Australian FOREX Weekly Outlook 14/07/2008

Freddie and Fannie causing USD headaches

14/07/08

last week’s currency trading review

The Dollar lost ground against all the major currencies as the US banking sector swirled with rating writedowns and bailout rumours. News that Iran had test fired missiles added to Middle Eastern tension sending Crude Oil to record highs above $147 per barrel. Gold also reached multi month highs as equities traded at year lows. The dollar was able to recover off its lows as Fed Chief Bernanke stated late on Friday that the Government Sponsered entities (GSE’s) would be able to use the Fed discount loan facility. On the data front we had May Pending Home Sales falling -4.7% weaker than the -2.4% expected. The June Trade Balance was stronger than forecasts at -59.8 Billion while the July Consumer sentiment improved slightly to 56.6 up from 55.5 in June. The Euro surged higher on Friday after being relatively rangebound during the week tracking the Crude Oil rally to new multi months highs of 1.5949. Trichet reiterated his ‘no bias’ comments on future rate movements but signaled his concern about 2^nd round inflation effects. 1st Quarter GDP was revised down to 0.7% from 0.8% along with a bevy of disappointing May Industrial Production reports (German -2.4%, French -2.6%, Italy -1.4%). The Euro closed up 1.42% at 1.5930 having opened at 1.5704. The Japanese Yen gained against USD but lost ground the Euro taking most of its direction from the equities markets. Core Machinery Orders surprised to the upside coming in at 10.4% fir Nay after a 1.1% gain in April. The USD/JPY fell -0.44% closing at 106.30, after opening the week at 106.77. The GBP struggled during the week as economic data continued to weaken. The Bank of England held rates at 5.00% in a widely expected move with the market in two minds as to the direction of the next rate movement. Halifax House Price Index -2.0% in June on top of the -1.0% in May. Also poor was the May Manufacturing Consumer Confidence sliding to a two year low of 61. The GBP/USD gained 0.30% closing at 1.9820 after opening at 1.9947. The AUD was able to capitalize on the USD weakness surging to new 24 year post float high of .9717. Weak business and consumer confidence early in week was outweighed by a surprising jump in June employment numbers coming in at 29.4K vs. expectations of 10K. The positive result went along way to make up for the -25K in May providing the Aussie with a positive footing. Also helping the bullish tone was the significant rally in commodities and Gold.The AUD/USD closed up 0.25% at 0.9632 after opening at 0.9608.

The forex trading week preview

In the States Tuesday sees June retail sales expected at 0.3% after gaining 1% in May along with June PPI expected at 1.3%. US Fed Chief Bernanke reports on the economy and Fed policy on Tuesday. Wednesday sees the June Core CPI seen at 2.3% y/y along with June Industrial Production forecast at 0.0%. Thursday sees the release of June Housing starts (expected .965 Million) and the Weekly Jobless claims seen at 380k. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone On Tuesday the German Zew Survey is expected to weaken to -55 in June from -52.4 in May. On Wednesday the Eurozone CPI is forecasted at 4.0% y/y. On Friday also of note is the German PPI for June forecast at 0.8%. In the UK we have a heavy data week starting with June PPI forecast at 2.5% input and 1.2% output.Also out on the RICS House Price Balance seen at -93.8% vs. -92.9% in May. On Tuesday we have the June CPI seen at 3.6% y/y. Wednesday sees the June Claimants Count Change forecast at 10K and the May Average Earning Index at 3.7%. Thursday attention will be on MPC member Dale as he testifies at the Treasury Committee.We will provide our previews and reviews of these data releases in the daily summary.

In Japan Focus will be on Tuesday’s interest rate decision widely expected to remain at 0.50% but clues as to future rate direction could be found in the BOJ Monthly report and Press conference also on Tuesday. Wednesday we have the May Tertiary Activity Index forecast at 0.0%. Friday sees the Monetary policy meeting minutes released along with the BOJ Governor Shirakawa Speaking. We will provide our previews and reviews of these data releases in the daily summary.

In Australia light data week with the RBA meeting minutes the highlight along with RBA Governor Stevens speaking on Wednesday on the “Challenges for Economic Policy” . We will provide our previews and reviews of these data releases in the daily summary.

·Euro – 1.5895

Initial support at 1.5765 (July 11 low) followed by 1.5692 (July 10 low). Initial resistance is now located 1.5948 (July 11 high) at followed by 1.6019 (Apr 22 high).

·Yen – 106.65

Initial support is located at 105.66 (July 11 low) followed by 104.99 (Jun 30 low). Initial resistance is now at 107.3 (July 11 high) followed by 107.76 (July 7 high).

·Pound – 1.9840

Initial support at 1.9754 (July 11 low) followed by 1.9673 (July 9 low). Initial resistance is now at 1.99959 (July 11 high) followed by 2.0008 (July 1 high)

·Australian Dollar – 0.9670

Initial support at 0.9597 (July 11 low) followed by 0.9546 (July 10 low). Initial resistance is now at 0.9718 (July 11 high) followed by 0.9792 (July open + June range* 0.618).

·Gold – 964

Initial support at 942 (Jul 11 low) followed by 926 (Jul 10 low). Initial resistance is now at 967.95 (July 11 high) followed by 988.49 (76.4% retracement of the 1032.50-846.00 decline).