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Weekly Review and Outlook − Focus Back to Economic Data after Bailout Plan Finalized

Sun, Sep 28 2008, 09:37 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Weekly Review and Outlook

Focus Back to Economic Data after Bailout Plan Finalized

The forex markets were generally mixed last week as investors were disappointed by the lack of conclusion in the $700b bailout plan in US. More apparent movements were seen in the Japanese yen which rebounded broadly, in particular against Aussie and Kiwi, riding on news of WaMu's failure. But after all, the movements were lack of decisiveness. Indeed, the more interesting point to note is the broad based strength in Canadian dollar which was probably based on anticipation of further rebound in oil prices.

The latest development on the bailout plan is that law makers said a breakthrough is made during the weekend and there could be an announcement on Sunday on the approval. Treasury Paulson said that lawmakers are on the brink of "a deal which will work and be effective" in the marketplace. Congressional leaders will probably have House vote on Monday and Senate vote later. Hence initial focus of the markets are still on the progress and details of the bailout plan.

Once the bailout plan is concluded, markets will turn focus back to the load of important economic data from US and Eurozone as well as ECB rate decision. Currently, interest rate futures are pricing in over 80% that Fed will cut by 25ps in the Oct meeting and full percentage of rate cut is priced in for Dec meeting. Markets will look into the economic data from US, including ISM indices and Non-Farm Payroll to solidify this view.

Currency Heat Map Weekly View

US real GDP growth in Q2 was unexpectedly revised down from 3.3% to 2.8%. while consensus expected no revision. Looking into the details, there were downward revisions to exports, consumer spending and business investments and that offset upward revision to non-residential construction. In particular, personal consumption growth was revised down from 1.7% to 1.2%. Price index was revised up to 1.3%. Core PCE is revised up from 2.1% to 2.2% too.

House Price index dropped -0.6% mom in Jul. Existing home sales dropped more than expected by -2.2% to 4.91M annualized rate in Aug, below expectation of 4.95M. New Home sales dropped sharply by -11.5% to 0.46M in Aug. Durable goods orders dropped sharply by -4.5% in Aug, much worse than expectation of -1.6%. Ex-transport orders also dropped -3.0% versus consensus of -0.5%. Jobless claimed surged from revised 461k to 493k.

Eurozone PMI data showed further deterioration in business sentiments. Manufacturing PMI tumbled sharply from 47.6 to 45.3. Services PMI also dropped from 48.5 to 48.2 in Sep. Industrial orders unexpectedly rose 1.0% mom, 1.6% in Jul. Current account deficit was unchanged at -1.1b. M3 money supply growth remains ample but slowed sharply from downwardly revised 9.1% yoy to 8.8% yoy in Aug.

Germany Ifo business climate dropped more than expected to -92.9 in Sep, below expectation of 94.1. Services PMI and manufacturing PMI deteriorated further to 49.3 and 48.1 in Sep respectively. Gfk consumer confidence unexpectedly improved from 1.5 to 1.8. Import price dropped less than expected by -0.8% mom in Aug, with yoy rate unchanged at 9.3%.

UK rightmove house prices dropped -1.0% mom in Sep with yoy rate -3.3%. CBI realized sales improved from -46 to -27 in Sep.

Swiss KOF leading indicators hit five year low of 0.62 in Sep. but was better than expectation of 0.56.

Taro Aso was elected president of Japan's ruling LDP and will succeed Yasuo Fukuda as the Prime Minister of Japan. Japan CPI moderated unexpectedly to 2.1% yoy in Aug with core CPI flat. All industry index rose 0.8% in Jul as expected. Corporate Services Price index beat expectation and climbed further form 1.3% to 1.4% in Aug. Trade balance turned deficit to -324b in Aug due to sharp slowdown in exports from 8.l1% yoy to 0.3% yoy. Import grew 17.3%.

Canadian Jul retail sales rose 0.1% in mom while ex-auto sales rose 0.4%. UK rightmove house prices dropped -1.0% mom in Sep with yoy rate -3.3%. Headline CPI climbed to 3.5% yoy in Aug, inline with consensus. Core CPI, climbed to 1.7% yoy, above expectation of 1.6%.

New Zealand GDP dropped less than expected by -0.2% qoq in Q2 with yoy rate slowed less than expected to 1.0%.

The Week Ahead

Initial focus will remain on the result of the $700b bailout plan from US and markets will continue to hesitate to commit to any direction before the conclusion and knowing the details. However, once it's finalized, focus should quickly turn back to the load of important economic data.

From US, the calendar will kick off with Aug personal income and spending as well ass PCE in Aug. In particular, income is expected to recover by growing 0.2%, up from prior -0.7%. ISM Manufacturing in Sep will be the focus in mid week and is expected to sit on 50 in Sep. Non farm payroll will be the main event on Friday and is expected to show another month of contraction by -85k with unemployment rate unchanged at 6.1%. ISM Services will be released on Friday too. Other data include Chicago PMI, Conference Board Consumer Confidence.

Eurozone HICP flash in Sep will be a major focus of in early part of the week and is expected to show further moderation from 3.8% yoy to 3.6%. ECB rate decision will then take center stage and is expected to be on hold at 4.25%. Other data include finalized PMIs, sentiments indicators, unemployment rate and retail sales.

UK Gfk consumer sentiment, Q2 GDP and manufacturing and Services PMI will be featured.

From Swiss, focus is on SVME PMI and CPI.

From Japan, main focus will be on Q3 Tankan survey on Wed. Manufacturing PMI, household spending, unemployment, housing starts, industrial production will also be released.

Canadian GDP will catch much attention too and is expected to show 0.1% mom growth in Jul.

Other data include Australia retail sales and trade balance as well as New Zealand trade balance.

More Forex Technical Analysis Reports Here.

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USD/CAD Weekly Outlook

USD/CAD dived further to as low as 1.0297 last week before turning sideway ahead of trend line support at 1.0281. While some consolidation might be seen initially this week, another fall is still in favor as long as 0.0514 resistance holds. Break of the mentioned trendline support will encourage deeper fall towards 0.9974 support. Meanwhile, above 1.0514 will indicate that fall from 1.0819 has completed and will probably bring retest this this high.

In the bigger picture, medium term rise from 0.9056 has met cluster resistance at 1.0791/98 (61.8% retracement of 1.1874 to 0.9056 at 1.0798, 61.8% projection of 0.9056 to 1.0378 from 0.9974 at 1.0791), but failed to sustain above. subsequent break of 1.0410 support firstly indicate that a short term top is at least in place with bearish divergence condition in daily MACD and RSI. Further break of 0.9974 will indicate that whole medium term rise from 0.9056 has completed and will have medium term outlook turned bearish again.

In the longer term picture, a medium term bottom is in place at 0.9056. Bullish convergence condition in monthly MACD and monthly RSI's break of down trend argue that whole long term down trend from 1.6196 (02 high) has bottomed out too. Focus is on 1.1783/1874 resistance zone (38.2% retracement of 1.6196 to 0.9056 at 1.1783) which will be important to determine whether USD/CAD is in early stage of a long term rally or is merely developing into long term sideway trading.

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Published on  Sun, Sep 28 2008, 09:51 GMT