Share This Story
Forex Market Update
Published: Jul. 18 2006, 12:19 GMT
Inflationary data from the UK reverses GBP slide. Market watching the US figures.
The market is still overwelmingly focused on the escalation in the Middle East, however some attention is being placed on CB rate outlooks.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€¢ UK CPI (Jun) MoM 0.3% vs 0.1% exp., YoY 2.5% vs. 2.3%% exp.
â€¢ UK Core CPI (Jun) YoY 1.2% vs. 1.2% exp.
â€¢ UK RPI (Jun) MoM 0.4% vs. 0.1% exp., YoY 3.3% vs. 3.0% exp.
â€¢ German ZEW Survey Econ. Sentiment (Jul) 15.1 vs. 35.0 exp.
â€¢ German ZEW Current Situation (Jul) 23.3 vs. 14.0
â€¢ EC ZEW Survey Economic Sentiment (Jul) 18.1 vs. 35.3
FROM THE MORNING UPDATE
â€¢ Canadian New Motor Vehicle Sales (May) MoM -1.0% vs. -1.0% exp.
â€¢ Canadian International Securities Transaction (May) higher C5.721 vs. C1.500.
â€¢ US Empire Manufacturing (Jul) down 15.6 vs. 20.0.
â€¢ US Industrial Production (Jun) up 0.8% vs 0.5% exp.
â€¢ US Capacity Utilization (Jun) slightly up 82.4% vs. 82.0 exp.
â€¢ UK RICS House Price Balance (Jun) 28% vs. 20% exp.
â€¢ Japan Tertiary Industry Index (May) MoM up 0.5% vs. -0.3% exp.
â€¢ Japanese Bankruptcies (Jun) YoY -7.9% vs. prior 1.0%.
â€¢ China GDP (2Q) massive 11.3% vs. 10.4 exp.
â€¢ Russia Central Bank gives Ruble greater flexibily - up 0.3% against usd / eur basket.
THEMES TO WATCH â€“ UPCOMING SESSION
â€¢ 12:30 US PPI index (Jun) MoM exp. 0.3%, YoY exp. 4.5%
â€¢ 12:30 US PPI Ex Food & Energy (Jun) MoM exp. 0.2%, YoY exp. 1.9%
â€¢ 13:00 US Net Foreign Security Purchases (May) exp $56.0b
â€¢ 13:00 US NAHB Housing Market Index (Jul) prior -10
â€¢ 22:45 NZ Visitors Arrivals (Jun) prior -1.3%
Amazing how much difference a few hours can make in the fx markets. Going into Europe the markets were overridingly bearish on the GBP prospects, trading the GBPUSD down over 1.0% in the last 24hrs. Then the UK released a batch of CPI and RPI figures which passed analysis forecasts, hitting a nine-year high had inflationary pressure written all over them. In addition, YoY CPI held above the 2.0% BoE target for the second straight month. On the rejuvenated rate outlook traders reversed the downward trend, sending the GBPUSD up 0.7%. With only the dated BoE minutes out tomorrow we will be watching for rate supporting comments.
A weak Euro Zone and German ZEW Survey, which slid to a year low, did nothing to reverse the pervasive EUR bearish view. These figures point an economy were continued confidence is declining regardless of the regions positive growth numbers. Traders are beginning to speculate if the ECB will aggressively purse tighten with slowing growth after Augusts .25% rate hike.
The market will be watching intently figures from the US this afternoon which have strong implications on tomorrows US CPI and the overall FED rate outlook. Should these numbers come in above forecast the market is likely to start pricing in additional hikes, providing additional USD strength. While the markets have shrugged of poor Current Account figures, it might be watching TICS data for overseas interest and deficit support. All US figures should be view with the macro context in mind. The risk aversion trade should provide some downside support should the figures print on the low side, while any figure higher will trigger USD buying.
