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Forex Market Update
Published: Aug. 21 2006, 13:39 GMT
USD Softer Without Data Support
In a week with few economic releases in the US, traders should look towards non-USD activity.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ EuroZone Trade Balance(Jun) 2.0B vs. -1.0B
â€˘ Canadian Retail Sales (Jun) MoM -0.2 vs 0.3% exp., YoY -1.1B vs. -1.2% exp
FROM THE MORNING UPDATE
â€˘ French Non-Farm Payrolls QoQ (2Q P) out at 0.3% vs. 0.2% expected.
â€˘ French Wages QoQ (2Q P) out at 0.5% vs. 0.8% expected.
â€˘ Swiss Adjusted Retail Sales YoY (Jun) out at 4.8% vs. -2.3% previously.
â€˘ Canadian Wholesale Sales MoM (Jun) out at -0.6% vs. 0.3% expected.
â€˘ US University of Michigan Confidence (Aug P) out at 78.7 vs. 83.8 expected.
â€˘ UK Rightmove MoM (Aug) out at -1.6% vs. 2.9 previously.
THEMES TO WATCH â€“ UPCOMING SESSION
â€˘ Bush to speak at 14:00 GMT
â€˘ Japan All Industry Actitivty 23:10
USD looks very bearish
The Euro gained nicely on the strength of improving fundamentals and an ECB that is perhaps the most hawkish of the G7 central banks. In the addition the ECB has provided the market with much needed interest rate clarity. Todays, better then expected EuroZone Trade Balance, fundmentally supported a stronger EUR. The EUR broke significant resistance against the JPY at 149.00 and USD 1.2900. Traders will be watching to see if these highs hold through NY session.
Canadian retail sales continued to declined for a second straight month dropping to -0.2% vs. 0.3% expected. These figures suggest that the Canadian economy is not as healthy as forecast and might not reach the 3.2% pace the BoC forecast for 2Q. The slowing rate will discourage the CB from additional hikes over the current 4.25%.
FROM THE MORNING UPDATE
Fridayâ€™s weak U. Michigan Confidence, fell to 78.7 below the markets 83.8 expectations and historical 88.0 average, sent the USD lower after a strong start. The last of the USD bulls conceded that a (given all available information) a September hike was not in the cards. With a very light US calendar this week, there is little to support the USD. However, traders should not expect an all out collapse.
After last months sudden spike in producer and import prices todayâ€™s figures should all but cement the SNBâ€™s strategy to continue their steady pace of quarterly rate hikes. Switzerland accelerating economy (GDP 2.5% exp. in 2006) has allowed price increases to be passed from the producer to the consumer at a greater rate, then in the past, since higher wages and employment has supported the consumer sector. The SNB has risen rates three times in the last six months in an effort to prevent faster growth from continuing to feed inflation. At the SNB last monetary policy meeting Bank President Jean-Pierre Roth said â€śAt the moment weâ€™re of the impression that it will be necessary to take further stepsâ€¦weâ€™ll have to adjust interest rates further in September.â€ť The CHF should be support by the SNB aggressive policy towards inflation and traders should see near term appreciation.
Recent movement in the USDCAD has show some promise. The pair has been trading on the back of USD weakness and declining oil prices, then any particularly good news from CAD. After last months precipitous fall in Retail Sales MoM -0.6% we are expecting todayâ€™s Jun Retail Sales figures to rebound to MoM 0.3% exp. While these figures would signal stronger economic growth driven by the consumer and exports, a more important effect would be to fuel optimism the BoC will resume it monetary tightening regime. Should the market sentiment interpret the data in as an indication of further hikes we should break 1.1200 today and test 1.1100 intra-week.
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 (1.2898 @ 13:35 GMT)
EURUSD- Continued to gain on its bull rally from 1.2456 (Jul 19th) retesting Thursdays high 1.12890 in Asia. A thin US calendar and bearish USD sentiment will test the 1.2900 for a larger advance to 1.2970 lvl. Failure will find little support before the 1.2770 lvl.
21 Aug 06
British Pound/US Dollar
GBPUSD (1.8964 @ 13:35 GMT)
GBPUSD- Continues to look weak despite positive GBP data. Profit taking sent the pair to 1.8800 were it found fresh legs. A break above last Fridays 1.8870 highs will be need to see a up move while a collapse of 1.8800/10 could trigger a sell off.
21 Aug 06
US Dollar/Japanese Yen
USDJPY (115.76 @ 13:35 GMT)
USDJPY- Last weeks reversal off the 116.10 lvls bodes well for the JPY this week. A break of 115.19 will confirm short-term bearish bias towards 114.70. Watch for 115.40 minor s. lack of momentum could retry 116.10 / 38 lvls.
21 Aug 06
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