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Preview - Market Preview For The Week Ahead
At the weekend meetings, G7 members did not make any specific
references to the dollar, Euro or yen, maintaining the previous stance
that excessive movements were undesirable. The US appeared to reject any
mention of the dollar in the communiqué and the absence of tougher
rhetoric will tend to increase dollar selling in the near term.
Official comments on exchange rate and wider asset prices will remain
very important and will still need to be watched very closely over the
following week.
In particular, market will be on alert for divisions between the US and
Europe over the subject of the dollar. Any evidence of serious stresses
between policymakers would tend to increase the threat of selling
pressure on the US currency. There will also be some unease that the
Wall Street slump in October 1987 was triggered in part by policy
divisions between Europe and the US.
In contrast, evidence that the US has shifted policy would increase the
risk of a very sharp dollar correction. There is also a small
possibility that G7 central banks are waiting for a more opportune time
to step in and intervene when the market is excessively short dollars.
This option should not be ruled out entirely even if it looks unlikely.
The movements in US stock market prices and credit conditions will
inevitably remain very important. Following benign conditions over the
second half of September and early October, credit fears have increased
again, especially after weaker US banking-sector earnings. The yen and
carry trades in general will continue to be correlated strongly with
short-term stock market moves and credit conditions. Further stock
market losses would tend to support the yen, especially if China
increases interest rates again.
There are only a few major data releases during the week with the
existing and new home sales data due on Wednesday and Thursday
respectively. Given the very poor housing data so far this month, there
will be little expectation of any evidence of a recovery in the sales
data. The jobless claims could also be important following the increase
seen last week. Any Fed hints on interest rates will be important for
the currency.
The Euro-zone data will be watched closely for signs of stresses in the
economy with the IFO index due on Friday. The provisional PMI data for
October will also be released on Wednesday. There was a significant dip
in the September data and the October figures will have an important
impact. A rebound in the data would ease concerns over a slowdown in the
economy and would also lessen pressure for the ECB to switch policy. In
contrast, a further significant decline would increase fears over a
marked slowdown in the Euro-zone economy, increase political concerns
and intensify pressure for the ECB to alter policy.
Elsewhere, there is little in the way of major UK economic data, but the
anecdotal evidence on the housing data will be watched very closely.
The Australian consumer inflation data will be important for near-term
interest rate expectations.
Weekly Technical Strategist
EURUSD: Break Of The 1.4250/81 Area Turns Attention To The 1.4363
Level
EURUSD-EUR broke sharply higher the past week invalidating its 1.272
Ext.(monthly chart)/2007 peak at 1.4250/81 and re-igniting its medium
term uptrend to close the week at 1.4306 after hitting a high of
1.4319.With its bottoming out at the 1.4015 low(Oct 09’07) and
subsequent gains taking it through layers of resistance,EUR now looks to
head towards its 1.272 Fib Ext. at 1.4363 where a clean penetration and
negation will pave the way for further upside gains targeting its 1.618
Fib Ext./weekly rising channel top at 1.4463/68.A clearance of there
will put the pair in position to extend gains towards its 1995 high at
1.4535.The daily RSI and Stochastics remain positive suggesting further
upside gains. Alternatively, the 1.4250/81 zone just invalidated is
expected to reverse roles and provide support but if it fails, lower
prices should aim at the 1.4159/62 area, its 1.618 Fib Ext (Daily
Chart)/Oct 22’95/Sept 25’07 highs ahead of the 1.4033/00 levels,
representing its Oct 05 & 09’07 lows/psycho level/rising trendline and
then the 1.3930/28 area, its .382 Ret (1.3361-1.4281)/Sept 13’07 high.
On the whole, the break and close above the 1.4250/81 area has triggered
the resumption of the pair’s medium term uptrend on hold since Oct
01’07.The pair is up by 0.93% for the week and 8.40% for the year
Directional Bias:
Nearer Term –Bullish
Short Term -Bullish
Medium Term –Bullish
Performance in %:
Past Week: +0.93%
Past Month: +4.73%
Past Quarter: +5.40%
Year-To-Date: +8.40%
Weekly Range:
High -1.4319
Low -1.4144
GBPUSD: Clears The 2.0461/94 Zone, Signals Further Upside Gains
GBPUSD-After several days of failing at the 2.0461/94 levels, its Aug
03’07/Oct 01’07 highs, GBP successfully broke and closed above it the
past week ending Friday trading session at 2.0520,its highest price
since Aug 06’07.Having surmounted this barrier, the pair now focuses on
further upside gains targeting its channel top at 2.619 at first and
next its 2007 peak at 2.0652.Beyond here will resume its medium term
uptrend and bring higher prices towards its 1978 high at 2.0985.The
daily and weekly studies are bullish and trending higher suggesting
further advance. On the downside, initial support is located at its
invalidated resistance at the 2.0461/94 zone which is expected to hold
and send the pair higher. On a break below there, weakness could be seen
aiming at the 2.0365 level, its Sept 12’07 high ahead of the 2.0319
level, its Sept 24’07 high followed by its July 30’07 low/Aug 27’07
high/broken falling trendline at 2.0191/81.Additional downside pressure
if seen will target the 2.0132 level, its .50 Ret (1.9632-2.0652)/April
18’07 high and the 2.0059/72 area, its April 25/26’07/May 01’07 high.
All in all, with a stronger resistance zone shattered, GBP is expected
to push towards its YTD high at 2.0652 and beyond.
Directional Bias:
Nearer Term -Bullish
Short Term -Bullish
Medium Term -Bullish
Performance in %:
Past Week: +0.77%
Past Month: +1.50%
Past Quarter: +1.91 %
Year-To-Date: +4.75%
Weekly Range:
High -2.0526
Low -2.0287
USDJPY: Turns Sharply Lower, Aims At Its Rising Trendline
USDJPY- USDJPY has almost wiped out its rally from the 114.03 low to the
117.95 high after failing to sustain its gains above the 117.13/22 zone,
which represents its Aug 06/10’07 lows/Aug 23’07 high last week. It is
now targeting its rising trendline at 114.30 drawn off the 111.60 low
printed in Aug’07.With price weakness still unabated and daily studies
and weekly RSI pointing lower, the likelihood of the mentioned trendline
or even its Sept 25’07 low/.618 Ret(111.60-117.95 rally) at 114.03/04
holding as support is very slim. A turn below here if seen will put the
next two downside objectives at the 112.39 level, its Sept 09’07 low and
its year-to-date low at 111.58.However,if the confluence of support
around the 114.03/30 area mentioned above holds, then a temporary halt
of its decline off the 117.95 high could be seen bringing corrective
upmove aiming at the 115.89 zone, the location of its Sept 27’07 high
and then the 116.38 level, its 18 Sept’07 high. Above the latter will
risk upside gains towards the 117.13/22 zone with a loss of there
setting the stage for a run at its Oct’07 high at 117.95.On the whole,
with the failure at the 117.95 high followed with a four-day of downside
weakness, the pair remains vulnerable to the downside in the short term.
The pair is down by 2.26% for the week and 3.83% for the year.
Directional Bias:
Nearer Term -Bearish
Short Term -Bearish
Medium Term -Bearish
Performance in %:
Past Week: -2.26%
Past Month: -0.84%
Past Quarter: -6.80%
Year-To-Date: -3.83%
Weekly Range:
High -117.95
Low -114.46
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