Australian FOREX Weekly Outlook 19/07/2006

19/07/06

last week’s currency trading review

The Dollar was stronger versus the majors last week due to strong rallies in the US Treasuries market in the midst of intensifying conflict in the Middle East, the continuing stand-off over North Koreas missile launches, new highs for the oil price and a big sell-off on the stock market. All these factors contributed to dollar strength as it generated safe-haven buying of US dollars. The Euro closed last week at 1.2659 having started the week at 1.2786. The Japanese yen fell against the dollar despite the Bank of Japan ended its zero interest rate policy of almost six years, unanimously agreeing to raise the target for its benchmark overnight call rate from 0% to 0.25%. The comments that followed by the BOJ, that it did not intend to raise borrowing costs further at this stage is the main reason for yen weakness. US$/JPY closed last week at 115.87 having started the week at 113.86. The GBP closed last week at 1.8379 having started the week at 1.8495. The A$ closed last week at 0.7496 having started the week at 0.7481.

The forex trading week preview

The key event in the coming week is clearly Bernanke’s Congressional testimony, although he could find it difficult to offer a clear – cut view given the FOMC’s ‘data-dependent’ approach.

In the States in a heavy data week, the highlight is clearly the presentation by Fed Chairman Bernanke of the Semiannual Monetary Report to Congress – to the Senate Banking Committee (Wednesday). In terms of data, the CPI (Wednesday) for June is the most high profile release. The Philly Fed index (Thursday) has been more stable recently although analysts expect a decline this month. The Conference Board’s US leading index (Thursday) is forecast to rebound in June after the previous month’s large drop. Finally in the US, watch out for housing starts (Wednesday). We will provide our previews of these data releases in the daily summary.

In the Eurozone French household spending (Friday) has been especially impressive recently, supported by a decline in the saving ratio. In the UK the key release is most likely the retail sales for June (Thursday). What the BoE’s MPC makes of the growth/inflation mix will be revealed in the Minutes of the early – July meeting (Wednesday). We will provide our previews and reviews of these data releases in the daily summary. 

Key Weekly Pivot levels                     

• Euro 1.2500

Initial support at 1.2473 (Jul 18 low) followed by 1.2403 (50% retracement of the 1.1825 to 1.2890 advance). Initial resistance is now located at 1.2560 (July 18 high) followed by 1.2658 (Jul 17 high).

• Yen 117.40

Initial support is located at 116.69 (July 18 low) followed by 116.15 (Jul 17 low). Initial resistance is now at 117.6 (Jul 18 high) followed by 117.79 (Apr 21 high).

• Pound – 1.8250

Initial support at 1.8176 (Jul 17 reaction low) followed by 1.809 (Jun 29 reaction low). Initial resistance is now at 1.833 (July 18 high) followed by 1.8389 (July 17 high).

• Australian Dollar – 0.7465

Initial support at 0.746 (Jul 11 low) followed by 0.7399 (Jul 5 low). Initial resistance is now at 0.7539 (July 17 high) followed by 0.7568 (Jul 13 high).

• Gold - 633

Initial support at 627.83 (Jul 18 low) followed by 620.7 (Jul 10 reaction low). Initial resistance is now at 676.35 (Jul 17 high) followed by 686.18 (76.4% retracement of the 730.25-543.50 decline).