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Wednesday June 28, 2006 - 10:33:49 GMT
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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 – PREVIOUS SESSION
• US Existing Home Sales (May) 6.67m vs. exp 6.62m.
• US Existing Homes Sales (May) MoM -1.2% prior -2.0%.
• US Consumer Confidence (Jun) 105.7 vs. exp 103.8.
• Richmond Fed Manufacturing Index (Jun) 4 vs. exp. 7.
• ABC Consumer Confidence (Jun 26) -10 prior -12.
• NZ Trade Balance (May) down -103.50 vs. exp 50.00m.
• NZ Imports (May) 3.75b vs. exp. 3.10b.
• NZ Exports (May) 3.65b vs. exp. 3.20b.
• JP Large Retailers’ Sales (May P) -1.6% vs. exp. -1.5%.
• JP Retail Sales (May P) MoM 0.1% vs. exp. -0.4%.
• AU Conference Board Australia April Leading Index +.3%.

THEMES TO WATCH – UPCOMING SESSION

NZD
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 Kiwi’s credit rating on today’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.
USD Reliance
T
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.
FOMC

While the session is quiet we should take a second to briefly review our thoughts on tomorrow FOMC and subsequent comments.

Market Neutral
We expect, a 25bp cut accompanied by hawkish language “some further policy firming may yet be needed to address inflation risks,” 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 “the run-up on prices of energy and other commodities appears to have had only a modest effect on core inflation” needs to be adjusted thus leading to continued hawkish rhetoric after the hike.

USD Negative
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 Bernanke’s innate fear of inflation and FED members comments regarding inflations “unwelcome development.”

USD Positive
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 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 (1.2573 @ 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.

Resist.
1.2701
1.2644
1.2611
1.2573
1.2553
1.2529
1.2471
Support

Quoted:
28 Jun 06
05:53 GMT


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.

Resist.
1.8376
1.8298
1.8255
1.8226
1.8177
1.8142
1.8064
Support

Quoted:
28 Jun 06
05:53 GMT


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.

Resist.
117.96
117.12
116.70
116.26
115.86
115.44
114.59
Support

Quoted:
28 Jun 06 05:54 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.

Saxo Bank
Saxo Bank

 

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Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

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Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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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

Forex Trading Outlook


Trading Opportunities


  • 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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