FROM THE MORNING UPDATE
JPYThe Yen continued to see significant selling pressure on the back of the BoJâ€™s rate decisions and perceived lack of creditability. With very little reliable information to forecast future monetary policy decision traders have resided themselves to not seeing additional hike until 2007 the earliest. The USDJPY tested critical resistance at 117.00 before moving back slowly. Figures from Japan this morning show a Japanese consumer that is slowing spending and in an economy that consumption accounts for around 60% of GDP and decline could hint to a possible deceleration in the economy. Given the possibility of an economic slowdown and lack of decisiveness in The BOJ we continue to see JPY weakness.
After a punish day of dropping almost 1.0% against the greenback, the pound gained slightly thanks to stronger then expected RICS data overnight. The figures printed at 28% vs. 20% expected, which might prove a good indication of the direction of the UK economy. In addition an increase in homes which accounts for roughly 60% of English wealth might force the BoE to rethink its current neutral monetary policy. However until we hear some hawkish rhetoric or see inflationary number we will continue to be bearish on the GBP.
Market sentiment has clearly turned from the EUR dropping over 1.0% against the USD, as trader were attracted by higher interest rates and safe haven status. The current weakness clearly has more to do with war then fundamentals. Today, we should see the seventh consecutive drop in ZEW current economic sentiment which doesnâ€™t bode well for the prospects of the EUR a sentiment has decline despite improving growth.
The greenback continued to be supported by risk adverse asset flows. Today the USD might pick up additional support from the prospects of additional rate hikes in August. The release of PPI which is forecasted to grow 0.3% in June and important Core PPI up 0.2% will be a indication to where inflation is moving. We expect higher energy prices to push PPI up. Speculation, War in the middle east, summer driving have all support higher crude prices which have sever consequences on inflation in the consumer and producer sectors. Any support for a rate hike will have positive effects on the USD.
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 (1.2530 @ 12:16 GMT)
Weekly Update 16-07-2006: EURUSD made a sharp reversal last week, with both daily and weekly stochastic pointing lower. The pair failed to break 1.2623 61% (from 1.2476-1.2860) Friday which coincides with the bull trend line from late June. But a daily close below this week would give scope for more downside a acceleration for a test of 1.2480 and possibly the double top at 1.2320. For the upside a break of 1.2760 would improve the current technical picture.
Tuesday: EURUSD tested and broke fibo support at 1.2623 in yesterday's European trading session. Look to sell rallies towards 1.2570-85 with stop above 1.2600. Or sell the break of 1.2480 for increased downside acceleration for a test of the old double top at 1.2320.
18 Jul 06
British Pound/US Dollar
GBPUSD (1.8294 @ 12:16 GMT)
Weekly Update 16-07-2006: GBPUSD continued its sideways consolidation pattern last week, but traded with a bearish bias. The downside was limited to a test of 1.8315 50% (from 1.8088-1.8539) a close below this week would give scope for a test of 1.8260 61%. A break here is needed if the downside is accelerate and would target 1.7935. For the upside a close above 18540 is needed to give the daily picture a bullish bias and would target 1.8750 short term.
Tuesday: GBPUSD saw a massive sell-off yesterday, with the break of 1.8260 fibo support giving scope for increased downside acceleration for a possible test of 1.8100 short term. For today look to sell rallies towards 1.8255 stop above 1.8310.
18 Jul 06
US Dollar/Japanese Yen
USDJPY (117.00 @ 12:16 GMT)
Weekly Update 16-07-2006: USDJPY recovered last week to remain in the bull channel from May presently at 113.90 where a break is need for the pair to resume the longer term downtrend. For the upside the pair has still not been able to close above the G7 gap from April at 116.55-70. A break is needed for the upside to accelerate and target the bear trend line from 98 at 119.05.
Monday, Tuesday: USDJPY once again higher trough the Asian session despite Japanese holiday. But we still need to see a break of the 116.55-70 resistance to likely find renewed upside acceleration near term for a 118.00 target.
18 Jul 06
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.
Forex Trading News
Daily Forex Market News
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
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."