Australian FOREX Weekly Outlook 16/04/2007

G7 summit keeps bias from previous meeting in Essen, as Euro and the Aussie Dollar and Sterling the biggest gainers all week. Heavy data week for the US and UK  

16/04/07                                                                                                                                           

last week’s currency trading review

The Dollar was bearish for much of the weak as investors remained confident that a stagflation in the US economy would result in an interest rate cut in the term. As the previous weekend was a market holiday for most, thin trading was prominent until Tuesday with reports that the US had made an official enquiry to WTO regarding intellectual property issues with China, causing markets to interpret a trade rift between two economies entering into protectionism. As result the USD suffered significantly on top further indication of a slowing housing sector. Despite the FOMC minutes of the March 21 meeting that the bias still remained on the on the inflation gave little support to a weakening dollar. The Euro remained bullish all week despite the ECB decision to keep interest rate on hold on Thursday, it was post announcement comments made by ECB president Trichet leaving the door open for a hike in June. The Euro reached a near two year high against the USD on Friday whilst against the JPY reached four days of consecutive highs finally reaching 161.46 on Friday. The Euro closed last week at 1.3531 having closed the week at 1.3365. The Japanese Yen saw the BoJ surprise no one by keeping interest rate on hold, yet comments made by Governor Fukui that CPI may remain flat in the near term, yet will be subject to a long term uptrend, leaving the door slightly opened for rate hikes accordingly. The Yen however did suffer as carry trades remained prominent in the market throughout the week. The JPY closed last week at 119.14 having opened at 118.65. The GBP strengthened throughout the week despite the recent decision of the BoE to keep rates on hold. Despite little data the GBP rallied to 1.9863 having opened at 1.9646. The AUD was one of the best performing currencies despite the recent RBA decision to keep rates on hold. With markets pricing in an 80% chance of rate hike in May the Aussie Dollar continued to remain in demand on the back of the lowest Unemployment Rate the nation has seen in 31 years at 4.5%. The AUD closed last week at 0.8321 having opened at 0.8170.

The G7 summit held in Washington over the weekend did not shift its focus from the previous meeting in Essen, stating that the currencies should reflect market fundamentals, as investors were encouraged to continue with risky carry trades. Other issues that were addressed over the weekend, were further flexibility on emerging market currencies with a large current account surplus, the growing US Trade Balance, and Labour reforms for the Eurozone.         

The forex trading week preview

In the States a heavy data week is expected comparative to recent times. As Monday finds the release of Retail Sales, NY Fed survey and the TIC flows all made public. The trend continues as CPI, Industrial Production and most notably Housing starts are all expected on Tuesday. Finally the Thursday add further data Initial Jobless Claims, and Philly Fed Survey. It must be said that the US will need a string of positive data in order to change the bearish sentiment on the greenback. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone markets will pay key attention to data out of the region, as investors await further indication of a future rate hike. Starting on Monday’s CPI as the Tuesday sees further key data in the Trade Balance and the German ZEW survey. In the UK is scheduled for an important week with Housing Prices and PPI out on Monday. CPI will be released on Tuesday as the volume of data is scheduled to continue on Wednesday as BoE minutes and Unemployment rate. Finally Retail Sales will be release on Friday will also be watched eagerly for further indication on economic growth. We will provide our previews and reviews of these data releases in the daily summary.

In Japan will be relatively quiet in terms of data yet will most likely be influenced by carry trades throughout the week. Monday sees Industrial Production and Consumer Confidence on Tuesday. We will provide our previews and reviews of these data releases in the daily summary.

In Australia a very quiet week is expected as only Imports, and Exports the only possible market movers. We will provide our previews and reviews of these data releases in the daily summary.