• Home ::
• Fundamental ::
• Market View ::
• Daily Fx Strategy

• Send
• Print
• Add To
• Rss

Daily Fx Strategy

01e1269a-8ef6-4269-8d17-4d0e29f7c570

0

0

Pre− EU CPI, US GDP FX Strategy

Thu, Jul 31 2008, 07:35 GMT
by Ashraf Laidi

CMC Markets

Dollar and stocks gains further ground on the unexpected 9K increase in the July ADP survey for private sector jobs. Despite the weak correlation between the ADP survey and BLS' payrolls, the stronger than expected figure manages extend dollar strength on the already positive momentum.

While all eyes shift to Thursday's advanced release of Q2 US GDP report, FX markets will also scrutinize the flash estimate for Eurozone July CPI (5 am EST), expected to reach a new high of 4.1% y/y following 4.0% in June. Given the current selling pressure in the euro, any reading below 4.0% is likely to deal further damage to the single currency, triggering a low of $1.5480, which is the 11-month trend line support.

The 8.30 am release of US Q2 GDP is based on incomplete Q2 data, expected to show a 2.0% increase following 1.0% in Q1. The main question will be mulling the extent of the stimulus package on consumer spending and capex in boosting the final figure. The fact that Q3 GDP is expected to retreat below 1.5% may temper any upside reaction to tomorrow's report.

Weekly jobless and the employment component of the July Chicago PMI will serve to complement or offset the reaction to the Friday payrolls report.

Gold Seen Supported at $880

Our prolonged concern with medium term structural and cyclical weakness in the US and Europe remains a principal basis for optimism in gold prices, especially as central banks face increased challenges in combating inflation. From an intra-commodity perspective, we expect gold to continue gaining relative to oil as the latter is dragged by demand destruction weakness and the former is boosted on the combination of prolonged inflation and central bank inaction. The $880-885 level represents the 200-day moving average, which is a technical benchmark last broken in August. The trend lines from the November and May lows are also acting as key support levels near $875 and $880. US payrolls could act as source of event risk, dragging gold below $870, at which point the last source of support emerges at $856.

Has Aussie Luster Faded?

The deepening decline in commodities, coupled with gold's break below the $900 figure have accelerated losses in the Aussie, the most resilient commodity currency to date. Despite the weakening fundamentals in Australian figures, the Reserve Bank of Australia has not given the "all clear" sign on inflation. Given our positive outlook for gold and renewed policy challenges facing the Federal Reserve, we expect a bottom to emerge near the 0.9170 territory, which is the trend line support holding since August. The level also coincides with the 38% retracement of the rise from the 0.8059 low to the 09862 high. The oscillator indices in the chart below suggest further downside from the current 0.9430s until stability emerges at 0.9170 for a gradual bounce back towards 0.97 by Q3.

More Kiwi Gloom Ahead

The increasing deterioration in New Zealand fundamentals render the Kiwi as a popular bearish choice against most currencies mainly due to the Reserve Bank of New Zealand's clear signaling for further easing ahead. The 5-year tightening cycle has prompted a squeeze among households and businesses to the extent that markets are pricing a 75-bps decline in the overnight interest rate by year-end from the current 8.00%. Accordingly, the Kiwi is to be the new whipping boy throughout the rest of the year. NZDUSD and NZDJPY are seen as favorite candidates for prolonged downside. Having broken below 80 yen, NZDJPY faces intermediate support at 78.00 and 77.70. 76.90 remains viable at the next bout of yen buying.

Published on  Thu, Jul 31 2008, 07:37 GMT