Forex news for 04/18/2005
Currency Update by: Mike Malpede- Refco Research 04/18/05
Trade recommendation: New rec : sell Euro JY market objective 135 stop 14040 .RGR is short Euro SF and Euro JY.
In an effort to better manage FX trade ideas RGR currency will refer to its weekly report and suggests trade recommendations be used more as directional bias not specific
entry and exit levels.
Perspective: The dollar traded sharply lower Friday as risk aversion resurfaces in reaction to falling global equity markets and lower commodity pries. The dollar also was pressured by diminished speculation of aggressive Fed rate hikes. The dollar extended its drop in reaction to U.S. economic data, which suggests the U.S. economy is slowing. The trade is beginning to question whether the Fed can hike rates aggressively in the current environment. Empire manufacturing plunged to 3.1% a reading of 20 was expected with a sharp drop in orders. Import prices rose1.8%. TIC for February showed inflows of 84 .5 billion, more than the 66 billion was expected and well above the monthly total needed to service U.S. trade deficit. The dollar traded lower despite the TIC data as focus remains on Fed rate outlook. March industrial production and capacity utilization came in as expected at 0.3% and 79.4 respectively. The dollar traded to a new low for the day in reaction to Michigan sentiment which came in at 88.7 down from 92 last month.
G-7 meet this weekend and FX is not expected to be a major topic .G-7 to focus on the price of crude and developing economies. It is not clear how much the G-7 will talk about the need for Yuan revaluation.
Next week’s focus turns to Mondays release of EU CPI and U.S. NAHB housing market index Tuesday Japan’s LEI EU industrial production and German Zew index UK CPI U.S. PPI and new construction Wednesday Japans foreign trade EU foreign trade U.S. CPI and Beige book, Thursday trade balance Japan’s industry activities French household consumption survey UK retail sales Canadian retail sales U.S. jobless claims LEI Philly Fed Friday EU balance of payments Italy’s foreign trade and retail sales UK GDP and Canadian CPI.
(See weekly.)
Analysis: The Yen traded lower as the Nikkei trades at a seven week low .The Nikkei decline generates concern about corporate profits and Japans economic outlook. Downgrade of tech sector weighs on the Nikkei and the Yen. In addition some analysts see the rapid fall in crude and commodity prices as a sign global growth is quickly slowing. Expect USD-JY to range 10665- 10900.
Euro USD traded sharply lower pressured by concern about ECB growth outlook and diminished ECB rate hike speculation. In it April monthly bulletin the ECB said that inflation is low well-contained economic data mixed with no sign the tenuous recovery is gaining traction. Fed hawkish policy bias and doubt about ECB hiking rates pressured the Euro on expectation of widening yield differential. Wednesday the IMF said the ECB may have to lower rates. Yield hungry investors are moving towards high yield currencies and the dollar. To hear more about ECB and Fed policy outlook go to Market Voice at
http://marketvoice.refco.com. Expect Euro USD to range 12735 –13020.
USD-JY: Expect USD-JY to range 10665-10890/11020. The outlook for the Yen is mixed to negative due to concern about Japans growth outlook and Fed rate hike speculation. IMF downgrade of Japans GDP forecast and weaker Nikkei sparked selling of the Yen. BOJ says the deflationary pressure will continue longer than expected and may not end until net fiscal year BOJ is expected to keep accommodative policy and yield differential will move more in favor of the U.S. The trade ignored MOF portfolio flows report, which shows first net foreign inflows in four weeks to Japan.
On April 15 th February industrial output is due expected -2.1% compared to 2.5% in January.
Expect USD-JY support at 10665 the March 31 st low with resistance at 10890 the April 5 th high.
Euro JY: Euro JY cross is expected to range 13830/13735-14030. RGR is short Euro JY at 13951 objective 135 stop 14040.Euro JY traded mixed as the dollar posts a broad rally supported by concern about growth outlook in Europe and Japan. Weaker Nikkei and high crude limits the Yens rally limits Yen demand. RGR sees Euro JY as overvalued based on yield differential. EU yield differential to JGB is 21 bps compared to 211 bps a year ago when Euro JY traded at 12800. ECB policy outlook and price of crude will be key to Euro JY outlook. Euro JY is also vulnerable to concern about slowing EU growth. Expect Euro JY support at 13830 the March 31 st low and 13735 the March 23 rd low with resistance at 14030 the March 15 th high.
Euro-USD: RGR expects the Euro to range 12735- 13020.Near term outlook for Euro USD is mixed to negative as the Euro fails to benefit from negative retail sales and trade data and focus shifts to yield differential. Euro USD traded sharply lower pressured by yield outlook and the growing U.S. yield premium over the EU. The Euro was pressured ECB April bulletin says that EU inflation is low and tenuous recovery has yet to show traction. Diminished ECB rate hike speculation chills demand for the Euro as the Fed and ECB are going in different directions. EU economy grew at 0.2% in Q4 2004 and 1.6% annually. U.S Q4 GDP was 3.8%.
