Weekly Review and Outlook
| Top 5 | Current | Last | Change (Pips) | Change (%) |
|---|---|---|---|---|
| AUDJPY | 99.42 | 97.00 | +242 | +2.43% |
| EURJPY | 162.12 | 159.18 | +294 | +1.81% |
| NZDJPY | 80.52 | 79.08 | +144 | +1.79% |
| CADJPY | 104.12 | 102.26 | +186 | +1.79% |
| GBPJPY | 203.69 | 200.89 | +280 | +1.37% |
| Dollar | ||||
| EURUSD | 1.5578 | 1.5481 | +97 | +0.62% |
| USDJPY | 104.06 | 102.81 | +125 | +1.20% |
| GBPUSD | 1.9574 | 1.9536 | +38 | +0.19% |
| USDCHF | 1.0474 | 1.0409 | +65 | +0.62% |
| USDCAD | 0.9990 | 1.0050 | -60 | -0.60% |
| Euro | ||||
| EURUSD | 1.5578 | 1.5481 | +97 | +0.62% |
| EURGBP | 0.7957 | 0.7922 | +35 | +0.44% |
| EURCHF | 1.6321 | 1.6117 | +204 | +1.25% |
| EURJPY | 162.12 | 159.18 | +294 | +1.81% |
| EURCAD | 1.5564 | 1.5560 | +4 | +0.03% |
| Yen | ||||
| USDJPY | 104.06 | 102.81 | +125 | +1.20% |
| EURJPY | 162.12 | 159.18 | +294 | +1.81% |
| GBPJPY | 203.69 | 200.89 | +280 | +1.37% |
| AUDJPY | 99.42 | 97.00 | +242 | +2.43% |
| NZDJPY | 80.52 | 79.08 | +144 | +1.79% |
| Sterling | ||||
| GBPUSD | 1.9574 | 1.9536 | +38 | +0.19% |
| EURGBP | 0.7957 | 0.7922 | +35 | +0.44% |
| GBPCHF | 2.0505 | 2.0337 | +168 | +0.82% |
| GBPJPY | 203.69 | 200.89 | +280 | +1.37% |
| GBPCAD | 1.9557 | 1.9637 | -80 | -0.41% |
Commodity prices and investors' risk appetite overshadowed the effect of some key economic data and events last week. Dollar weakened sharply towards the end of the week on the back of new record in of over $127/barrel in oil prices. Gold, as mentioned during the week, staged a strong rally which argues that the correction from 1032 level has already finished after being supported by key medium term support at 845 level. Aussie, indeed rise on the strength in gold price and surged to new 24 year high of 09559. On the other hand, broad based weakness was seen in the Japanese yen until some buying was seen towards the end. Looking forward, minutes from FOMC and BOE will take center stage with a number of important events from around the world. Nevertheless, the development in oil and gold will continue to be one of the most important factor in the trend in dollar.
Economic data from US offered some hope that the worse is already over. While headline retail sales fell 0.2% in Apr, following a revised 0.2% gain in Mar, ex-auto sales surprises the market by climbing 0.5% versus consensus of 0.2%. Ex-auto ex gas sales grew 0.6%, being the fastest rate since last Jul. Housing starts climbed by a robust 8.2% to 1.032m annualized rate, largest monthly increase in more then two years. Building permits also beat expectation by rising 4.9% to 0.978m annualized rate. Though, NAHB housing market index fell again in May to 19, just one point above the historical low of 18 set in Dec 07.However, manufacturing data argued the US economy is still far from bottoming. Industrial production unexpectedly fell -0.7% in Apr. Capacity utilization also dropped below 80% for the first time since 2005 to 79.7%. Empire state manufacturing index also fell back to negative territory at -3.23 in May after prior month's rebound. Though, Philly Fed index was above expectation at -15.6. Jobless claims climbed to 371k. Business inventories rose 0.1% in Mar. U of Michigan consumer sentiments deteriorated further to 59.5 in May
On the inflation front, headline CPI moderated from 4.0% yoy to 3.9% versus expectation of 4.0% while core CPI moderated from 2.4% yoy to 2.3% versus expectation of 2.4%. Import price rising 1.8% mom in Apr. Export price rose 0.3%. TIC capital flow which rose sharply to 80.4b in Mar.
Eurozone Q1 GDP also beat expectations by growing 0.7% qoq, 2.2% yoy. Eurozone HICP final in Apr was confirmed at 0.3% mom and 3.3% yoy, down from prior 1.0% mom, 3.6% yoy. Industrial orders fall -0.2% mom in March, dragging yoy rate down fro 3.2% to 2.0%.
Inflation was the main focus from UK last week. PPI input accelerated sharply to 23.3% yoy in Apr, beating expectation of 21.5% and was the highest reading since the series began in 1986. Output PPI climbed from 6.2% yoy to 7.5%, above expectation of 6.4%. Core PPI was also up from 3.0% to 4.5% versus consensus of 3.2%. Headline CPI accelerated sharply from 2.5% yoy to 3.0% yoy in Apr, much stronger than expectation of a modest climb to 2.6%. Core CPI rose from 1.2% yoy to 1.4% versus expectation of 1.3%. BoE noted in the Quarterly Inflation Report that it's 'facing its most difficult challenge yet'. Annual CPI is likely to rise to around 3.5% to 3.7% by Autumn 08 and could even tough 4.0%. If rates are left unchanged at 5.0%, growth could fall below 1.0% and is at risk of stalling.
