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Daily Outlook
Dollar strengthened as Hurricane Rita weakened at least in terms of it being downgraded to… … Category 4 and the realization that it may actually miss the key oil refineries with oil prices having eased back as a result. After the Fed’s latest rate hike, the accompanying statement implies that the rate by the end of the year could be 4.25%, thus traders would be looking to keep selling the existing high yielders as their yield advantage reduces. However risks of the Hurricane causing a lot of damage still exists and the situation would only be clearer early next week but till then the interest rate factor keeps the Dollar supported. Earlier Jobless claims rose as expected while leading indicators fell for the second straight month with consumer expectations index leading the decline as oil prices are tipped to rise further.
· Euro has pared back its gains of the last few days but continues to remain supported above the crucial 1.21 mark. Apart from dollar’s general rebound, political factors continued to weigh in against the Euro but this time from Italy. Its Economy Minister Siniscalco resigned yesterday but this decision was in the offing given his intense disagreements with Bank of Italy’s Governor Fazio, who has rarely seen eye to eye with Siniscalco’s reform policies. Needless to say it is a major blow for a nation stuck in a cyclical economic rut. Earlier, New Industrial orders from the zone fell more than expected with high oil, energy and raw material costs having a substantial negative effect.
· Yen’s losses were limited as other currencies were plagued with political problems and high yield diminishing, with the Yen devoid of both factors. It also helped the Yen rally on its crosses thus keeping the main pair within the 111 region for now with slow movements eyed today as Japanese markets are closed for a national holiday. While concern remains on the much larger than expected shrinkage of its Trade surplus, it is a global problem faced by all with the positives of political stability and continued foreign interest in its assets forming the current supporting factors.
· Pound slipped across the board as it is first among the line of high yielders that would witness its now modest yield advantage over the Dollar completely disappear probably within 6 months. At the moment BoE’s officials are concerned about inflation thus preventing them from cutting rates, but this concern also existed few months ago still a rate cut eventuated as growth was slowing at a fast rate, this scenario is likely to be repeated in the near future. Earlier, Manufacturing Orders fell to their lowest level since January with the decline largely attributed to low export orders. The weakness in the U.K. economy has been well documented and it has been relying on overseas demand which has now declined on high oil and energy prices.
· Aussie fell as key support levels were broken on the massive bout of profit taking on precious metals with Gold leading the fall after it reached 18 year peaks. The worst case scenario for the Aussie is commodity prices falling further on profit taking, oil prices remaining high which will widen its deficit while its yield advantage over the U.S. keeps reducing in months to come. The New Zealand Dollar has fallen as well, on the above concerns with growth outlook looking much weaker than Australia while its political problems continue.
Economic Data Released
GMT Release Region Previous Actual Comment
09:00 July Industrial New Orders m/m Euro-Zone 3.1% -1.6% High oil prices have reduced new orders considerably
10:00 September CBI Industrial Trends survey U.K. -29 -27 Orders remain on the weak side as high oil prices have led to a decline in orders
12:30 Initial Jobless Claims USA 398K 432K More Hurricane victims file their claims.
14:00 August Leading Indicators USA 0.1% -0.2% Indicators to be negative largely due to record high oil prices affecting all sectors
Upcoming Economic Releases
GMT Release Region Previous Forecast Comment
06:00 August Import Price index m/m Germany 0.6% 0.7% Import to keep rising on high oil and energy prices.
Friday 09:00 July Italian Retail Sales -0.2% 0.2% Sales to rebound on seasonal factors but outlook is weak.
Key Intra-Day Pivot levels
EUR/USD – Yesterday’s low was 1.2133 and high was 1.2269.
The pair closed at 1.2143.
The pair has eased back into the mixed interest region of 1.21 with strong support continuing for the Euro in the 1.2090-1.2105 region. A clear and decisive break below this region will accelerate its losses before strong support lies around 1.2010 with decent bottom picking bid interest just below it. Any moves lower will shift the Euro in deep negative territory with further losses likely. On the upside, immediate resistance lies around 1.2240 with offers increasing in strength above it and lined up to the strong resistance mark of 1.2315 with any gains expected to capped within the 1.23 region.
Key resistance is seen at 1.2240 followed by 1.2315 while support starts at 1.2090 followed by 1.2000.
USD/JPY – Yesterday’s low was 111.05 and high was 111.81.
The pair closed at 111.67.
The pair for now is resonating within the 111 region with the Yen risking further losses if it doesn’t break below the 110 region soon. Decent sized offers lie on any break above 112 which would stiffen gains with strong resistance around the 112.35 mark. A break above brings a mixed interest region which lasts up till 113.10 where very strong resistance exists and offers are also strong above it, with any gains expected to be capped within this region. On the downside, key support levels have moved up, with 111.05 now posing as immediate support followed by strong support and decent bid interest mark of 110.55. A break below this mark would send the Yen back in its 109-111 familiar range.
Key Resistance is seen at 112.35 followed by 113.10 while support starts at 111.05 followed by 110.55.
GBP/USD – Yesterday’s low was 1.7879 and high was 1.8146.
The pair closed at 1.7906.
The pair has broken down with key support levels breached which further accelerated the losses and more look likely. Immediate resistance now lies around 1.80 with mild offers lying above it with a clear break above could accelerate gains before very strong resistance lies in the 1.8115-30 zone with only a break above to shift the pair back in neutral territory otherwise the Dollar remains bid. On the downside, very strong support lies around 1.7850 as this mark is crucial from which the pair launched its 600 point uptrend earlier this month. A clear break below this mark could lead to a fresh downtrend for the pair.
Key Resistance is seen at 1.8005 followed by 1.8130 while support starts at 1.7850 followed by 1.7795.
AUD/USD – Yesterday’s low was 0.7613 and high was 0.7728.
The pair closed at 0.7613.
The pair finally formed a definitive direction and it was to the downside with key support level at 0.7645 broken with 0.76 under pressure as well. Immediate support continues around 0.7590 followed by strong support around 0.7550 which if broken could lead to further acceleration of losses. On the upside, any foray above 0.77 should continue to lead to strong selling interest with immediate resistance moving down to around 0.7705 and any break above 0.7755 to intensify the strength of the selling orders.
Key Resistance is seen at 0.7705 followed by 0.7755 while support starts at 0.7590 followed by 0.7550.
Kunal Sharma
E-mail: kunal@easy-forex.com
www.easy-forex.com
