Australian FOREX Weekly Outlook 24/05/2010

Stocks Crash, Risk Off

Last week’s currency trading review

The Dollar was generally stronger with the notable exception of the Euro and JPY as stock markets crashed around the world on concerns that the Eurozone Debt problems would pull the world back into recession. The panic selling had little major catalyst but fear set in and key levels on the Dow Jones and S&amp P were broken. Weekly Jobless Claims were at 471k vs. 440k forecast and added to investor concerns. The Euro traded at fresh year lows but rebounded aggressively on rumors of market intervention and massive short covering. Most of the talk was that the SNB was buying EUR/CHF which moved from 1.40 to 1.45 in sharp moves. EUR/AUD and EUR/GBP rallied with the major although the sustainability of the move higher is still in question. German ZEW Economic Sentiment slumped to 45.8 vs. 53 previously and German IFO slipped to 101.6 vs. 101.5. The EUR/USD gained +1.65% closing at 1.2565, after opening the week at 1.2358.

The Japanese Yen was the major gainer on the week as cross liquidation sent risk currencies such as the AUD/JPY down over 9% in panic selling. USD/JPY broke below the key Y90 level but market players were hesitant to push much lower as fears of MOF/BOJ intervention to stem the Yen appreciation grows at these levels.The USD/JPY fell -2.71% closing at 90.00, after opening at 92.44 previously. The GBP fell slightly down on the week but able to transform some of the Euro’s strength into major gains against the AUD and CAD. Also helping the Pound survive the market sell off was the new Government’s promise of Fiscal responsibility. GBP/JPY break below Y130 but the price action was extremely volatile with 400 pip ranges the norm throughout the week. April CPI was hot at 3.7% vs. 3.5% and above the BOE target of 3%. TheGBP/USD fell -0.57% closing at 1.4457 after opening at 1.4539. The AUD was the heaviest hit currency with year low support below 0.8580 breaking and the market went into free fall down as far as 0.8080 at one stage. A lot of the selling came from the unwinding of EUR/AUD shorts and AUD/JPY longs. Most spectators also expect the RBA to hold rates at the next few meeting as the world judges the impact of the Euro Crisis. Also weighing heavily is the governments proposed new Super Profits mining tax. The AUD/USD slumped -6.39% closing at 0.8324 after opening at 0.8856.

The forex trading week preview

In the States April Existing Home Sales are forecast at 4.7% vs. 6.8% previously. On Tuesday, CB Consumer Confidence is forecast at 59 vs 57.9 previously. On Wednesday, April Durable Goods are forecast at 1.5% vs. -1.2% previously. On Thursday, Q1 GDP forecast slightly higher at 3.4% vs. 3.2% initially. Also released, Weekly Jobless Claims are forecast at 455k vs. 471k previously. On Friday, UoM Consumer Confidence is forecast at 73.5 vs. 72.5. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone On Wednesday, German GFK Consumer Confidence is forecast at 3.8. On Thursday, German CPI is forecast at 1.2% y/y vs. 1.0% previously. In the UK On Tuesday, Q1 GDP is forecast at 0.3% vs. 0.2% initial. On Thursday, May GFK Consumer Confidence is forecast at -18 vs. -16 previously. We will provide our previews and reviews of these data releases in the daily summary.

In Japan On Tuesday, BOJ Meeting Minutes from April. On Friday, April Unemployment Rate forecast at 5.0% vs 5.05 previously. In Australia on Thursday, Q1 CAPEX is forecast at 2.5% vs. 5.5% previously Q/Q. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Euro – 1.2510

Initial support at 1.2144 (May 19 low) followed by 1.2135 (0.50 of 0.8232-1.6039). Initial resistance is now located at 1.2731 (0.618 of 1.3094-1.2144) followed by 1.2747 (May 12 high)

Yen – 90.15

Initial support is located at 88.97 (May 20 low) followed by 87.95 (May 6 low). Initial resistance is now at 91.88 (May 20 low) followed by 92.97 (May 18 high).

Pound – 1.4485

Initial support at 1.4231 (Mary 20 low) followed by 1.38 (March 18 2009 low). Initial resistance is now at 1.4517 (May 18 High) followed by 1.4918 (May 13 low).

Australian Dollar – 0.8270

Initial support at 0.8000 (Big Figure) followed by the 0.7828 ( 2009 low). Initial resistance is now at 0. 8499 (May 18 low) followed by 0.8725 (May 19 high).

Gold – 1183

Initial support at 1157 (May 5 low) followed by 1146 (April 27 low). Initial resistance is now at 1229 (Key level) followed by 1250 (1123.90 plus 1.618 of 1085.3-1170.1).

Oil – 70.10

Initial support at 69.50 (Intraday Support) followed by 68.00 (Intraday Support). Initial resistance is now at 71.00 (March high) followed by 72.50 (Intraday Resistance).