By Senior Research AnalystPublished: Aug. 12 2004, 06:36 GMT
NZD/USD leads the charge higher, should take out .6630 resistance soon -- which confirms a new upleg to .7000
New Zealand retail sales rose in the second quarter at four times the pace forecast by economists, suggesting the central bank may increase interest rates for a fifth time this year to curb inflation.
DEVELOPMENTS TO WATCH TODAY: Aug 12 - Europe
- The German and French economies, the euro region's largest, probably expanded for a fourth straight quarter in the three months through June as a global recovery lifted demand for European goods, surveys of economists showed. Germany's economy may have grown 0.5 percent in the second quarter from January-March, when it grew 0.4 percent, the median forecast of 35 economists ishowed. French growth probably slowed to 0.6 percent from 0.8 percent in the first quarter, according to a separate survey. Demand from the U.S. and Asia for BMW AG cars, Louis Vuitton handbags and BASF AG chemicals has fueled growth in the euro region and put the 12-nation economy on course for its best performance since 2000. Surging oil prices may crimp the contribution from exports in the second half and there are few signs of a rebound in European consumer spending, with unemployment stuck at 9 percent.
- Australia added jobs for the first time in three months in July, a sign Asia's fifth-largest economy is rebounding from the slowest growth in a year as consumer spending rises and exports gain. The economy added 21,600 jobs last month, all part-time, after a decline of 4,900 in June, the Australian Bureau of Statistics said in Sydney. The unemployment rate rose to 5.7 percent from 5.6 percent as more people looked for work. Retailers such as supermarket chain Franklins have hired more part-time workers as sales increase, buoyed by government payments to families. Rising employment may underpin consumer confidence, which is close to a 10-year high.
- New Zealand retail sales rose in the second quarter at four times the pace forecast by economists, suggesting the central bank may increase interest rates for a fifth time this year to curb inflation. Retail sales, excluding inflation, rose 0.8 percent in the three months ended June 30, Statistics New Zealand said in Wellington. The median forecast of economists was for a 0.2 percent increase. Sales gained 6.8 percent from a year earlier. Reserve Bank of New Zealand Governor Alan Bollard last month increased the benchmark interest rate for a fourth time this year to curb spending and inflation and said he may have to increase it again. He will raise it a quarter point to 6.25 percent next month.
- Crude oil was little changed after rising 0.6 percent yesterday when a report showed U.S. oil inventories fell last week and as Tropical Storm Bonnie caused companies to cut production in the Gulf of Mexico. Oil supplies fell to their lowest since the week ended April 2, the U.S. Energy Department said, while Bonnie cut Gulf oil output by 25 percent. A pledge by Saudi Arabia, the world's largest oil exporter, to increase supplies as needed to prevent shortages helped stem a rally in oil prices. The rally was shot down in less than half an hour by a barrage of Saudi statements crafted to talk down the market. Crude oil for September delivery fell 5 cents to $44.75 a barrel in electronic after-hours trading on the New York Mercantile Exchange at 11:24 a.m. Singapore time. Earlier it fell as low as $44.55.
- The U.S. budget deficit for the first 10 months of the fiscal year widened to $396 billion, breaching for the first time the record $374 billion shortfall for all of fiscal 2003, the Treasury Department said. The year-to-date number was part of a monthly report that also showed the July deficit was higher than the median forecast in a survey of economists. Expenditures exceeded receipts by $69.2 billion last month, compared with a deficit in July 2003 of $54.2 billion, the Treasury said in Washington. President George W. Bush and his Democratic opponent, U.S. Senator John Kerry of Massachusetts, promise to halve the deficit within five years. Bush says a 2001 recession and terrorism are to blame for the shortfall. Kerry calls the deficit a threat to the economy and links it to Bush's $1.7 trillion in tax cuts.
FX Market Summary -
The yen strengthened for a second day against the dollar and the euro in Asia on expectations a report tomorrow will show Japan's economic growth extended to a ninth quarter and as oil prices fell from record highs. Japan grew faster than the U.S. in the three months to June, a report may show, reinforcing yesterday's improved growth forecast from the International Monetary Fund. Saudi Arabia said it has extra oil it can put to use "immediately,'' reducing concerns of a slowdown in Japan, which imports virtually all its petroleum. The yen is still 1.7 percent lower since the end of June, when oil prices began surging. Against the dollar, the Japan's currency climbed to 110.69 at 10:25 a.m. in Tokyo, from 110.96 late yesterday in New York. It also rose to 135.40 per euro, from 135.51.
The New Zealand dollar rose on the report that retail sales rose in the second quarter at four times the pace forecast by economists. The Kiwi bought 65.42 U.S. cents at 12:24 p.m. in Wellington trading from 65.38 cents before report was released. The yield on the 6.5 percent February 2006 government bond rose 2 basis points to 6.15 percent. The NZ central bank, which is charged by the government with keeping annual inflation below 3 percent, expects consumer price increases will accelerate to 3.3 percent in the year to March 2005 from 2.4 percent in the year ended June 30. NZRB Gov. Bollard, who has raised interest rates from 5 percent in January, last week said a further interest-rate increase "looks likely'' to control inflation.
