| Market Overview | Written by ActionForex.com | Jul 26 08 22:00 GMT | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A coupled of themes further developed in the forex markets last week. Dollar rebounded broadly on revived speculations on a near term rate hike from Fed. Markets are now pricing in around 50% chance that Fed will hike in Sep or Oct after Fed Plosser's hawkish comments. Yen had another extremely volatile week as investors' risk appetite flip-flopped and settled sharply lower against dollar and sterling. Euro, on the other hand, was soft after a string of disappointing sentiments indicators. Sterling was boosted by more hawkish than expected vote split revealed in BoE minutes. However, the most notable theme was indeed the lost of interest in commodity currencies. Among them, New Zealand dollar suffered most after RBNZ's surprised rate cut during the week. Canadian dollar was dumped further after crude oil dropped another 1.5% to $123.42 a barrel, over 16% off it's record high above $147 made on Jul 11. Aussie was dragged down by the kiwi as well as sharp fall in gold prices. AUD/JPY, NZD/JPY and CAD/JPY closed lower even though the yen was under tremendous pressure elsewhere. Technically speaking, the outlook in major pairs and crosses are mixed. On the one hand, dollar is still holding below near term resistance level against Euro, Sterling and even the Aussie, and thus there is not confirmation of a reversal yet. Though, outlook is USD/JPY, USD/CHF and USD/CAD are both suggesting more upside in the greenback should be seen. Euro is attempting an upside breakout against Swissy and at the same time a downside breakout against Sterling. Yen crosses remained generally very volatile. Also, considering that US Q2 GDP and Non-farm payroll will be featured this week, along with the development in equity and commodity markets, the forex markets will likely remain mixed and volatile this week.
Dollar was talked up by Fed Plosser's hawkish comments early last week. Plosser argued that monetary policy makers will have to "back up their words with actions" to keep inflation expectations anchored. Fed will need to "reverse course" and Plosser anticipate the reversal to be started "sooner rather than later". Fed's Beige Book noted that all of the 12 districts said that prices were "elevated" or "increasing, supporting recent hawkish rhetoric of Plosser. Though, five districts reported a "softening in their overall economies". On the data front, Jun durable goods orders came in much stronger than expected. Headline orders rose for the second consecutive months by 0.8% versus expectation of -0.3% fall. Ex-transport orders is even more impressive, rising strongly by 2.0%, largest monthly increase since last Dec, versus expectation of -0.2% fall. U of Michigan sentiments revised sharply higher to 61.2. New home sales dropped -0.6% to 530k, above exp 504k. Though, existing home sales dropped more than expected by -2.6% mom to 4.86m annualized rate in Jun. Jobless claims surged back to above 400k to 406k. Leading indicators dropped -0.1% in Jun, inline with expectation. House price index dropped -0.3% mom in May, better than expectation of -0.8%. Sentiments in Eurozone businesses continued to deteriorate. German Ifo business climate fell much more than expected from 101.2 to 97.5 in Jul, hitting the lowest level since mid 2005. Current situation component also dropped further from 108.3 to 105.7. Expectation component dropped from 94.6 to 90.0. The indices of trade & industry, construction, wholesaling and retailing were all in negative territory with manufacturing index being positive only. In addition, PMI manufacturing and services both fell more than expected to 47.5 and 48.3 respectively in Jul, remaining in contraction region below 50. The data argues that growth in the Eurozone, including in Germany, will continue to slow throughout the rest of the year and into 2009. Other data from Eurozone saw current account deficit much wider than expected at -21.4b in May. Industrial orders dropped more than expected by -3.5% mom, -4.4% yoy in May. M3 monthly supply growth slowed sharply to 9.5% yoy, below expectation of 10.3%. Sterling was boosted by the BoE minutes which surprisingly showed a three way split in voting to keep rates unchanged at 5.00% earlier this month. Markets expected a 8-1 vote but the results showed a 1-7-1 split, with Besley voted for a hike and Blanchflower voted for a cut, with seven other members voted