Saxo Forex Strategies 17.05.2004

-    Japan's current account surplus narrowed 13 percent in March as more Japanese traveled abroad. The trade surplus widened as exports rose for a fourth month in five.    The current account surplus fell to 1.48 trillion yen ($12.9 billion) from 1.71 trillion yen in February, seasonally adjusted, the Ministry of Finance said in Tokyo.   Economists had expected the current account surplus to decline to 1.57 trillion yen, according to the median of eight forecasts. From a year earlier, the surplus rose 13 percent to 1.83 trillion yen.


-     U.K. economic growth will continue to outpace that of the 12 countries using the euro as consumer spending in France and Germany remains weak, a report compiled from business surveys showed.    An index of business optimism in the euro-using nations rose to 99.2 in April from 98.5 in January while a measure of U.K. confidence jumped to 101.3 from 100.9, according to a report compiled for accounting firm BDO Stoy Hayward LLP by the Centre for Economics and Business Research Ltd.   Unemployment in the euro area, which at 8 percent is well above the U.K.'s 4.7 percent level, is holding back consumer spending.




FX Market Summary   -     


The U.S. dollar lost some of its luster in a week that offered a spate of strong data.    The greenback lost 0.5% vs. the euro and shed 0.2% against both the Japanese yen and Canadian dollar.    Specifically, the U.S. dollar lost some ground against the major currencies following the consumer price data.


Euro  -  The euro remained weak against the backdrop of a strong dollar, even though euro-zone data was strong. Q1 flash estimates for euro-zone GDP reached three year highs. These gains came on the back of signs of improvement in growth in Germany , Italy and France in past week. The euro was also weighed down by comments by the Saudi vice central bank governor who said that the euro was still not considered a reserve currency. With the euro now trading below its 200 day moving average, the outlook for the currency remains bearish. Next week sees a raft of economic data -- the broad theme should be one of slow and sustained improvement.


British Pound ­   It was a mixed bag of U.K. data this but has nonetheless kept further rate hike expectations stoked. A surprise decline of in U.K. factory output in March follows a decline in February which suggests that the two speed U.K. economy remains. The BoE’s quarterly inflation report outlined expectations for inflation to rise past the 2% target within two years.  The combination of the hawkish inflation report and indications of a tight labor market will continue to support expectations for another BoE rate hike. However, the greenback allure keeps the pound on weak footing.


Japanese Yen  -    The yen fell to eight month lows against the dollar as declines in the Nikkei and state pension contribution scandals hammered the yen. Heavy Uridashi (foreign bond) issuance next week could further weigh on the yen. Next week’s GDP data for Q1 should show 3.5% in the quarter. Higher consumer spending, a strengthening export sector and increasing business confidence should spur overall gains. One potential landmine --  the possibility of a hard landing in China. The implications for Japan of an abrupt Chinese slowdown would be very bad indeed. The yen should continue to weaken against the dollar.


Canadian Dollar   ­   A spate of strong data released this week failed to support the loonie. March factory shipments rose 3.4% on the back of strong global demand for cars, metal and wood. Unfilled orders rose 0.2% in their third consecutive rise. Manufacturers are facing a battle to keep up with the strong demand. The March trade surplus also grew to its highest levels in three years, as Canadian companies exported 34.9 billion worth of goods. The pickup in the global economy, and specifically Canada ’s chief trading partner­the U.S. ­bodes well for the Canadian recovery. However, it is unlikely that price pressures will emerge so soon in the recovery cycle. We look for the loonie weaken further against the dollar.


Australian Dollar -   The Aussie labor market data surprised on the upside in April and the unemployment rate held steady at 5.6%. The FX market overlooked the positive domestic data however, as U.S. rate hike expectations continue to support the greenback. This and China jitters, led the Aussie dollar to take its biggest weekly decline in nearly three years. And while the broad Australian economy may be firm, Australian businesses are becoming less optimistic about sales and profits. The combination of a slumping Aussie, a housing slowdown and the strong U.S. recovery are the primary reasons for concern.




Forex Technicals:



-     EUR/USD  -   the currency pair built on Friday's firm tone after the slightly lower than expected April CPI, and may extend gains to just under 1.2000. But unless it will decisively go through 1.2000,  the short-term bearish scenario remains -- that is, we may yet get that final downtick to the 1.1760 base later in the week.  Nonetheless, we still expect to find support at the 1.1760 base, and then mount a recovery to at least the 1.1950 area again.


