eToro – Forex Trading Forum

[etrader]

The Swiss Franc like most major currencies rose against the greenback midweek on the back of renewed financial market concerns. The potential bailout of the GSE”s and increased expectations of further write downs from investment banks would spark risk aversion and sink the USDCHD over 200 points. The economic pictures for the Swiss economy continues to deteriorate as inflation has weighed on consumer consumption and confidence.

[etrader]

Equity market in Europe and the U.S. ended the week on a up note, as fears regarding the financial system abated on an increase in M&A activity and news of a possible takeover of Lehman Brothers. The beleaguered investment bank which has been rumored to be on the verge of insolvency has lost almost 80% of its value. Investors are hoping that its purchase and the pending resolution to the GSE problems will finally bring an end to the financial crisis. The increase in risk appetite will weigh on the Swiss Franc as cash flows from the safe haven currency into riskier assets. The economic docket presents a few significant indicators that are expected to show the Swiss economy is continuing its current slide. Employment is expected to have dropped to 2.1% from 2.8% the quarter prior as global demand has slowed in the face of rising prices. The UBS consumption indicator should reflect the impact of rising prices on domestic demand as last month’s improvement was most likely an aberration. The near term outlook isn’t expected to improve as the KOF leading indicator is expected to fall to 0.83 from 0.90. Declining fundamentals and renewed risk appetite could lead to a down week for the Franc, especially with significant technical resistance ahead for the USDCHF. - JR

[etrader]

Canadian Dollar Strength Relying On Oil And Growth

Fundamental Outlook for Canadian Dollar: Bullish

- CPI hits three year high 3.4 percent – reducing speculation of a imminent BoC rate cut
- A sharp rally in crude drives the loonie higher, but its reversal is overlooked by currency traders

[etrader]

Its like the argument of the chicken and the egg. A sharp drop advance in crude and other necessary commodities is in turn a hefty burden on growth expectations for an industrial powerhouse like the US; and therefore their prices could be said to be an inverse driver for the greenback. On the other hand, these goods are priced in US dollars; so a drop in the currency would mean the commodity is thereby more valuable. Regardless of which scenario is correct, both have been beneficial to the Canadian dollar. In fact, when crude rallied more than $5 last Thursday, USDCAD responded by dropping 170 points. However, when the commodity reversed all of its advance and more on the following day, the exchange rate barely moved. This is typically a good sign of market bias as the market is actively looking for reasons to boost the loonie. Looking to the week ahead, continued volatility in raw materials could produce a similar effect but with the hurricane in the US gulf passing and Russia withdrawing from Georgia, volatility should not be expected from this market.

[etrader]

However, in the absence of exogenous event risk, economic data will step in to fill the void. On Thursday, the current account balance is expected to cross the wires with the largest surplus in two-and-a-half years. Strength in trade certainly wouldn’t be a surprise considering the sharp rebound in the goods and services balance and the steady inflow of capital through the investment account. The true market mover will be the GDP numbers. With Statistics Canada releasing its June figure, we will finally get a reading on activity through the second quarter. In this period unemployment has risen (though the impact on spending has yet to drop), housing sales and construction has cooled, business activity has rebounded, and trade has improved. Through all of this the official consensus is calling for 0.5 percent annualized pace of growth, which would avert a recession; but really the outcome for this indicator is up in the air. This makes for an excellent opportunity for volatility and in turn trading opportunities. – JK

[etrader]

Australian Dollar to Extend Losses Against US Counterpart

Fundamental Outlook For Australian Dollar: Bearish

- RBA Says Rate Cuts To Start Sooner, Not Later
- Australian economic growth slowest in 8 years, says Westpac
- Vehicle Sales shrink -4.1% in the year to July

[etrader]

The Australian economic calendar will continue to paint a bleak picture of the larger antipodean nation in the coming week. Construction work is reasonably expected to decline as Building Approvals have fallen sharply over the first and second quarter. The metric is expected to print at 1.5% in the three months to June versus 2.3% in the preceding period. The Conference Board’s Leading Index is likely to continue lower in June having contracted -0.1% in May as the contributing portions of the composite reading all registered loses in the reference period. HIA New Home Sales surprised the markets last time with strong 4.0% growth in May, buoyed by rising immigration attracted by the boom in Australia’s mining industry. While another uptick is within the realm of possibility, it is unlikely to have a substantial impact on Australian dollar price action. Expectations call for the home sales to fall substantially as the year progresses: falling Building Approvals and Construction metrics mean that the supply of new real estate is being topped up at a substantially slower pace, suggesting sales growth will hit a wall after clearing current inventories.

[etrader]

On balance, Aussie dollar price action is likely to fall in with broad macroeconomic themes. Australian monetary authorities have gone out of their way to signal imminent interest rate cuts. Meanwhile, US Federal Reserve Chairman Ben Bernanke said current interest rates were “relatively low” in an speech delivered Friday. Bernanke went on to say that the Fed is “committed to achieving medium-term price stability and will act as necessary to obtain that objective”. The statement comes as US consumer prices grew the most in 17 years in the year to July. Last week saw AUDUSD retrace recent losses, with a resumption of the down trend expected in the near term. - IS

[etrader]

New Zealand Dollar to Resume Downward Momentum

Fundamental Outlook For New Zealand Dollar: Bearish

- New Zealand Producer Prices Higher in the Second Quarter on Record Energy Costs
- NZ Performance of Services Index Sees Improvement on Rate Cut Expectations

[etrader]

The dominant fundamental picture is unlikely to be significantly altered by anything set for release on this week’s economic calendar. The trade deficit will likely continue to narrow as acute slowdown in New Zealand’s economy curbs spending and weighs down import volumes. The Reserve Bank of New Zealand’s 2-year Inflation Expectation may reflect easing price pressures on forecasts of slowing global growth and cheaper crude oil. On balance, the release is not likely to be market-moving as broad rate cuts of nearly 150 basis points are priced in for the next 12 months. Indeed, the expectations of these very rate cuts may see NBNZ Business Confidence correct a bit higher in August having registered at -43.2 in July.

[etrader]

With the broad fundamental outlook firmly in place, New Zealand dollar price action will be dominated by technical considerations. Last week saw NZDUSD move higher moved higher as the US dollar retraced recent gains against all of the major pairs. Thursday trading saw price action close just below support-turned-resistance at the lower boundary of a channel that had guided price action since mid-March until the most recent breakout on 08/04. Prices bounced lower from resistance in Asian and early European trading to take NZDUSD back down to 0.7150, the 76.4% Fibonacci retracement of the 03/14-08/13 selloff. Friday’s close produced a large Bearish Engulfing pattern, suggesting the corrective rally is now over and the downtrend ready to resume. - IS