Weekly Review and Outlook − Another Record Week for Dollar, No Sign of Bottom Yet
March 16, 2008
Sat, Mar 15 2008, 22:23 GMT
by ActionForex.com Team
Action Insight Weekly Review and Outlook
Another Record Week for Dollar, No Sign of Bottom Yet
It was another record breaking week with EUR/USD scoring new record high of 1.5687. More importantly, violent moves in the market pushed some pairs through important long term levels. USD/CHF took out parity for the first time in life. USD/JPY broke 100 psychological for the first time since 1995. GBP/JPY also broke 200 psychological level. Fed's new Term Securities Lending Facility might have triggered a strong rebound in the stock markets, but provided non sustainable impact in the forex markets. Bearish sentiments in dollar and more noticeably, bullish sentiments in the yen indeed further intensified before the week closed after bail out of Bear Stearns as credit market losses widened.
There are a few things to note. Strength in the Japanese yen is so far irresistible. However, this time, weakness in the dollar is even more apparent and most major currencies, in particular the Euro, ended up high against dollar even though they all tumbled against the yen. This suggests that the bearish sentiments on dollar is probably intensifying. Also, Sterling and Loonie are still the relatively weaker ones, next to the greenback. More importantly, some pairs has taken out important psychological levels last week and there are still no sign of reversals. Sustained break of these levels will could provide the fuel to accelerate the current trend.
The coming week is jam packed with economic data even though it's holiday shortened. Major focus is on FOMC rate decision. Markets are pricing in around 50/50 chance of a 75bps cut or 100bps cut. Though, the sustainability of the impact, be it 75bps or 100bps, to the markets is doubtful.
Fed's announcement of the new Term Securities Lending Facility (TSLF), which will lend up to $200b of Treasury securities to primary dealers for a term of 28 days and increasing of swap lines with ECB and SNB to $30b and $6b only triggered brief rebound in the greenback. Markets speculated that Fed may substitute a 75bps cut by such new measures but the speculation quickly faded after a dismal retail sales report, default of Amsterdam listed Carlyle Group hedge fund and the bail out of Bear Stearns. The dollar was additionally pressured by speculation of depeg from gulf countries.
The highly anticipated retail sales report showed sales unexpectedly dropped -0.6% in Feb with ex-auto sales dropping -0.2%. Jobless claims was unchanged at high level of 353k. Tamer CPI, which eased from 4.3% to 4.0% yoy in Feb, and core CPI which eased from 2.5% to 2.3% yoy also opened the door for more aggressive rate cutting from Fed.
ECB Trichet's talk of concern on excessive moves in the forex markets and emphasis of strong dollar policy in US triggered some jitters in EUR/USD's up trend but the effect was brief. Data from Eurozone were stronger than expected, with Germany ZEW improving to -32 in Mar. HICP final was revised up from 3.2% yoy to 3.3% in Feb.
Yen's reactions to the brief but strong stock markets rebound during the week were mild, in particular in USD/JPY and GBP/JPY. Indeed, the yen seemed to be much more sensitive to stock bearish news instead. Upper house of Japan voted down BoJ governor nominee Muto and there are still much uncertainties on who will succeed Fukui when he retires in less than a week. There were some talk of extension of Fukui's responsibility but nothing is confirmed so far. BoJ minutes released today offered no surprise. Board member's view on the economy remains unchanged though downside risks to global growth is seen risen.The most important data from Japan last week was the less than expected downward revision in Q4 GDP growth.
From UK, Feb PPI report saw input price accelerated further to 19.3% yoy while output price was unchanged at 5.7% yoy. Core PPI growth slowed slightly to 3.0% yoy. Industrial produce dropped -0.1% mom in Jan comparing to expectation of +0.1%. Manufacturing production, on the other hand, rose 0.4% mom versus consensus of 0.2%. Trade deficit widened further to -4.29b in Jan.
SNB left the three-month libor unchanged at 2.25%-3.25% as widely expected, midpoint is kept at 2.75%. Inflation forecasts was adjusted up to 2% for 2008 due to rise in oil prices. Inflation is then expect to settle at 1.4% in 2009 and 2010. Economic growth was expected to be at 1.5% to 2.0%.
Canadian dollar lacked clear direction in last week's market. Housing start improved to 256.9k. Aussie firmed on better than expected job report, showing 36.7k job growth in Feb with unemployment rate dropped further to 4.0%.