-     GBP/USD  -  the currency continues to revive, and may yet rise further to just under 1.7700.  But the glow may not last long, and we may yet see a final downtick to 1.7450 area, after which we may see the currency rally back to 1.7800 area again. This view is valid only if 1.7620 hypothetical resistance holds.


-     USD/JPY -     the currency should continue to trade higher and should get support from 114.00  -- the dollar should break through 115.00 later in the day and may rise towards 116.00 - 116.50. It may sell-off to 112.50 again.


-    USD/CHF  -    the currency broke minor support at 1.3000, but may see support at 1.2880 area. The currency pair should resume the uptrend later in the week  -- it may yet  rally through and over the 1.3080 resistance and  reach 1.3270 -- it may even proceed to 1.3200. 


-     USD/CAD  --  the currency is still locked in a large consolidative process but support may be found at 1.3830 -- the uptrend resumes thereafter, and the upside target of 1.4100 should come into play shortly. 


 

(The rest of the currency analyses is available through the trading platform, or see the links provided in this page  . . . . ) 

 

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MARKET RECAP:    New York    -  May 12

 

-    April CPI rose 0.2% (2.3% yoy) as the core showed the stronger 0.3% (1.8%) gain.  Seasonal adjustment helped to leave only a 0.1% rise in energy prices as food rose 0.2%.  Separately, March business inventories rose a stronger than expected 0.7% as sales surged 2.9%.   The result is a new record low inventory to sales ratio of 1.30 months which adds increased emphasis to accelerate rebuilding which provides another welcome lift to production.


-     Economic growth in the $8.5 trillion economy of the dozen nations sharing the euro accelerated in the first quarter to the fastest pace in three years as exporters benefited from burgeoning demand in the U.S. and Asia.   The economy expanded 0.6 percent from the previous quarter and 1.3 percent from a year earlier, Luxembourg-based Eurostat said. The quarterly pace was faster than the 0.5 percent median forecast of economists. Unlike the U.S., the quarterly expansion isn't annualized.   Germany, France, Italy and the Netherlands grew faster than economists expected last quarter.   Growth is being fed by exports, with unemployment of 8.8 percent deterring consumer spending.


-    The pound fell to its lowest this year before a U.S. government report that may show rising consumer prices, boosting speculation the Federal Reserve may raise interest rates next month in a move that may undercut the yield advantage of U.K. debt.   Prospects for the Fed raising its target interest rate in June have boosted U.S. debt yields, narrowing a gap with the U.K. and crimping demand for the pound. A report yesterday showed U.S. producer prices are rising the fastest in more than a year. Goldman Sachs Group Inc., the sixth-largest currency trader, lowered its pound forecast on expectation of rising U.S. rates.


-     The dollar rose against the euro, heading for a second consecutive weekly advance in New York, on speculation a government report today will show consumer prices rose for a fifth straight month.   Against the euro, the dollar traded at $1.1799 at 7:35 a.m. New York from $1.1821 late yesterday, gaining 0.7 percent for the week. Versus the yen, the dollar was at 114.74 from 114.52 yesterday. The Japanese currency is down 2.2 percent since last Friday, the sixth straight weekly decline.


-     The dollar headed for a weekly gain against the euro and the yen in London trading on expectations rising consumer prices will prompt the Federal Reserve to increase interest rates as soon as June.    Against the yen, the dollar traded at 114.52 at 6:35 a.m. in London, from 114.51 yen late yesterday in New York, gaining 2.1 percent for the week. The yen weakened today to as much as 114.79, its lowest since Sept. 19. The U.S. currency was also at $1.1817 per euro, versus $1.1822, a weekly gain of 0.6 percent.

 

Indications in the FX Market :    


The dollar was firm against the majors ahead of the U.S. inflation data, but the lower than April CPI took the greenback down several notches lower.

The euro firmed up vs the greenback after the data. But it may weaken again, despite a firm tone to Q1 flash estimate of GDP for the euro zone. Better than expected GDP data from Germany , Italy and France this past week helped the euro zone data. Nevertheless, the euro looks downtrodden against the bullish tone for the dollar. ECB President Trichet speaks on the euro at the Baltic Media Summit today, though his comments are unlikely to motivate a significant move in the euro.  EUR/USD trades at 1.1840.

