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Forex Market Update: Waiting on Bernanke

Published: Aug. 25 2006, 12:10 GMT

Waiting on Bernanke

Markets stay in a tight range (except for JPY which took a beating) before todays main event. And in this corner Ben Bernanke...

MAJOR HEADLINES – PREVIOUS SESSION
• Norway Unemployment Rate (Jun) 3.2% vs. 3.4% exp.
• UK GDP (2Q P) mom 0.8% vs. 0.8% exp., yoy 2.6 vs 2.6% exp
• UK Private Consumption (2Q P) 1.0% vs. 0.8% exp,
• UK Exports (2Q P) 4.4% vs. 4.8 % exp, Imports 4.4% vs. 3.7% exp.
FROM THE MORNING UPDATE
• German GDP sa QoQ (2Q F) out at 0.9% as expected.
• Swiss Employment Level (2Q F) out at 3.651M vs. 3.644M previously.
• Swedish Unemployment Rate (2Q) out at 6.0% vs. 6.2% exp. PPI MoM (Jul) out at 0.3% as exp.
• German IFO Business Climate (Aug) out at 105.0 vs. 104.8 expected.
• German IFO Curr Assessment (Aug) out at 108.6 vs. 108.0 expected.
• German IFO Expectations (Aug) out at 101.5 as expected.
• US Durable Goods Orders (Jul) out at -2.4% vs. -0.5% expected.
• US DGO Ex Transportation (Jul) out at 0.5% vs. 0.3% expected.
• US Initial Jobless Claims out at 313K vs. 315K expected.
• US New Home Sales (Jul) out at 1072K vs. 1100K expected.
• US New Home Sales (Jul) out at -4.3% vs. -2.7% expected.
• NZ Food Prices MoM (Jul) out at 0.8% vs. 1.0% previously.
• Japanese CPI figures for July/Nationwide generally lower than expected, but Aug/Tokyo figures were a lot higher than expected.


THEMES TO WATCH – UPCOMING SESSION
FOMC Chairman Bernake's speech at 14:00gmt

USD
All eyes are squarely on Fed Chairman’s Bernanke’s Wyoming symposium on “Global Economic Integration.” While the main theme will likely touch the in topic of the year China, the market is looking for something meatier. Any comments on the currently economic condition or better yet outlook of monetary policy will see a strong market reaction. In Europe, traders have position the USD for hawkish comment and anything less will see a rapid USD sell-off. The neutral line will be the standard expectations for slowing US economic environment to hold inflation pressures in check. However, there is a surprise factor in Bernanke taking this opportunity to clarify current monetary policy and FOMC strategy. There is considerable event risk on both sides. That said if Bernanke chooses the dovish path we should see the EURUSD back to 1.2850 in a hurry.

FROM THE MORNING UPDATE
UK figures should support a stronger GBP.
Technically, todays charts look identical to yesterdays trading pattern. If this holds true we should see a weaker USD through Europe and NY. Traders should look to 48 hr charts for levels.

USD
Despite almost every US indicators (Durable goods, Initial Jobless Claims and New Homes Sales) failing below previous figures as well as analysis estimates the greenback rallied in Asia. Clearly the USD will not go down quietly. However, with no US events until Bernanke’s scheduled speech tonight, we should see the USD weaken within the range.
The market will be very nervous before Bernanke’s Wyoming speech as there is significant uncertainly surrounding the content and thoughs on monetary policy.

JPY
Japan core CPI yoy grew less then expected to 0.2% vs. 0.5% exp. This was the second straight month of growth (but revised figures falling in January and April) and a positive sign for the Japanese economy concerned with deflation. The Ministry of Internal Affairs and Communications begun to use a new product basket and base year in computing CPI figures this month, which caused the prior month to be revised down from 0.6% to 0.2%. There was some concern that the new basket would cause the figures to be lower but the market did not expect the size of the drop. The lack of inflation pressure filtering to core sent the JPY weaker as trader viewed the probability of additional tightening in 2006 lessen. After the release MoF minister Yosano said the revised CPI still suggests a trend in rising prices and BoJ stance to slowly adjust monetary policy correct.

NZD
The Kiwi continued to slide in Asia as market sentiment has turned on the currency. Traders have increasingly been concerned with the rising country’s debt level selling the NZDUSD. Todays lower then expected Food Prices indicate perhaps a slowing of inflation in New Zealand taking pressure off the RBNZ in furthur tighten. In addition, the change in the USD outlook has speculators moving assets in the greenback. The pair looks very vulnerable against the USD and EUR.

from yesterdays note
New Zealand’s Trades Balance came in larger then expected rising to -744.7m vs. -450.00m from a revised downward deficit of -191.0m in July. The Kiwi sold off in dramatic fashion on the figures. However deeper inspection show, while imports continued to be pressured by rising oil prices, the larger culprit was the import of a single aircraft. Carve out the aircraft the figure doesn’t look so bad. This realization should support the NZD in the short term. That said we continue to see the Kiwi under pressure on both a technical and fundamental levels. Perhaps the markets have been overzealous in pricing in additional RBNZ hikes given rise to its rapid appreciation. A lack of data (except retail sales) until the RBNZ meets on the 13th of September doesn’t bode well for the currency.

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 (1.2770 @ 12:05 GMT)
EURUSD- a second day of whipsaw action saw the pair spike to 1.2820 then continued its strong reversal from Monday 1.2940 highs. 1.2760 minor support held in Asia. Trading below the 20d MA looks bearish. A break below 1.2720 to confirm ST. Pair still squarely in 2 month bullish trend. Need to break 1.2790 for a retest of 1.2850. PLAY THE RANGE

Resist.
1.2973
1.2880
1.2822
1.2770
1.2728
1.2693
1.2599
Support

Quoted:
25 Aug 06
12:05 GMT


British Pound/US Dollar
GBPUSD (1.8887 @ 12:05 GMT)
GBPUSD- Same pattern as Wed/ Thurs. Yesterday broke out of the pairs bearish ST bearish channel and retesting 1.8970. Retraced on strong USD momentum. Todays UK figures could break the pair out of 1.8850 / 1.8990 strong resistance.Play the range.

Resist.
1.9130
1.9015
1.8941
1.8887
1.8826
1.8785
1.8670
Support

Quoted:
25 Aug 06
12:05 GMT


US Dollar/Japanese Yen
USDJPY (117.18 @ 12:05 GMT)
USDJPY- Disappointing CPI figures saw a weaker JPY. Failure to test the range support lvls sent the pair back to test the range resistance . Range bound 116.02 – 117.20 lvls. Upside break should provide a longer term direction.

Resist.
117.30
116.87
116.70
117.18
116.26
116.00
115.56
Support

Quoted:
25 Aug 06
12:05 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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Amazing Trader EVENT RISK Calendar:

Mon 18 Dec
10:00 EZ- final HICP
Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account
Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude
Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP
Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes
Mon 25 Dec
00:00 Christmas Holidays

Forex Trading Outlook


Potential Trading Opportunities

  • POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.


  • POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
  • POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity

  • POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
  • POTENTIAL PRICE RISK: Medium- Wed --15:30-- US- EIA Crude

John M. Bland, MBA
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EXCLUSIVE: Global-View Free Forex Database updated




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