The Week Ahead
It's a busy week, though shortened by east holiday, with jam packed economic calendar. Main focus is on Tuesday's FOMC rate decision. Markets are pricing 50/50 chance of 75bps and 100bps cut. In additional markets will pay close attention to growth data including Empire statement index, Philly Fed survey and industrial production. Housing data including NAHB survey and new residential construction will be featured. PPI inflation and TIC capital flow will also be released.
Some major banks and brokerages will report 1Q earnings this week, likely with additional write downs of impaired debt and probably quarterly losses at some firms too.
UK will be another major focus of the week, with Feb CPI, job report, retail sales and MPC minutes due. From Eurozone, main focus will be on PMI manufacturing and Services. Canadian CPI will also be featured.
USD/JPY Weekly Outlook
USD/JPY's down trend continued last week and extended further to as low as 98.89 last week, taking out the key psychological level of after just some brief hesitation. From a short term angle, there is no sign of reversal yet. Initial bias remains on the downside this week for 100% projection of 114.77 to 104.96 from 108.59 at 98.78 first. However, above 101.23 resistance will be the first alert that a short term bottom is formed. Focus will then be back to 103.59 resistance.
In the bigger picture, as discussed before above, there is no sign of reversal yet. At least, the fall from 108.59 is still in force as long as 103.59 resistance holds even in case of a strong rebound. As discussed before, sustained break of 100 psychological support will indicate firstly that underlying downside momentum in USD/JPY is still strong. Also, this will indicate USD/JPY has already broken out of multi year consolidation pattern that started in 98 at 147.68. Further steep decline should be seen until meeting another key medium term cluster projection target zone of 92.71/93.31 (200% projection of 124.13 to 111.59 from 117.94 at 92.86, 200% projection of 117.94 to 107.21 from 114.77 at 93.31 and 161.8% projection of 114.77 to 104.96 from 108.59 at 92.71).
However, strong break of 103.59 resistance will argue that fall from 108.59 has completed with at least a short term bottom in place. Outlook will be turned neutral in such case and stronger rally should then be seen to retest 108.59 resistance. Nevertheless, medium term outlook will remain bearish until at least a firm break of this resistance.
by ActionForex.com Team
Action Insight Weekly Review and Outlook
Another Record Week for Dollar, No Sign of Bottom Yet
It was another record breaking week with EUR/USD scoring new record high of 1.5687. More importantly, violent moves in the market pushed some pairs through important long term levels. USD/CHF took out parity for the first time in life. USD/JPY broke 100 psychological for the first time since 1995. GBP/JPY also broke 200 psychological level. Fed's new Term Securities Lending Facility might have triggered a strong rebound in the stock markets, but provided non sustainable impact in the forex markets. Bearish sentiments in dollar and more noticeably, bullish sentiments in the yen indeed further intensified before the week closed after bail out of Bear Stearns as credit market losses widened.
There are a few things to note. Strength in the Japanese yen is so far irresistible. However, this time, weakness in the dollar is even more apparent and most major currencies, in particular the Euro, ended up high against dollar even though they all tumbled against the yen. This suggests that the bearish sentiments on dollar is probably intensifying. Also, Sterling and Loonie are still the relatively weaker ones, next to the greenback. More importantly, some pairs has taken out important psychological levels last week and there are still no sign of reversals. Sustained break of these levels will could provide the fuel to accelerate the current trend.
The coming week is jam packed with economic data even though it's holiday shortened. Major focus is on FOMC rate decision. Markets are pricing in around 50/50 chance of a 75bps cut or 100bps cut. Though, the sustainability of the impact, be it 75bps or 100bps, to the markets is doubtful.
Fed's announcement of the new Term Securities Lending Facility (TSLF), which will lend up to $200b of Treasury securities to primary dealers for a term of 28 days and increasing of swap lines with ECB and SNB to $30b and $6b only triggered brief rebound in the greenback. Markets speculated that Fed may substitute a 75bps cut by such new measures but the speculation quickly faded after a dismal retail sales report, default of Amsterdam listed Carlyle Group hedge fund and the bail out of Bear Stearns. The dollar was additionally pressured by speculation of depeg from gulf countries.
