Australian FOREX Weekly Outlook 18/04/2008

U.S Dollar volatile following G7. Euro hits record highs. Sterling surges preceding BoE liquidity plan announcement.

18/04/08

last week’s currency trading review

The Dollar traded with volatility based on sentiment rather than data releases this week. In the wash up from the G7 summit, the dollar initially gained momentum as U.S foreign currency weakness was highlighted in the G7 commentary before stalling in a large sell-off as investors attempted to test the possibility of joint intervention. This saw the Euro hit an all time high against the greenback in response to a slightly lower than expected CPI of 0.3% for the month of March combined with continually strong CPI in the Euro Zone. Later in the week, sentiment shifted as better than expected financial institution profit releases caused a rally in the share market which has led investors to believe the worst of the financial turmoil is over. The Euro strengthened throughout the week as data released justified the ECB President Trichet’s hawkish outlook as seen with a strong CPI figure of 3.6% for the Euro Zone, up from 3.5% for the month of February. However, the Euro couldn’t break through the 1.60 barrier, topping out at 1.5985 before pairing its gains on the back of increased consumer sentiment in the dollar. The EURUSD opened at 1.5832 and closed at 1.5801. The Japanese Yen weakened throughout the week as strength in U.S, European and Asian equities saw investors sell-off the yen as risk appetite towards the carry trades returned.The USDJPY opened at 100.82 and closed at 103.86. The GBP surprised many traders through the week as it strengthened against most major currencies following speculation the BoE will this week announce a plan to ease the liquidity problems in the financial markets by swapping mortgage debt with government bonds. This saw investors sell the greenback and turn to the higher yielding pound. The GBPUSD opened at 1.9717 and closed at 1.9941. The AUD strengthened moderately throughout the week tracking rising commodity prices and increased risk appetite, even breaking through US94c, before late U.S strength paired its gains. The AUDUSD opened at of 0.9293 and closed at 0.9337.

The forex trading week preview

In the States the focus will be on commentary coming from the Chicago Fed’s Evans speech on Monday, along with the Fed’s Kroszner on topics covering the current financial problems facing the U.S economy. Durable goods Orders for the month of March is to be released on Thursday. Existing and New Home Sales figures will be released with forecasts of more bottoming out. The final release of the University of Michigan’s Confidence report is also due out on Friday, with little revisions expected. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone Figures for manufacturing and services PMI surveys due out on Wednesday will be key to the developments in these sectors in Europe’s regional economies. A number of speeches by ECB board members, including Trichet and Weber on Thursday and Friday will give a good indication in the economic outlook for the Euro Zone and predictions are more focus will be given to downward economic trends. The IFO – Business Climate report will also be released on Thursday. We will provide our previews and reviews of these data releases in the daily summary.

In the UK the big focus this week is on the speculation the BoE will announce a plan to ease the financial problems by allowing mortgage swaps for government bonds for periods of 1-3 years as a means of easing liquidity concerns. BoE’s Besley is scheduled to speak on Tuesday. The minutes from the BoE rate meeting will be available on Wednesday. Q1 GDP is to be released on Friday with expectations of a figure around 0.5%, a contraction from 0.6% for Q4 last year. Finally, UK house prices are to be released on Monday. We will provide our previews and reviews of these data releases in the daily summary.

In Japan CPI figures for the month of March are announced on Thursday with expectations of 1.1% y/y, slightly above the 1.0% for February. The upside risks to March inflation is attributed to soaring energy prices. Risk sentiment is expected to continue to drive the yen this week. We will provide our previews and reviews of these data releases in the daily summary.

In Australia Q1 CPI is released on Wednesday with forecasts suggesting upside movements to 1.1% q/q, up from 0.9% q/q. Core PPI is to be released on Monday. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

·Euro – 1.5815

Initial support at 1.5712 (Apr 18 low) followed by 1.5659 (Apr 14 Low). Initial resistance is now located at 1.59858 (Apr 18 high) followed by 1.5983 (Apr 17 trend high).

·Yen – 103.90

Initial support is located at 102.26 (Apr 18 low) followed by 101.71 (Apr 17 low). Initial resistance is now at 104.44 (Apr 18 high) followed by 105.58 (76.4% retracement of the 108.61 to 95.76 decline).

·Pound – 1.9995

Initial support at 1.9882 (Apr 18 low) followed by 1.9692 (Apr 17 low). Initial resistance is now at 2.0000 (50% retracement of the 2.0398 to 1.9601) followed by 2.0048 (Apr 4 high).

·Australian Dollar – 0.9335

Initial support a 0.9250 (Apr 16 low) followed by 0.9206 (Apr 14 low). Initial resistance is now at 0.9403 (Apr 16 high) followed by 0.9473 (Mar 13 high).

·Gold – 918.10

Initial support at 903.40 (Apr 9 low) followed by 873.00 (Apr 1 reaction low). Initial resistance is now at 946.80 (Apr 18 high) followed by 953.00 (Apr 17 high).