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BoE cut, ECB hold, and RBA hike as central banks ahead of the curve in flavour.

12/02/08

last week’s currency trading review

The Dollar largely data dependent, although releases were at a bear minimum throughout the week. The general sentiment surrounded poor economic data although the dollar rebounded on risk aversion, highlighted by the mid week release of the ISM services figure, which were released at a dismal 41.9, contracting below the 50 level, at its lowest showing since the October 2001, just after the September 11 attacks. With the services sector contributing 70% of the US economy, the data renewed fears of complete US recession. The Euro saw much of its focus surround the ECB rate announcement on Thursday, and as widely expected, the members of the central bank voted for holding rates at 4.00%. Much of the movements were seen during the post rate press conference, in which ECB’s President Trichet noted that although Inflation remained on the upside, largely due to wage/price spiral, the Central Bank heavily viewed the “downside risks to growth”, causing market to pre-empt a loosening bias in future meetings. As a result the EURO confirmed its biggest weekly decline in 18 months The EURO closed last week at 1.4515 having opened at 1.4798. The Japanese Yen once again tracked equity markets on renewed risk aversion. The JPY closed last week at 107.34 having opened at 106.57. The GBP hit a fresh 2-week low against the dollar at 1.9413 following the expected BoE policy announcement which eased its borrowing rate by 0.25%. In its statement the BoE emphasized easing consumer spending growth, lingering tight credit conditions, deterioration in overseas output growth and continued disruption in the global financial markets. The GBP closed last week at 1.9461 having opened at 1.9665. The AUD was on the other side of the coin to opposing central banks, by increasing interest rates by 25bps, to sit at an eleven year high of 7.00%. The Aussie dollar pushed higher throughout the week as renewed appetite for risks insured the commodity currency remained in demand. The AUD closed last week at 0.8945 having week opened at 0.8954.

The forex trading week preview

In the States; more events are scheduled for the US this week with Wednesday’s Core Retail Sales, whilst Fed Bernanke and Secretary Paulson are expected to testify in front of the Senate Banking Committee. Friday also proves to be a heavy data day with TIC flows, Michigan Sentiment survey, NY Manufacturing survey, and Industrial Production all scheduled for release.  We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; German ZEW survey is out on Tuesday, whilst plenty of focus to be placed on Thursday’s GDP data in light of recent admissions to growth slowing in the Euro bloc. In the UK; CPI figures out on Tuesday, ahead of Wednesday Jobs data, and the BoE quarterly inflation. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; the BoJ will announce a new successor to Governor Fukui, whose term expires in March, whilst a rate announcement is scheduled for Friday We will provide our previews and reviews of these data releases in the daily summary.

In Australia; quiet data week, except for the Quarterly Policy statement on Monday and Jobs data on Thursday. In NZ, Retail Sales out on Thursday. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY                    

·         Euro – 1.4585

Initial support at 1.4440 (Feb 7 low) followed by 1.4366 (Jan 22 reaction low). Initial resistance is now located at 1.4615 (Feb 12 high) followed by 1.4637 (38.2% retracement of the 1.4956 to 1.4440 decline).

·         Yen – 107.35

Initial support is located at 105.71 (Jan 31 low) followed by 104.97 (Jan 23 low). Initial resistance is now at 107.66 (Feb 11 high) followed by 107.89 (Jan 28 high)

·         Pound – 1.9595

Initial support at 1.9403 (Feb 11 low) followed by 1.9389 (Feb 7 low). Initial resistance is now at 1.9643 (Feb 12 high) followed by 1.9763 (Feb 5 high)

·         Australian Dollar – 0.9035

Initial support a 0.8916 (Feb 8 low) followed by 0.8875 (Feb 7 low). Initial resistance is now at 0.9086 (Feb 12 high) followed by 0.9102 (Feb 4 high)

·         Gold – 906.30

Initial support at 904.54 (Feb 12 low) followed by 897.00 (Feb 7 low). Initial resistance is now at 927.31 (Feb 11 high) followed by 936.80 (Feb 1 trend high)  

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