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Forex Market Update
Published: Jun. 28 2006, 05:54 GMT
Markets extremely focused on Thursday FOMC
USD gains slightly as traders see resilient US economy on the back of better then expected housing numbers and consumer confidence.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ US Existing Home Sales (May) 6.67m vs. exp 6.62m.
â€˘ US Existing Homes Sales (May) MoM -1.2% prior -2.0%.
â€˘ US Consumer Confidence (Jun) 105.7 vs. exp 103.8.
â€˘ Richmond Fed Manufacturing Index (Jun) 4 vs. exp. 7.
â€˘ ABC Consumer Confidence (Jun 26) -10 prior -12.
â€˘ NZ Trade Balance (May) down -103.50 vs. exp 50.00m.
â€˘ NZ Imports (May) 3.75b vs. exp. 3.10b.
â€˘ NZ Exports (May) 3.65b vs. exp. 3.20b.
â€˘ JP Large Retailersâ€™ Sales (May P) -1.6% vs. exp. -1.5%.
â€˘ JP Retail Sales (May P) MoM 0.1% vs. exp. -0.4%.
â€˘ AU Conference Board Australia April Leading Index +.3%.
THEMES TO WATCH â€“ UPCOMING SESSION
The NZDUSD spiked below the psychological .6000 in early Asian session on the release of a worst then expected Trade Balance (-103.50 vs. 50.00 exp.). In addition there is talk that the S&P may downgrade the Kiwiâ€™s credit rating on todayâ€™s data as well as a massive current account deficit which rose to 9.3% of GDP in Q1. We are very bearish on the NZD outlook.
he USD gained ever so slightly on a growing confidence by some trader in US economy. With Mondays New Home Sales (1234k) and yesterdays Consumer Confidence (105.7) and Existing Homes Sales (6.67M) all better then expected might show a reliant US economy and the ability to absorb additional rate increases.
While the session is quiet we should take a second to briefly review our thoughts on tomorrow FOMC and subsequent comments.
We expect, a 25bp cut accompanied by hawkish language â€śsome further policy firming may yet be needed to address inflation risks,â€ť a view overwhelmingly supported by the market. The FED will acknowledge a slowing economy from 1Q into Q2 which will indicate inflationary pressures. In fact the recent 0.3% jump in June 14th inflation, which has seen the effects of higher energy and commodity prices filter down into core is one of the FEDS biggest concerns. Last FED meetings phase â€śthe run-up on prices of energy and other commodities appears to have had only a modest effect on core inflationâ€ť needs to be adjusted thus leading to continued hawkish rhetoric after the hike.
An alternative scenario would be for the FED to increase interest rates by 25bp but remove the inflation fighting rhetoric from their language. While the weakest of the arguments due to Bernankeâ€™s innate fear of inflation and FED members comments regarding inflations â€śunwelcome development.â€ť
Perhaps the most interesting scenario, while still being a very long shot, would be for the FED to hike 50bp. Moving to 5.50% from 5.00% equivalent of an economic punch in the stomach for the US economy. The basic rational for this extreme tightening would address to inflation while the growth still looks resilient and has the ability to absorb the shock. This action would be aggressive for the hawks while give the doves some reprieve from 17 straight hikes.
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 (1.2573 @ 05:53 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.
Wednesday: Once again US housing data surprised to the upside, but the dollar was unable to show any sign of strength as the FOMC rate decision tomorrow will be what the market is likely looking to trade. So for today look to play the 1.2530-1.2630 range with a preferred bullish bias.
28 Jun 06
British Pound/US Dollar
GBPUSD (1.8226 @ 05:53 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.
Wednesday: GBPUSD remains above 1.8130 50% from the February and we look for the short term bullish bias to continue with a break of 1.8260 which would challenge 1.8300-20 resistance in the upcoming trading day.
28 Jun 06
US Dollar/Japanese Yen
USDJPY (116.26 @ 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.
Tuesday, Wednesday: USDJPY quiet yesterday, but remains short term bearish the break below the 116.00 in Asia gives scope for a 115.35 target. For the 116.55-70 should cap any upside move for now.
28 Jun 06 05:54 GMT
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