UK trade balance release showed -7.44 b deficits in Apr. RICS reported prices fell in the capital exceeded those reporting gains by 94%, the record worst record since the series began in 1994. Unemployment rate was unchanged at 5.% in Mar. In Apr, claimant count was unchanged at 5.2% while the actual number surged by 7.2k following upwardly revised 3.6k in Mar.
Q1 GDP growth in Japan was surprisingly resilient, registering 0.8% qoq growth, with 3.3% yoy rate, beating expectation of 0.6% qoq and 2.5% yoy. Q4's growth was revised down from 0.9% qoq, 3.5% yoy to 0.6% mom, 2.6% yoy. Nevertheless, the growth was still maintaining solid momentum after turning negative last Q2. Other data from Japan saw industrial production contracting at -0.7% yoy in Mar, worse than expectation of -0.4%. Consumer confidence dropped from 37 to 35.4. Economic watch DI dropped from 36.9 to 35.5 in Apr, machine orders grew 0.3% yoy. Domestic CGPI easing from 3.9% yoy to 3.7% in Apr but being above consensus of 3.6%. Trade surplus widened slightly more than expected to 1250b in Mar. Machine orders dropped sharply by -8.3% mom in Mar, with yoy rate dropping -6.2%.
Australia NAB business confidence slumped in Apr from -4 to -8. New Zealand retail sales was surprisingly weak in Mar, falling -1.2%. Canadian new housing price index rose 0.2% in Mar as expected.
Suggested Readings:
- This Week's Market Outlook
- Weekly Focus: Oil Prices May Not Have Peaked Yet
- The Weekly Bottom Line
- FX Briefing: Dollar Lacks Direction
- Traders Bet The Fed Will Hold As Credit, Growth Outlook Improve
The Week Ahead
Minutes from FOMC and BoE will catch most attention. Markets are speculating that Fed is completed with it's most aggressive easing campaign in decades after the 25 bps cut in the Apr 29/30 meeting. Recent comments from policymakers argues that they are shifting the focus from downside risks to growth to concern on inflation. The statement of that meeting was generally taken as less dovish than prior ones. The statement characterized economic activity as "weak" as opposed to having "weakened further", even though its description of financial markets was unchanged as being under "considerable stress." Also, Fed described the easing campaign since last summer as "substantial". The committee also vowed to "act as needed," but eliminated "in a timely manner." Markets will look into the minutes for further clarifications of the messages as well as hints on whether Fed will really pause in June.
Minutes of the BoE meeting on May 8, where interest rate was left unchanged at 5.00% will be released this week too. There were some speculations that BoE might opt for another cut in May after a string of weak growth data released prior the the meeting. Market's focus will now be on the actual vote split and discussions to see how that was that unchanged decision made and thus adjust the expectation on the pace of further policy easing from BoE down the road.
From Eurozone, the most important events to watch are German Ifo business climate and ZEW economic sentiments as well as Eurozone PMI Manufacturing. Surprised resilient growth in Eurozone Q1 GDP affirmed ECB Trichet's view that economic fundamentals in the Eurozone remains sound. However, sentiments are deteriorating.
Other important data to look into include US leading indicators, PPI, house price index, existing home sales; UK retail sales, Q1 GDP; Swiss combined PPI, ZEW; Canadian wholesale sales, CPI, retail sales. BoJ is widely expected to keep rates unchanged again at 0.50%. RBA will release minutes of May policy meeting.
Suggested Readings:
- Economic Calendar Summary 5/18 - 5/23
- Economic Outlook: Stagflation Once Again?
- EUR/USD: Are European Investors as Optimistic as ECB President Trichet?
- Why The Euro Could Continue To Fall
- FX Crossroads: EUR/USD - Will History Repeat Itself?
- Australian & New Zealand Weekly: Gov'ts Domestic Demand Forecast Will Unnerve RBA
- The Week Ahead Canada & U.S.: Canadian CPI and Retail Sales; FOMC Minutes
- The Week Ahead Europe and UK: German, EU ZEW Surveys; UK Q1 GDP
- The Week Ahead Japan & Australia: BOJ Interest Rate Decision; RBA Minutes
- $ Index, Topping....
- British Pound in Early Stages of Large Bull Move
AUD/USD Weekly Outlook
AUD/USD's multi-week sideway trading finally finished last week and surged sharply to new 24 year high of 0.9559 and closed the week strongly. Initial bias remain on the upside this week as long as 0.9497 minor support holds. Break of 61.8% projection of 0.8512 to 0.9496 from 0.8953 at 0.9561 will encourage further rally towards next projection target of 100% at 0.9937. On the downside,below 0.9497 will turn intraday outlook neutral first. But pullback should be contained well above 0.9291 support and bring rally resumption.
In the bigger picture, as mentioned before, as long as short term rising trend line (0.7675 to 0.8512, now at 0.9154) holds, recent up trend should still be in force. Such rally is treated as resumption of long term up trend from 0.4773 (01 low) is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity.
However, the upside momentum since 0.7675 is still not convincing as seen in mild bearish divergence conditions in daily MACD and RSI. A break below 0.9291 support will firstly argue that rise from 0.8953 has completed. Secondly, this will also argue that rally from 0.7015 has also completed with five waves up too. In other words, an important medium term top is in place and, deeper decline should then be seen at least to 0.8870 medium term resistance turned support.
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