gain momentum towards 1.3175 74% (from 1.3665-1.1639). Downside is still firm above the 1.2660/90 support, but a break will open for 1.2550. Only a move below this level is concerning for the uptrend.
Wednesday:

EURUSD broke 1.2885/90 but with little follow through never reaching the 1.2920 resistance beofre dropping back. Minor support found at 1.2800 and 1.2765 for now. Key is still 1.2700. Prefer to play the recent range of 1.2700 – 1.2900 – in this case look for sell levels near 1.2900 with stop at 1.2925. Alternatively buy 1 week Put at the Money options and trade the spot delta against the option.

Resist.
1.3171
1.3005
1.2937
1.2865
1.2771
1.2673
1.2507
Support

Quoted:
31 May 06
08:27 GMT


British Pound/US Dollar
GBPUSD (1.8799 @ 08:27 GMT)
Weekly market update 29-05-2006

GBPUSD continued the choppy consolidation and finally broke out of the 1.8630 low end of this range. As earlier mentioned only a break of 1.8500 (top from September 2005) would suggest a downside wave, but a test of this level may be well on the way. The upside seems to have found good resistance at 1.9000/25 ahead of our target of 1.9216, the high from April 2005.

Wednesday:
GBPUSD staged an impressive recovery yesterday and came close to challenge the 1.8885 resistance area before falling slightly back. Minor support found at 1.8810 and 1.8700/10. Suggest selling rallies with stop above 1.8900 or buy 1 week At the Money options and trade the delta.
Resist.
1.9343
1.9053
1.8945
1.8799
1.8654
1.8472
1.8182
Support

Quoted:
31 May 06
08:27 GMT

US Dollar/Japanese Yen
USDJPY (111.88 @ 08:27 GMT)
Weekly market update 29-05-2006
After testing the downside the previous week USDJPY has attempted to break the upside this week. We pushed through the 112.30 gap area opening for 114.00/15 resistance, however, has met formidable resistance at 113.00 lvl in the form of Exporter offers and barrier protection. The key downside area is 108.75/00 lvl. (lows from September 2005). A break above 113 should be bought.

Wednesday:
USDJPY is trading in the middle of the range 111.50 – 113.00. Offers are evident from 112.80 to 113 (exporters and barrier protection), while the downside holds rumors of strong Japanese buyers. Await developments for now.

Resist.
114.53
113.36
112.76
111.88
111.59
111.02
109.85
Support

Quoted:
31 May 06
08:27 GMT

Risk warning
Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

Please read our full Analysis Disclosure & Disclaimer at www.saxobank.com/analysis/disclaimer.

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Amazing Trader EVENT RISK Calendar:

Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

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  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



John M. Bland, MBA
co-founding Partner, Global-View.com

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