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Forex Market Update
Published: Jul. 24 2006, 13:35 GMT
Canadian data disappoints in a summer market.
The market seems rather confused as Bernanke's testimony suggested a possible stop in the current rate hike cycle leaving with mixed signals.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€¢ UK Car Production S:A 3mth/3mth (Jun) 0.4% vs. 1.6% prior, 3mth/ yr 4.3% vs. prior -6.6%
â€¢ EC Industrial New Orders SA (May) MoM 2.3% vs. -0.2%, YoY 14.2% vs. 9.0%
â€¢ Hungary raises Base Rate 50bp to 6.75%
â€¢ Canada Retail Sales (May) MoM -.6% vs. 0.0%, YoY -0.2% vs. 0.3% exp
FROM THIS MORNING UPDATE
â€¢ China raises reserves requirements to curb lending.
â€¢ UK GDP (2Q A) QoQ o.8% vs. exp. 0.7%, YoY 2.6% vs. exp. 2.5%.
â€¢ CA Consumer Price Index (Jun) MoM -0.2% vs. exp. 0.1%, YoY 2.5% vs. exp. 2.8%.
â€¢ CA CPI Excluding Core 8 (Jun) -0.2% vs. exp. 0.1%, YoY 1.7% exp. 2.1%.
â€¢ AUD Producer Price Index (2Q) QoQ 1.6% vs. 1.1% exp., YoY 4.5%.
â€¢ Japan Latest polls show Shinzo Abe leading the race to be the next PM. Mainichi Shimbun survey shows Abe with 44% support rate in a July 23-24 poll and at 42% support in a Nihon Keizai Shimbun survey. Meanwhile Fukuda remains a distant second at 11% support in the Mainichi poll and 12% in the Nihon Keizai survey.
â€¢ Saudi Arabia's oil minister said over the weekend that OPEC producers want to avoid high oil prices that may harm global economic growth.
â€¢ Japan Supermarket Sales June (YoY), out at -2.5% vs. -3.4% expected.
THEMES TO WATCH â€“ UPCOMING SESSION
The markets continues to lack focus and drift, for most of Asia and Europe sessions, showing a lack of conviction in traderâ€™s outlook. Last weeks high volatility, Middle East tensions, uncertainty created by Bernankes dovish comments and a heat wave in Europe and the US, has weighted on speculators enthusiasm. Unless this weeks US economic data provides some clarity, we believe most traders will be sidelined. However, should we start seeing unexpected figures in the US or else where look for the lower volumes to exaggerate volatility.
CAD continued to disappoint the market with a lower then expected Retail Sales figure which came in at MoM -0.6% vs. 0.0% forecasted. These weak figures triggered a selloff in CAD and sent the USDCAD through the significant 114.00 lvls. For CAD bulls there seems to be no relief in sight as last week CPI figures eliminated the BoC tightening outlook in the near term and Canadaâ€™s economy slows. In this thin calendar week expect continue CAD weakness unless Wednesday Industrial Product Prices comes out higher then forecast.
FROM THIS MORNING UPDATE
USD traded higher in Asia, but the effects of a dovish Bernanke will likely continue to filter through the market. We expected the overall market to be relatively range bound as traders use this time to figure out the global rate outlook. However we should be ready for sudden movements as the lower volumes markets get pushed around.
The JPY got a huge lift from China on Friday as the PBoC increased bankâ€™s reserve requirements in order to limit credit which has flooded the market and become an economic risk.
CAD disappointed the market with lower then expected CPI which leaves core at 1.7%, which is event less then the BoC had anticipated and will allow the BoC to continue hold current policy stance.
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 (1.2635 @ 13:33 GMT)
Weekly Update 23-07-2006: EURUSD broke the June lows last week, but was unable to close below 1.2465 50% retacement (form 1.1950-1.2979) keeping the bull trend line from February intact. Look for a daily close above 1.2705 which would give scope for increased upside acceleration for a retest of the inverse-head-and shoulder target at 1.2980.
Monday: EURUSD trading off the highs from Friday in New York through the Asian session. Look to either buy the break of 1.2710 for a test of 1.2775 or buy on dips towards 1.2585-1.2610 with stop below 1.2555.
24 Jul 06
British Pound/US Dollar
GBPUSD (1.8528 @ 13:34 GMT)
Weekly Update 23-07-2003: GBPUSD broke key resistance last week at 1.8545 which was the level to look for if upside acceleration was once again to be seen. This gives scope for a 1.8750 and possible 1.8900 target in the upcoming trading week. Intra-week support is now at 1.8400.20.
Monday: GBPUSD lower on a stronger dollar through the Asian session, but we expect the pair to remain with the short term bullish pattern for new weekly highs in the upcoming trading days. Buy dips towards 1.8470-00 with stop below 1.8435.
24 Jul 06
US Dollar/Japanese Yen
USDJPY (116.71 @ 13:34 GMT)
Weekly Update 23-07-2006: USDJPY made a sharp reversal last week after falling short of testing 118.00 resistance. The pair continues to trade within the longer term bear trend line from 1998 presently at 119.00 and last weekâ€™s sell-off gives scope for a 114.65 target this week 38% retracement (from 108.97-117.86) and then to 113.40 support.
Monday: USDJPY looks range bound ahead of the European opening. Look to play the 117.00-116.00 range, but with as bearish bias. A break of Friday's lows at 115.80-90 gives scope for a test of 115.10 support.
24 Jul 06
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