for no change. Besley called for the hike to anchor inflation as well as ensuring BoE's credibility. Q2 GDP came in as expected by 0.2% qoq, 1.6% yoy. Though, retail sales dropped more than expected by -3.9% mom in Jun, biggest fall since at least 1986. Yoy rate also dropped down from 7.9% to 2.2%. Rightmove house prices index showed deeper drop by -1.8% mom, -2.0% yoy in Jul. Swiss combined PPI climbed 0.6% mom, 4.5% yoy in Jun, up from prior 1.2% mom and 3.9% yoy and beat expectation of 0.4% mom, 4.3% yoy. Trade surplus jumped to 2.41B in Jun. Japan national CPI beat expectation and climbed 2.0% yoy in Jun. Corporate Service Price Index rose 1.2%, much stronger than expectation of 0.6%. All industry index climbed 0.4% in May, inline with expectation. Trade surplus released overnight shrank to 138.6b on strong growth in imports by 16.2% and a -1.7% drop in imports. Canadian Headline CPI in Canada surged sharply from 2.2% yoy to 3.1% yoy in Jun, beating expectation of 2.9%. Core CPI, though, was unchanged at 1.5% yoy, below consensus of 1.6%. May retail sales report missed expectation. Headline sales grew 0.4% versus consensus of 0.6% while ex-auto sales grew 0.4% versus expectation of 0.8%. Australian CPI jumped from 1.3% to 1.5% qoq in Q2, with yoy rate pushed up from 4.2% to 4.5%, above expectation of 1.3% qoq, 4.3% yoy. The core CPI, RBA trimmed mean jumped to 1.2% qoq, 4.3% yoy, hitting a 17 year high. Q2 PPI softened from 1.9% qoq to 1.0% qoq and from 4.8% yoy to 4.7% yoy. Markets expected a 5.3% yoy jump in PPI. RBNZ's surprised the markets by 25bps cut in OCR and issued a rather dovish statement. In the accompanying statement, RBNZ noted that "economic activity is likely to remain weak over the remainder of 2008," and "provided that the outlook for inflation continues to improve and there is no excessive exchange-rate depreciation, we would expect to lower the OCR further." | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Week Ahead
Developments in the equity markets and commodity markets will continue to be major driving forces in the forex markets, in particular, triggering volatility in Yen and Aussie. Meanwhile, note that while EUR/USD and AUD/USD are still both holding above key near term support, the bullish outlook is looking shaky. Much focus will be on this week's Q2 GDP, Non-farm payroll as well as ISM manufacturing index on whether the greenback can extend the board based rebound.
Other focus of the week include US consumer confidence, Chicago PMI, Eurozone HICP flash, unemployment rate & PMIs. Germany Gfk consumer confidence, UK Manufacturing PMI and Gfk survey. Japanese unemployment and retail sales, Swiss KOF leading indicator and CPI, Canadian May GDP, Australia retail sales and trade balance, New Zealand Trade Balance.
USD/CAD Weekly Outlook
USD/CAD's rebound 0.9974 extended further to as high as 1.0206 last week. As discussed before, with correction from 1.0322 should have completed with three waves down to 0.9974, above mentioned key near term support at 0.9557. Initial bias remains on the upside this week and break of 1.0230 resistance will confirm this case. In other words, further rally should then be seen to 1.0378 medium term resistance first. On the downside, below 1.0126 will turn intraday outlook neutral first.
In the bigger picture, corrective nature of the price actions inside medium term range of 0.9709 and 1.0378 argues that it's merely consolidation to the whole rebound from 0.9056. Recent price actions argues that a break out is around the corner and above 1.0378 will confirm that rise from 0.9056 has resumed for 61.8% projection of 0.9056 to 1.0378 from 0.9709 at 1.0526 and above. On the downside, below 0.9974 will indicate that consolidation from 1.0378 is going to extend further with another test of 0.9709 support before completion.
In the longer term picture, a medium term bottom is in place at 0.9056 after USD/CAD just missed double projection target of 161.8% projection of 1.4006 to 1.1716 from 1.2737 at 0.9032 and 161.8% projection of 1.2737 to 1.0930 from 1.1874 at 0.8950. But with key medium term resistance zone of 1.0930, 38.2% retracement of 1.4006 to 0.9056 at 1.0947 and 50% retracement of 1.2737 to 0.9056 at 1.0897 remains intact, the long term down trend from 1.6196 is still in force. Though, break of 0.9709 support is needed to indicate rebound from 0.9056 has completed first before considering resumption of the long term down trend.
Posts
No comments:
Post a Comment