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Forex Market Update
Published: Aug. 17 2006, 06:19 GMT
USD Looks Vulnerable
Yesterday's soft CPI and weak growth figures equals a weaker USD.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€¢ UK Claimant Count Rate (Jul) out at 3.0% as expected. Jobless Claims Change out at 2K vs. 5K expected.
â€¢ Norwegian Rate Decision out at 3.00% as expected (a hike of 25 bps)
â€¢ US CPI MoM (Jul) out at 0.4% as expected.
â€¢ US CPI Ex Food & Energy MoM (Jul) out at 0.2% as expected.
â€¢ Canadian Manufacturing Shipments MoM (Jun) out at 1.9% vs. 0.2% exp.
â€¢ US Housing Starts (Jul) out at 1795K vs. 1808K expected. Building Permits (Jul) out at 1747K vs. 1840K expected.
â€¢ US Industrial Production MoM (Jul) out at 0.4% vs. 0.6% expected.
â€¢ US Capacity Utilization (Jul) out at 82.4% vs. 82.7% expected.
â€¢ API/DOE Energy Storage showing a bigger draw than expected.
â€¢ Australian Avg. Weekly Wages QoQ (May) out at 0.6% vs. 0.9% previously.
THEMES TO WATCH â€“ UPCOMING SESSION
After a broad based decline in US trading the USD finally firmed in Asia. The greenback took a hit on two sides as CPI figures showed an easing of pressure and growth indicators highlighted a decelerating economy. Markets speculated that these reading all but ending their hopes of additional tightening at Septembers FOMC meeting. Fed Reserve Bank of Dallas President Fisher commented yesterday that the US economy is slowing from unsustainable pace and increases in central bank rates globally will help lower inflation. The USD looks extremely vulnerable with little positive information in the near future to change the markets bearish sentiment. Todayâ€™s release ( Initial Jobless Claims and Leading Indicators) should show a continued moderate slowdown in the US and weaken the USD further.
Its been a while since the market has paid attention to the Euro-zone but today they are back in focus with two critical indictors. CPI and Industrial production will give the market a glimpse at growth and inflation, what could be better or more timely then that. An uptick in both indicators will give the ECB and the market confidence further monetary tightening is near and provide the EUR with continued support. If the market is looking for a trigger to break above 1.2900 this could be the event.
Sweden / SEK
While Industrial Production cooled slightly to YoY 3.1% vs 4.0% exp and 6.3% in June, Industrial Orders were ramped up to MoM 12.2% vs. 5.4% exp. and -7.8% in June. Growth in the economy has been the fastest in six years lead by consumer spending and exports. In addition, the Riksbank has expressed concern regarding mounting inflationary pressures and a willingness to raise rates three more times above the current level 2.25% by the end of they year. The SEK looks very undervalued right now.
UK Retail Sales looks to continue its strong 2006 growth. Reports of a warm summer and world cup spillover helped spur on consumer spending, which makes up two-thirds of Englandâ€™s GDP. These figures on top of an already accelerating economy should provide additional support for the pound. Traders should watch for the GBPJPY to retrace to the 220.00 lvls.
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 (1.2854 @ 06:11 GMT)
EURUSD â€“ Driven higher by soft US CPI figures. Strong gains in the last two days reaching highs of 1.2865. Having found support at 1.2850, we should see a retest of 1.2865 intra day. A break will test 1.2893 â€“ 1.2910 signif. resistance (Aug highs). Any downside reversal will be held at 1.2800.
17 Aug 06
British Pound/US Dollar
GBPUSD (1.8981 @ 06:11 GMT)
GBPUSD â€“ after a sharp spike to 1.9020 the pair pulled back below 1.9000. A break and close above the 1.9000 will confirm the renewal of the month long bull channel and a test of 1.9090. Interim support at 1.8920.
17 Aug 06
US Dollar/Japanese Yen
USDJPY (115.54 @ 06:12 GMT)
USDJPY â€“ Not much holding up pair intraday. Looking to test 115.15 strong support then on to 114.70. We would need to break 116.30 to suggest renewed strength.
17 Aug 06
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