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Forex Market Update - Strange Day Ahead
Published: Sep. 11 2006, 12:42 GMT
Strange Day Ahead.
Today has a unique place in the financial communities mind and traders will use the relative calm to position themselves for the week ahead.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€¢ China Trade Balance (Aug) 18.80B vs. 14.60B
â€¢ Sweden AMS Unemployment Rate (Aug) 4.6% vs. 4.9% exp.
â€¢ Norway CPI (Aug) mom -0.1% vs. 0.1% exp., yoy 1.9% vs. 2.1% exp.
â€¢ Norway CPI Underlying (Aug) mom -0.4% vs. 0.0% exp., yoy 0.4% vs. 0.6% exp.
â€¢ Norway Producrer Prices incl Oil (Aug) mom 0.6% vs. 0.3% exp, yoy 8.8% vs. 9.4%
â€¢ UK PPI Input (Aug) mom -1.2% vs. -0.5% exp, yoy 7.6% vs. 8.9% exp.
â€¢ UK PPI Output (Aug) mom 0.0% vs. 0.2% exp, 2.6% vs. 2.7% exp. Core Output mom /0.2% vs. 0.2% exp.
â€¢ UK DCLG House Pirces yoy 6.0% vs. 5.4% exp.
â€¢ Canadian Housing Starts (Aug) 213.7 vs. 229.0k exp
FROM THE MORNING UPDATE
â€¢ Italian GDP sa QoQ (2Q F) out at 0.5% as expected.
â€¢ E-Z OECD Leading Indicators (Jul) out at 109.1 vs. 109.8 previously.
â€¢ Canadian Unemployment Rate (Aug) out at 6.5% vs. 6.3% expected.
â€¢ Canadian Net Change in Empl. (Aug) out at -16.0K vs. 15.9K exp.
â€¢ US Consumer Credit (Jul) out at $5.5B vs. $6.8B expected.
â€¢ NZ Terms of Trade Index QoQ (2Q) out at 0.7% vs. -0.5% expected.
â€¢ Japanese GDP Annualized (2Q F) out at 0.2% vs. 0.3% expected.
â€¢ Japanese Machine Orders MoM (Jul) out at -16.7% vs. -5.4% expected.
â€¢ Japanese Machine Orders YoY (Jul) out at -1.2% vs. 12.3% expected.
THEMES TO WATCH â€“ UPCOMING SESSION
â€¢ Fed Kohn, Poole speak
The Yen was relatively stable despite mounting, conflicting pressures. On one side is the poor economic health of Japan and the other pressure from Europe to strengthen the JPY. Economic indicators looked dreary as annualized GDP grew 1.0% up from 0.8% prior but lower then the 1.2% forecasted figure. Machine Orders fell off a cliff, printing at -16.7 vs. -5.4% expected. On the release the JPY softened slightly. However there has been escalating speculation that European policy makers would demand for a stronger Yen at the G-7 meeting in Singapore. Last week German Deputy Finance Minister Mirow and ECB president both publicly expresses concern regarding the rapid appreciation of the EURJPY. In addition, Trichet noted a greater flexibility to allow â€˜a gradual and ordered appreciationâ€™ is warranted in Asian currencies, presumably addressing Chinaâ€™s currency policy. Breaks of 117 and 149 make the JPY look soft but rhetoric could provide support.
The sudden decline in commodity prices has taken its toll on the habitually strong AUD. AUDUSD continued its three day slide from .7720 highs dropping -2.6%. In addition, the abrupt USD strength last week caught historically high AUD net-longs off guard, forcing a rapid sell-off. With gold and metals in a free fall, AUD will continue to be under pressure. A leveling off in commodity prices will provide a good opportunity to build long AUD positions.
Canada has seen a similar fate as the AUD but lacks the strong economic fundamentals to support CAD strength should commodity prices rebound. Last weeks substandard economic released in building permits, unemployment rate and todays Housing Starts (213.7k vs. 229.0k exp.) illustrates an economy in a malaise. In the last three days of trading USDCAD fell 1.6% and continued to look soft in Asian trading. With a full plate of economic releases this week and market sentiment clearly bearish, we will be looking to build USDCAD long positions above 1.1200.
US traders will be taking it easy today in light of Sept. 11th. Just off a busy USD week and with no economic releases, traders will take this opportunity to examine current positions and prepare for the coming barrage of economic data. Last month we saw a leveling off of economic figures suggesting the deceleration in the US might have stabilized. We will be watching for confirmation or rejection of this assumption. Currently the USD looks very strong and the inability for the majors to gain ground despite weak economic conditions suggest the market has already priced in the slowdown. The direction of the USD will be defined by this week releases.
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 (1.2715 @ 12:28 GMT)
EURUSD- closed below 1.2695 putting a renewed bearish tone on the cross. The pair was well bid in the 1.2650-60 area Friday which looks to be a short term bottom. Look to sell rallies towards 1.2735-55 resistance with stop above 1.2785. Or wait for the pair to break Friday's low which would give scope for 1.2560.
11 Sep 06
British Pound/US Dollar
GBPUSD (1.8657 @ 12:29 GMT)
GBPUSD- closed Friday below 1.8775. Only a weekly close above would improve the daily technical picture. For today sell rallies towards 1.8730-40 resistance with stop above 1.8780. Or wait and place an order to sell just below 1.8625 support for a 1.8500 target further out this week.
11 Sep 06
US Dollar/Japanese Yen
USDJPY (117.39 @ 12:29 GMT)
Despite USDJPY's upside trend is still intact the major triangle pattern from May 2006 suggest a major move in USDJPY sometime in the near future. For now the 115.15-117.10 suggest range trading. But look for a break of either level to spark direction for the next few weeks. Look to play the 116.35-117.10 ahead of a break.
11 Sep 06
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