The highly anticipated retail sales report showed sales unexpectedly dropped -0.6% in Feb with ex-auto sales dropping -0.2%. Jobless claims was unchanged at high level of 353k. Tamer CPI, which eased from 4.3% to 4.0% yoy in Feb, and core CPI which eased from 2.5% to 2.3% yoy also opened the door for more aggressive rate cutting from Fed.
ECB Trichet's talk of concern on excessive moves in the forex markets and emphasis of strong dollar policy in US triggered some jitters in EUR/USD's up trend but the effect was brief. Data from Eurozone were stronger than expected, with Germany ZEW improving to -32 in Mar. HICP final was revised up from 3.2% yoy to 3.3% in Feb.
Yen's reactions to the brief but strong stock markets rebound during the week were mild, in particular in USD/JPY and GBP/JPY. Indeed, the yen seemed to be much more sensitive to stock bearish news instead. Upper house of Japan voted down BoJ governor nominee Muto and there are still much uncertainties on who will succeed Fukui when he retires in less than a week. There were some talk of extension of Fukui's responsibility but nothing is confirmed so far. BoJ minutes released today offered no surprise. Board member's view on the economy remains unchanged though downside risks to global growth is seen risen.The most important data from Japan last week was the less than expected downward revision in Q4 GDP growth.
From UK, Feb PPI report saw input price accelerated further to 19.3% yoy while output price was unchanged at 5.7% yoy. Core PPI growth slowed slightly to 3.0% yoy. Industrial produce dropped -0.1% mom in Jan comparing to expectation of +0.1%. Manufacturing production, on the other hand, rose 0.4% mom versus consensus of 0.2%. Trade deficit widened further to -4.29b in Jan.
SNB left the three-month libor unchanged at 2.25%-3.25% as widely expected, midpoint is kept at 2.75%. Inflation forecasts was adjusted up to 2% for 2008 due to rise in oil prices. Inflation is then expect to settle at 1.4% in 2009 and 2010. Economic growth was expected to be at 1.5% to 2.0%.
Canadian dollar lacked clear direction in last week's market. Housing start improved to 256.9k. Aussie firmed on better than expected job report, showing 36.7k job growth in Feb with unemployment rate dropped further to 4.0%.
The Week Ahead
It's a busy week, though shortened by east holiday, with jam packed economic calendar. Main focus is on Tuesday's FOMC rate decision. Markets are pricing 50/50 chance of 75bps and 100bps cut. In additional markets will pay close attention to growth data including Empire statement index, Philly Fed survey and industrial production. Housing data including NAHB survey and new residential construction will be featured. PPI inflation and TIC capital flow will also be released.
Some major banks and brokerages will report 1Q earnings this week, likely with additional write downs of impaired debt and probably quarterly losses at some firms too.
UK will be another major focus of the week, with Feb CPI, job report, retail sales and MPC minutes due. From Eurozone, main focus will be on PMI manufacturing and Services. Canadian CPI will also be featured.
USD/JPY Weekly Outlook
USD/JPY's down trend continued last week and extended further to as low as 98.89 last week, taking out the key psychological level of after just some brief hesitation. From a short term angle, there is no sign of reversal yet. Initial bias remains on the downside this week for 100% projection of 114.77 to 104.96 from 108.59 at 98.78 first. However, above 101.23 resistance will be the first alert that a short term bottom is formed. Focus will then be back to 103.59 resistance.
In the bigger picture, as discussed before above, there is no sign of reversal yet. At least, the fall from 108.59 is still in force as long as 103.59 resistance holds even in case of a strong rebound. As discussed before, sustained break of 100 psychological support will indicate firstly that underlying downside momentum in USD/JPY is still strong. Also, this will indicate USD/JPY has already broken out of multi year consolidation pattern that started in 98 at 147.68. Further steep decline should be seen until meeting another key medium term cluster projection target zone of 92.71/93.31 (200% projection of 124.13 to 111.59 from 117.94 at 92.86, 200% projection of 117.94 to 107.21 from 114.77 at 93.31 and 161.8% projection of 114.77 to 104.96 from 108.59 at 92.71).
However, strong break of 103.59 resistance will argue that fall from 108.59 has completed with at least a short term bottom in place. Outlook will be turned neutral in such case and stronger rally should then be seen to retest 108.59 resistance. Nevertheless, medium term outlook will remain bearish until at least a firm break of this resistance.
Labels: Markets, Technical Analysis
