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Weekly Forex Market Commentary

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The US economic agenda is chuck−full of significant data this week

Mon, Apr 14 2008, 06:33 GMT
by Cornelius Luca

GFT

The dollar made little progress during the past week, while the appetite for risk changed from day to day. Only the pound made a discernable move, sinking across the board amid UK housing prices and the tacit OK from the government. The dollar remains weak and there is little hope to look for a sustained recovery while the oil flies through the sky. The dollar should trade all over the place and focus should be on the pound and yen crosses.

United States
The oil is surging and the US equity markets are hurting. The fluctuation of the appetite for risk creates unpleasant waves of volatility. The revaluation of the yuan and Singapore dollar helped the yen rally as well, but its strength was short lived.

Elsewhere, the credit crunch continues and if you saw GE’s earnings you cannot avoid thinking big-time recession.

All these factors point to further choppy trading this week.

The University of Michigan preliminary index of consumers’ confidence fell to 63.2 in April from 69.5 in March. Well, expensive food and fuel prices when unemployment is rising will do that, don’t you agree?

Jobless claims fell 53,000 to 357,000 in the week ended April 5 from an upwardly revised (as nearly always) 410,000 (initially 407,000) in the previous week. This way, the numbers look better, don’t they?

The trade deficit widened 5.7 percent to $62.3 billion in February from an upwardly revised estimate of $59.0 billion for January. The market tried to sound surprised – not clear why.

The Eurozone
The euro/dollar nailed a new high last week but made little progress. With the ECB not cutting rates, it can only struggle higher.

German industrial production unexpectedly rose 0.4 percent in February from January, when it gained 1.4 percent.

The French trade deficit narrowed to 2.8 billion euros in February from 3.183 billion euros in January.

Meanwhile, the German trade surplus narrowed less than expected to 16.9 billion euros in February from 17.1 billion euros in January.

The final Eurozone GDP remained at +0.4 percent in the fourth quarter of 2007, down from 0.7 percent in the third quarter. On an annual basis, it slowed to 2.2 percent from 2.7 percent in the third quarter.

As universally expected, the European Central Bank kept interest rates at a six-year high of 4 percent to alleviate inflation, despite the economy-crippling strong euro.

Japan
Dollar/yen encountered alternating phases of volatile and contained trading but didn’t break much ground. The downside is favored.

The volatile machine orders contracted 12.7 percent in February as companies scaled back investment on concern about the US recession from January when they expanded 19.6 percent.

Meanwhile, current-account surplus widened 2.9 percent to 2.47 trillion yen in February from a year earlier. Export rose 9 percent from 8.4 percent in January, while Imports increased 12.5 percent from 9.1 percent.

The leading index increased sharply to 50 in February from 36.4 in January, the coincident index rose to 44.4 from 20 in the prior month, while the lagging index remained unchanged at 50.

The UK
The sterling/dollar was the exception to the rule and ended the week lower. More weakness is in store.

The pound fell sharply on Tuesday after UK house prices contracted 2.5 percent in March, the most since 1992, according to HBOS. The 1 percent decline in the first quarter f was the biggest quarterly loss since 1995.

Factory output unexpectedly rose 0.4 percent in February to the strongest level since 2001, after a 0.5 percent gain in January. Overall industrial production rose 0.3 percent.

The Bank of England’s Monetary Policy Committee met the market expectations and cut the benchmark interest rate by a quarter point to 5 percent.

Canada
Dollar/Canada struggled higher last week.

Canada's trade surplus unexpectedly jumped by 78 percent in February to C$4.94 billion from C$2.78 billion in January, the largest rise since June 2004 and the biggest surplus since May 2007. The gain was entirely in trade with the United States, with which the surplus jumped to C$8.10 billion from C$6.29 billion, the highest level since December 2006. Exports rose to C$39.32 billion from C$37.88 billion, while imports fell to C$34.39 billion from C$35.10 billion.

Switzerland
Dollar/Swiss franc encountered volatility last week but produced little direction.

Australia
The Aussie/dollar closed higher for a third consecutive week.

Australia's trade deficit widened to a record A$3.29 billion in February as floods and cyclones disrupted exports of coal and iron ore from a revised A$2.54 billion in January.

Home-building approvals growth slowed to +0.1 percent in February from January’s revised +1.4 percent.

Employment rose 14,800 in March for a record 17th month after hiring 36,700 people in February. The jobless rate rose to 4.1 percent from 4 percent.

This Week's Data and Events

United States
The US economic agenda is chuck-full of significant data this week.

It will open on Monday with the release of the Retail sales report for March.

Tuesday will see the release of the PPI report for March and of the Empire State Manufacturing Survey for April.

The CPI report for March is due on Wednesday, along with the Industrial Production and of the Housing starts reports for March.

The Eurozone
The Eurozone calendar will start on Monday with the release of the regional Industrial Production Report for February.

Tuesday will see the release of Germany’s ZEW Expectations report for April.

Also on Tuesday, the French CPI report for March is due.

Japan
Japan’s economic agenda only features the revision of the industrial production report for February on Wednesday.

The UK
The UK economic calendar will start on Monday with the release of the PPI output report for March.

The CPI report for March is due on Tuesday.