The yen was weaker against the dollar as the state pension issue remains at the forefront of Japanese politics, but recovered somewhat after the CPI data. The opposition leader called for PM Koizumi’s resignation, stating that he did not pay into the system for six years. Koizumi’s efficacy in Japanese politics has been noted on world markets and he is seen as a key figure in the turnaround in Japan , so the hit to his credibility would no doubt impact markets. The yen was trading at 114.49.

Sterling recovred somewhat after the CPI data, but was lower against the dollar in the overnight session and early in Friday’s session, though there was little data to support the move. The prevailing sentiment now is for FX markets to prefer currencies early in the interest rate cycle, rather than nearing the end. Thus, we expect that most of the bullish tone for sterling has already run its course. The pound trades at 1.7555.

The better than expected March factory shipments failed support for the Canadian loonie in light of the bullish dollar tone. The loonie trades at 1.3945 and looks set to test the 1.4000 level. March factory shipments rose 3.4% on the back of strong global demand for cars, metal and wood. Unfilled orders rose 0.2% in its third consecutive rise. This means that manufacturers are facing a battle to keep up with orders in the face of strong demand. This encouraging news is positive for the Canadian economy, which is highly export dependent.

New Zealand retail sales boosted the kiwi dollar overnight, and given a slight push by the weak U.S. April CPI.  Retail sales for March rose 2.3%, exceeding expectations for a 1.2% gain. In conjunction with the strong employment figures released earlier this week, the data is certainly building a case for the RBNZ to hike rates once more. The New Zealand dollar strengthened on the back of the CPI data to NZD 0.6020.




Forex Technicals:


-     EUR/USD  -   the currency pair was firmer after the slightly wayward April CPI, but indications are that it won't run away, and we may yet get that final downtick to the 1.1760 base later in the day -- unless of course the current rally blows away 1.1880 hypothetical resistance. But even if a sell-off does happen, and despite the pervasive negative view of the common currency, we still expect to find support at the 1.1760 base, and then mount a recovery to at least the 1.1950 area again.


-     GBP/USD  -  the currency was whacked down to 1.7486and shows sign of reviving after the less than expected CPI data.  But the glow may not last long, and we may yet see a final downtick to 1.7480, after which we may see the currency rally back to 1.7800 area again. This view is valid only if 1.7620 hypothetical resistance holds.


-     USD/JPY -     the currency continued to trde hjigher and bumps into the 115.99 hypothetical resistance.  The dollar should find firm resistance at circa 115.30 and may sell-off back down to 113.00 - 112.50.


-    USD/CHF  -    the currency breaks down minor support at 1.3000, but may see support at 1.2970 area. The currency pair should resume the uptrend later in the day -- it may yet  rally through and over the 1.3080 resistance and  reach 1.3150 -- it may even proceed to 1.3200, but odds of 1.3200 have diminished.


-     USD/CAD  --  the currency remains mired in a consolidative process but support should be found at 1.3880 -- the uptrend resumes thereafter, and the upside target of 1.4100 should come into play shortly.

(The rest of the currency analyses is available through the trading platform, or see the links provided in this page  . . . . ) 

 

 

 

 

News, data, references and commentaries compiled from Bloomberg, Reuters, CBSMarketWatch, Briefing.com, and Economy.com

Euro/US Dollar    EURUSD  (1.1975 @ 07:04 GMT)

EUR/USD  -   the currency pair built on Friday's firm tone after the slightly lower than expected April CPI, and may extend gains to just under 1.2000 area. But unless it will decisively go through 1.2000,  the short-term bearish scenario remains -- that is, we may yet get that final downtick to the 1.1760 base later in the week.  Nonetheless, we still expect to find support at the 1.1760 base, and then mount a recovery to at least the 1.1950 area again.

Stand aside.


British Pound/US Dollar    GBPUSD  (1.7655 @ 07:05 GMT)

GBP/USD  -  the currency continues to revive, and may yet rise further to just under 1.7700.  But the glow may not last long, and we may yet see a final downtick to 1.7450 area, after which we may see the currency rally back to 1.7800 area again. This view is valid only if 1.7620 hypothetical resistance holds.

 

 

Stand aside.

US Dollar/Japanese Yen    USDJPY  (113.60 @ 07:05 GMT)

  USD/JPY -     the currency should continue to trade higher and should get support from 114.00  -- the dollar should break through 115.00 later in the day and may rise towards 116.00 - 116.50. It may sell-off to 112.50 again. 
 


Long USD position from 112.92 was closed at 114.06 stop-loss.