Australian FOREX Weekly Outlook 04/08/2008

Dollar sentiment turning cautiously positive

The Dollar gained this week as US data came in better than expected and other economies data weakened considerably putting an end to the decoupling theory. Supply concerns and a reemergence of geopolitical tensions caused Oil to remain above $120 and helped cap USD gains. Consumer Confidence improved slightly in July to 51.9 and ADP employment report surprised with a gain of 9K. US GDP came in at the lower end of expectations at 1.9% and the sharp jump in weekly jobless claims offset the ADP surprise going into the Nonfarm payrolls on Friday. July Nonfarm came in better than expectations at -51K but was accompanied by a tick higher in the Unemployment rate to 5.7%. To finish the week off the July Manufacturing beat forecasts at 50.0 remaining above the contraction level. The Euro lost ground against the USD for the second week after a series of weak Data releases. German Consumer confidence slipped to 2.1 vs. forecasts of 3.5. Eurozone CPI ticked higher to 4.1% well above the ECB comfort zone but with Oil of $20 from highs some believe that the July reading could be the cycle high. Also weakening in July, German Retail Sales dropped -1.4% vs. forecast of -0.5%. The Euro closed down 0.95% at 1.5562 having opened at 1.5710. The Japanese was the week’s main winner with Japanese retail investors paring back carry trades sending the AUD/JPY and NZD/JPY significantly lower. Large falls in the majors dragged the EUR/JPY and GBY/JPY down as well. Retail sales beat expectations at 0.3% in June Y/Y. Concerning was the Preliminary Industrial Productions figures out for June at -2.0%. The USD/JPY fell -0.16% closing at 107.68, after opening the week at 107.85. The GBP was once again under pressure from both a strengthening USD and weak of disappointing economic data. CBI Distributive trades fell to -36 a record low and were followed by GFK consumer confidence falling to -39 in July another record low. July manufacturing fell to a 10 year low of 44.3 and Nationwide house prices dropped another 1.7% in July. The GBP/USD lost 0.83% closing at 1.9750 after opening at 1.9913. The AUD fell the most of the G10 currencies last week as markets aggressively factored in rate cute from the RBA on a deteriorating economic outlook. Key data weakened including the June Retail sales down 1.0% vs. forecast of a gain of 0.2% and June Building Approvals dropping 0.7% vs. expectations of 1.0% gain. Supporting was a Trade surplus in June of 411 Million vs. Trade deficit of -300 million in May. The AUD/USD closed down -2.90% at 0.9290 after opening at 0.9559.

The forex trading week preview

In the States markets will be looking for clearer US interest rate outlook with the FOMC decision on Tuesday expected to remain at 2.00%. On Monday we have Core PCE prices expected to come in at 0.2% after gaining 0.1% in May. Tuesday also has the Non-manufacturing ISM forecast at 48.2. Thursday sees June Pending Home sales at -1.0% after dropping -4.7% in May. Thursday also see the release of June Consumer Credit expected at $7.8 Billion from $6.4 Billion in May. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone Thursdays ECB announcement will be the Highlight widely expected to be held at 4.25% the press conference afterwards will be critical in predicting direction of next move. Also released this week the Eurozone PPI on Monday expected at 0.9% m/m and the Eurozone PMI services expected at 49.3 in July. Tuesday also sees the release of July retail sales forecast at -0.6%. On Wednesday we have German Factory orders seen at -0.3% m/m. In the UK Bank of England meeting expected to hold at 5.0% on Thursday as Inflation risks are weighed down by economic contraction. Other data includes a busy Tuesday with June manufacturing production seen at 0.2%, July PMI Services expected at 46.7 down from 47.1 in June and Nationwide July Consumer Confidence forecast at 57. We will provide our previews and reviews of these data releases in the daily summary.

In Japan light data week with the Core Machinery Orders on Thursday seen at -9.5% the highlight. On Friday we have the Economy Watchers Current Index expected to continue to weaken from previous levels of 29.5. We will provide our previews and reviews of these data releases in the daily summary.

In Australia RBA interest decision on Tuesday widely seen as being held at 7.25% but with a small chance of a cut. Wednesday sees June Home Loans at -2.0% after sliding 7.9%. On Thursday we have the Employment change numbers for July expected at +5K with a tick up in the Unemployment Rate to 4.3% form 4.2% in June. We will provide our previews and reviews of these data releases in the daily summary.

·Euro – 1.5565

Initial support at 1.5515 (Aug 1 low) followed by 1.5493 (June 30 low). Initial resistance is now located 1.5603 (Aug 1 high) at followed by 1.5710 (76.4% retracement of the 1.5303 to 1.6038 advance).

·Yen – 107.55

Initial support is located at 107.29 (Aug 1 low) followed by 106.58 (July 25 low). Initial resistance is now at 107.91 (Aug 1 high) followed by 108.38 (Jul 31 high).

·Pound – 1.9745

Initial support at 1.9728 (Aug 1 low) followed by 1.9650 (July 7 low). Initial resistance is now at 1.9842 (Aug 1 high) followed by 1.9929 (July 31 high).

·Australian Dollar – 0.9290

Initial support at 0.9276 (61.8% retrace 0.8953 to 0.9849) followed by 0.9206 (May 2 low). Initial resistance is now at 0.9419 (Aug 1 high) followed by 0.9476 (July 31 High).

·Gold – 910

Initial support at 902.5 (Aug 1 low) followed by 894.5 (July 31 low). Initial resistance is now at 925.2 (July 31 high) followed by 935.30 (July 25 high).