Expect Euro USD support at 12735 the February 7 th low with resistance at 13020 the April 12 th high.
BP-USD is expected to range 18750–18980. Sterling traded sharply lower in reaction to UK Q1 BCC manufacturing data, which sank to 47 from 50 Q4. Slowing UK manufacturing growth dampens BOE rate hike speculation and sparked selling of sterling as trade shifts focus to Fed rate hike speculation.
Expect BP-USD support at 18815 the April 11 th low and 18750 with resistance at 18980 the April 1 st high.
Euro BP traded at a new seven month low with the Euro pressured by the ECB bulletin which points to steady policy as EU inflation remains low and growth weak. Expect Euro BP support at 6785 the September 28 th low with resistance at 6895 the March 31 st high.
EURO-SF/USD-SF: USD-SF is expected to range 11885 –12260. SF traded sharply lower mainly pressured by technical selling and spillover from weak Euro SF decline is a surprise in light of recent weak U.S. retail sales record trade deficit and poor demand for U.S. five year note auction. SF decline is attributed to shift in focus to yield and growth differential. Swiss retail sales were weak and SNB is on hold .The Fed continues to
signal more rate hikes are coming.Swiss February retail sales fell 3.0%. The soft retail sales report will keep SNB on hold. Momentum traders are pressing for a break of 122, as negative dollar sentiment appears to be reversing. Expect USD-SF support at 11895 the April 1 st low with resistance at 12260 the February 7 th high.
RGR is short Euro SF at 15510.Euro SF traded sharply higher with the SF supported by a FT report which says that the EC is making contingency plans for the EU constitution vote outlook and lower crude.
Euro SF traded higher Wednesday with the SF pressured by soft Swiss retail sales data and a report that French vote of no on EU constitution would not be a negative for the Euro as the no vote would afford more time for EU social and political. RGR expects the SF to be supported by safe haven flows related to concern about next months vote on EU constitution. Expect Euro SF support at 15440 the March 17 th low with resistance at 15580 the February 14 th high and 15635 the February 8 th high.
Dollar Bloc: USD-CD: USD-CD is expected to range 12310-12450/12555.CD traded lower tracking the dollars broad rally lower metals and by yield differential speculation. Canadian Press reports suggest that BOC may not hike rates until H2 2005 or may hold rates steady into year-end CD is losing its high yield status. BOC Monetary Policy report says rate hikes are coming but unlikely in first half of 2005.
Expect USD CD support at 12310 the April 12 th low with resistance at 12550 the February 10 th high.
AD –USD: RGR expects AD-USD to range 7650-7784. AD traded lower Thursday tracking the dollars broad rally against the majors and lower metals. The trade ignored a Melbourne Institute report that say prices are expected to rise 4.6% over the next 12months compared to 3.8% in March Higher AU prices and inflation could force the RBA hike rates. RBA rate hike speculation should help limit AD downside and offset Fed rate hike speculation. Copper traded sharply lower today. AD direction historically has closely tracked copper. Key question for the AD is the decline in metals the start of a larger correction.
Expect AD USD support at 7650 the April 8 th low with resistance at 7784 the April 14 th high.
USD-MP: RGR expects MP-USD to range 1101-1121. MP USD traded lower pressured by Fed rate hike speculation BOM forecast of lower Mexican inflation BOM expects Mexico’s inflation rate to fall below 45 in 2005.BOM has hiked rate 12 times since last February to try and combat inflation. BOM inflation target is 2 to 4%. Lower inflation may limit BOM rate hikes and diminished BOM rate hike speculation could be a moderate negative for the MP.
The real traded lower in reaction to comments from Brazilian officials that the real is too strong. These comments generate threat of in reaction. The real was also pressured by report that Brazil’s retail sales rose 1.3% in February. This marked the slowest rise in Brazils retail sales in 15 months.
The real traded at a 34 month high Wednesday supported by IMF upgrade of Brazils growth outlook. IMF raised Brazils 2005 growth outlook to 3.7% form 3.5% IMF raised Brazils growth outlook because of higher private consumption and stronger business investment IMF says Brazil should use growth improvement to help reduce debt.
Cash at 2 00
$/JY
Eur/JY
Eur/$
Eur/BP
$/BP
10774
13910
12910
6824
18916
Eur/SF
$/SF
$/CD
AD/$
$/MP
15514
12017
12464
7690
1110
Copyright by REFCO, LLC. (2005) 550 West Jackson Blvd., Chicago, IL 60661 The information contained in this report has been taken from trade and statistical services and other sources which we believe are reliable. REFCO, LLC. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. The principals of REFCO, LLC. and others associated or affiliated with it may recommend or have positions, which may not be consistent with the recommendations made. Each of these persons exercises independent exercises independent judgment in trading and readers are urged to exercise their own judgment.
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