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Forex Market Update
Published: Jun. 26 2006, 05:54 GMT
Market Awaits today's US data!
Asian markets have stayed range bound look for some significant volatility as the market search for indications from US economy. Watch for todayâ€™s New Homes Sales as the markets first indicator.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ German State CPI â€“ Over all early indications point to a modest acceleration in inflation in June.
â€˘ Durable Goods Orders (May) -0.3% exp. 0.4% - slightly lower then expected.
â€˘ Japanâ€™s Corporate Service Price (May) YoY -0.2% vs. -0.1% expected.
â€˘ Yosago said BOJ"s zero rates policy is "unusual" and "should be abandoned some day." The shift will not come "two or three years from now".
â€˘ Anatole Kaletsky writes in Times and believes that Fed statement will be more hawkish than expected, strongly suggesting that another rate hike is likely and encouraging the markets to speculate about even higher rates beyond August. Hawkish statement would be good news for the world economy and could prove surprisingly bullish for financial mkts in the long-term, even if it causes an initial shock.
THEMES TO WATCH â€“ UPCOMING SESSION
â€˘ SZ SNBâ€™S Hildebrands Holds Speech in Montreux.
â€˘ 6:00 EC ECB Euro-Zone Current Account (Apr) -3.5b exp.
â€˘ German Consumer Price Index (Jun) MoM 0.1% exp.
â€˘ 12:00 US New Homes Sales (May) MoM prior 4.9% / YoY 1150k exp.
All eyes on US economic Data and Thursdays FOMC rate decision and subsequent comments.
Last weeks greenback rally renewed our conviction that this week Monetary Policy and economic releases will have significant effect on the markets direction. In these market conditions USD Bulls need two things for continued buying, first additional tightening and second a growing US economy. This environment will allow the USD will continue attracting investment and strengthen the USD.
Generally before an important rate decision (and mark our words this one is critical) markets stay usually calm as we have already seen in early Asian trading. However this weeks trading pattern might prove to be unique with high volatility before Thursday. This will due primarily to the US release calendar which contains significant clues into the health of the US economy. Todayâ€™s New Home Sales and Tuesday Existing Homes Sales should proved clues to the extent of a US economic slowdown. The housing market has played a critical role in the US economy and these numbers will provide investors will insight into how much damage the previous 16 hikes have done. Weak housing releases combined with a declining consumer confidence (Tuesday) confirm that the US economy is not resilient enough for additional hikes, and will prompt USD selling. However better or neutral number will give the FED the ability to tighten while continuing to attract much need investment.
We see very little incentive for the ECB to hike until August the earliest. While growth continues to move at a nice pace and inflation slightly above its target, Trichet and the gangs ability to talk the EUR down from 1.29 heights provided perhaps greater benefits than a 25bp hike. There are a few scheduled ECB speakers this week including Trichet on Thursday but expecting nothing more then the usual â€śvigilantâ€ť rhetoric. Movement of the EUR will be defined by USD action.
Last Friday saw AUDUSD a tight range moving less then 50pips. With all the positive information already priced into the market and a light calendar this week we see an opportunity for AUD reversal and continued selling. In addition as pressure mounts against the ZAR, traders will be hunting for similar opportunities in which the NZD and AUD might prove easy targets.
JPY could become the weekâ€™s big losers against the USD. In short, with a lack of clarity from the BoJ regarding Monetary Policy and shaky leadership, combined with the increasing cost of holding USDJPY shorts due to this weeks FED hike, traders will be looking unwind positions and perhaps renew carry trades. Recent hawkish rhetoric regarding ZIRP which helped support the Yen has already been filtered into the market and additional comments should have a muted effect.
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.
EURUSD (1.2514 @ 05:54 GMT)
25-06-2006 Weekly Update: EURUSD broke the sideways consolidation zone last week with the break of 1.2537 38% retracement (from 1.1825-1.2979) supported by weekly stochastic pointing lower. But the pair remains in the bull wave from February with support now at 1.2415 and again at 1.2400 50% retracement which we favor to remain intact in the upcoming trading week. For the renewed upside acceleration a break of 1.2695 would give scope for a test of 1.2980 the inverse head and shoulders target.
Monday: EURUSD trading sideways in Asia with very little action. Look for the pair top out before US data around the 1.2760-70 area. For the downside look to sell the break of Friday's low 1.2475 for a test of 1.2400.
26 Jun 06
British Pound/US Dollar
GBPUSD (1.8189 @ 05:54 GMT)
25-06-2006 Weekly Update: GBPUSD resumed the downtrend this week with the break of 1.8340 38% (from 1.7229-1.9023), but remained well bid below 1.8126 50% from the current bull wave from February. For now the longer upside trend remains intact above 1.7915, but need to see 1.8530 resistance broken to confirm a continuation of the bull wave which would target the old high from May at 1.9023.
Monday: GBPUSD remains above 1.8130 50% from the Feb. bull wave Look for the pair to trade for a test of the 1.8240-60 area before US data. for the downside a break below 1.8130 support would give scope for 1.7915.
26 Jun 06
US Dollar/Japanese Yen
USDJPY (116.37 @ 05:54 GMT)
25-06-2006 Weekly Update: USDJPY took out major resistance last week at 115.75 supported by daily stochastic pointing higher. The pair still remains in a longer term bear channel from 1998 which capped the upside in 2005 presently at 119.80 which technically looks to cap any further medium term corrective rally. Key resistance this week is the G7 gap from April at 116.50-70 a close below this week would challenge 119.00 short term. For the downside key support is now at 114.35 with a break here giving scope for the longer term bear trend to resume.
Monday: USDJPY unable to trade through the 116.70 gap in a very quiet Asian session. Look to play a range bound USDJPY in the 115.75-116.70 range ahead of US data with a neutral stand. Look for breaks of either support/resistance to give direction through the NY and following Asian session.
26 Jun 06
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