The DCLG house prices and the unemployment reports for February are due on Tuesday as well.

Canada
Canada’s economic agenda will start on Thursday with the CPI report for March.

The leading indicators for March are due on Friday.

Overview

Euro/dollar
Last week's range: 1.5628 – 1.5914 (Mixed)
Previous range: 1.5511 – 1.5894 (Mixed)

Once again, the overbought euro/dollar was all over the place last week but closed little changed – as expected. It coined new, if marginal, record highs, but my model remains short. Be careful, this overbought pair should encounter more choppy trading and its initial bias is down.

Immediate support is at 1.5740. Below 1.5625, euro/dollar has support at 1.5540. This is followed by 1.5340. Distant support comes at 1.5150.

Initial resistance is at 1.5853. The next level is 1.5914. Above it, resistance remains at 1.5985. Distant resistance is seen at 1.6040.

NEAR-TERM:Mixed
MEDIUM-TERM:Bullish
LONG-TERM: Bullish

Dollar/yen
Last week's range: 100.03 – 102.84 (Mixed)
Previous range: 98.82 – 102.95 (Up)

Dollar/yen failed to hold above the target of the 102.30 pivot and headed lower. My system went short. The pair got stuck in an inside range but the risk is on the downside.

Initial support is at 100.25 there is another 50-point pivot, which targets 99.75 and 100.75. This is followed by 99.25 from a 50-point pivot, which targets 98.75 and 99.75. Distant support lies at 98.25 from another 50-point pivot, which targets 97.75 and 98.75.

Immediate resistance is at 101.25 from a 50-point pivot which targets 100.75 and 101.75. The next level is at 102.30 from another 50-point pivot, which targets 101.80 and 102.80. Distant resistance is at 103.40 from a 50-point pivot, which targets 102.90 and 103.90. 104.50.

NEAR-TERM: Bearish
MEDIUM-TERM: Mixed
LONG-TERM: Bearish

Sterling/dollar
Last week's range: 1.9651 – 1.9954 (Down)
Previous range: 1.9730 – 2.0046 (Mixed)

Sterling/dollar fell to a 1 ½-month low early last week and never could recover. My model remains short. Choppy trading with downside bias is still likely.

Immediate support is seen at 1.9650. This is followed by 1.9610. Below 1.9504, distant support is 1.9363.

Initial resistance now comes at 1.9760. There is a pivot high at 1.9842 and another one at 2.0046. This is followed by 2.0190. Distant resistance looms at 2.0275.

NEAR-TERM:Slightly bearish
MEDIUM-TERM:Bearish
LONG-TERM:Mixed

Dollar/Swiss franc
Last week's range: 0.9889 – 1.0172 (Mixed)
Previous range: 0.9872 – 1.0217 (Up)

Dollar/Swiss closed little changed last week after trading in an inside range. My model went short on Friday. Choppy trading with upside bias is expected.

Immediate support is now seen at 0.9965. This is followed by 0.9875. Support is then pegged at 0.9790. Distant support is at 0.9642.

Initial resistance now comes at 1.0190. This is followed by 1.0251. The next level is 1.0375. Distant resistance now comes at 1.0450.

NEAR-TERM: Mixed with downside bias
MEDIUM-TERM:Mixed
LONG-TERM: Bearish

Dollar/Canada
Last week's range: 1.0039 – 1.0249 (Up)
Previous range: 1.0021 – 1.0325 (Down)

Dollar/Canada closed higher last week but got stuck in an inside range. My model went long on Wednesday. Expect a choppy upmove.

Immediate resistance is now seen at 1.0287. Above 1.0360, strong resistance is at 1.0465. Distant resistance is at 1.0530.

Initial support now comes at 1.0210. The next level is 1.0135. There is a pivot low at 1.0030. Below 0.9965, distant support is pegged at 0.9745.

NEAR-TERM: Bullish
MEDIUM-TERM: Bullish
LONG-TERM: Bearish

Euro/yen
Last week's range: 158.81 – 161.70 (Mixed)
Previous range: 156.06 – 161.08 (Up)

Euro/yen closed flat last week after hitting a two-month high. My model went short on Friday. Trading has been and will remain choppy.

Immediate support is at 158.80. This is followed by 158.35. This is followed by 156.55 and 155.80. The next level is at 154.60. Below 152.95, distant support is at 151.75.

Resistance is at 160.40 and 160.70. Above 161.35, resistance is at 162.30. The euro/yen has distant resistance at 164.00.

NEAR-TERM: Mixed with downside bias
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Euro/sterling
Last week's range: 0.7867 – 0.8037 (Up)
Previous range: 0.7823 – 0.7981 (Mixed)

Euro/sterling surged to a new 11 1/2-year high. My model went long. There is little reason to expect a sustained pullback.

Immediate resistance is now seen at 0.8050. Above 0. 8080, the next level now comes at 0.8155. Distant resistance is then seen at 0.8270.

Initial support is at 0.7975. A break below 0.7945 would signal a further correction to 0.7885. The next level is at 0.7823. Distant support remains at 0.7605.

NEAR-TERM: Mixed with upside risk
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Published on  Mon, Apr 14 2008, 06:41 GMT