The dollar lost ground Wednesday against key currency rivals, losing steam in European and then U.S. trade as the market pondered Federal Reserve Chairman Alan Greenspan's optimism on the economy. In late U.S. trade Wednesday, the greenback was flat to lower. The dollar was last down against the yen, at 110.89 yen. The U.S. currency was flat vs. the euro, with Europe's common currency at $1.2200. The dollar was off 0.2 percent against the British pound, with sterling at $1.8299. The tight trading range indicated a "lack of conviction by the market to rally the euro further ahead of today's (Thursday's) U.S. retail sales report. The yen got some support after the Nikkei Average rose for a second session, raising prospects for increased fund flows into Japanese equities. The Nikkei ended up 0.9 percent.
The Bank of England has signalled that interest rates are near their peak, suggesting that only one or two more rises are likely before the end of next year. Many City economists now expect the Bank's main rate, which went up to 4.75 per cent last week, to stop at 5.25 per cent in the middle of next year, compared with earlier estimates of at least 5.5 per cent. Presenting the Bank's latest quarterly inflation report on Wednesday, Mervyn King, the governor, said the outlook was remarkably benign. The surprisingly resilient housing market appeared to be taking account of the increased cost of borrowing and booming growth in the overall economy would probably return. “Consumption will continue to decelerate in the wake of moderate income growth and a weaker housing market,” Mr King said. A sharp slowdown in house price inflation was expected.
Forex Technicals:
- EUR/USD - The common currency did make another move towards 1.2200, and the found the sought for support at that time. The recovery has been minuscle so far -- up to only 1.2240 -- but this may be the start of a new uptrend. From a trading point of view, this is a perfect place for a tactical long euro position, the risk being a fall below the 1.2200 base. No change in the short-term scenario -- look for 1.2200 support to hold. No change in the longer-term view as well -- the rally should resume from here, then take out 1.2320 top, which re-establishes the uptrend. The single currency should retest the 1.2500 top within the next week, or so. And further out, the 1.2925 major top is starting to become a tempting xobjective.
- GBP/USD - the currency was more resilient this time around -- calls for further decline to 1.8230 were frustrated by demand for Sterling after the sharp losses of late. The currency pair has moved up to 1.8335, calling for tactical long GBP/USD positions to be in place, with the risk a fall below the 1.8250 base. No change in the short-term view -- support now expected at 1.8250. There's no change in longer-term view as well -- support should firm up soon, and the rally should then go on to 1.8500. A new upleg kicks off further out, which should challenge the 1.8800 top within the next couple of weeks. And beyond that, the 1.9140 major top beckons.
- USD/JPY - no support appeared at 110.80 -- gut fell failed this time -- the rally may have already peaked. There's no change in the longer-term view -- the downtrend should resume shortly, with the 109.40 the short-term xobjective, and 107.60 baseline as next primary target.
- USD/CHF - the currency may have peaked at 1.2650 and should fall further from here (1.2595). There's no change in the main scenario nonetheless. The downtrend should reassert thereafter, break below the 1.2500 minor base, and should have the 1.2200 base as the new downside focus much further out.
- USD/CAD -- the currency pair probed the 1.3260 top. But we still see this as a rally in a bear trend, and so the downtrend should resume soon. The currency should take out the 1.3080 trough, the ensuing sell-off should proceed towards the 1.3000 base thereafter. Eventually, the 1.2685 area becomes the next primary focus.
- AUD/USD - support at .7105 firmed up and has been to as high as .7160 and gets set to retest the .7180 top. There's no change in major scenario -- the rally should continue from here (.7155), the next major focus being the .7370 area, then towards .7500 much further out.
- NZD/USD - the currency found technical support and given a lift by favorable interest rate outlook, and is just a smidgen below the .6566 top. The currency leads the charge higher, the uptrend should roll forward from here (.6557), and take out the .6566 top. The next barrier comes in at the .6630 area, but further out .7000 looms large as target.
- EUR/JPY - the pullback went further than expected and has been to 135.20, compared to 135.60 ideal expectations. Nonetheless, support should firm up from here. The upmove continues, takes out the 136.55 top, with the 139.00 area the next primary focus further out.
- EUR/CHF - the cross consolidates but may dip further to 1.5400 -- that would be the test of the base, and would be very bullish going forward, if support appears as expected. No change in the scenario -- the cross should take off anew thereafter, with 1.5500 - 1.5550 as the next focus. A New York close above 1.5450 anyday suggests that the major bear phase is over and should usher in a new major upcycle -- the immediate focus of which is the 1.5860 major top further out.
- EUR/GBP - the cross did correct further and has been to .6670 -- lower than expected. But the uptrend should continue, and may reach .6785 area - .6800 before major resistance appears. Minor resistance may show up at .6740.
- GBP/JPY - no change in view -- support at 203.20 failed, which transforms the pattern we were tracking. Then consolidation pattern may have transformed into a large triangle, which suggests that further downmoves are due, probably to 202.00 area. But the pattern is on its last stage, the view further out remains positive, and 208.00 is in the equation after the consolidation is over.
- GBP/CHF - no change in view -- the currency is making a classic basing action -- support at 2.3020 may be probed for weakness. But we believe that the large corrective phase from the 2.3400 top is over, so support should hold. A new rally takes off from here, and then go on to retest the 2.3400 top. The cross should continue thereafter, and have a go at 2.3900 major target area.
