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USD
Positioning still the major risk
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Data this week
is expected to be mixed. The ISM surveys
on Weds (manufacturing) and Fri (non-manu)
are expected to show a further deterioration
in business confidence. However, with demand
remaining firm, the former is more likely
to be caused by an inventory overhang rather
than a sustainable shift in the economy
to a lower gear. On Friday, the employment
report is expected to show solid job gains
in the order of 190k. Together with strong
rises in personal disposable incomes, this
suggests consumer demand is likely to remain
firm. Increased confidence in the outlook
for higher interest rates could well be
seen as supportive for the US dollar, a
view reinforced by the likelihood that US
bond yields look set to rise in the coming
weeks. However, with the market already
positioned aggressively long USDs, the risks
appear skewed to disappointment in response
to any weakness in economic data. Therefore,
it is just a matter of time before the USD
corrects its recent strength, in our opinion. |
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EUR
EUR losses on No vote to be limited
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The French electorate
voted no to the revised EU Constitution
on Sunday. This is clearly damaging to the
single markets ability to push ahead
with any reforms that would address structural
issues that are inhibiting stronger economic
growth. However, this does not signal the
end of the single currency. Add in the fact
that much of the bad news vis-à-vis
the vote had already been priced in, and
now is not the time to get too bearish about
the EURs outlook. The ECB meets this
week and is expected to leave rates on hold
through 2005, despite calls for a cut from
the private sector and the IMF. 1.2345 is
going to prove a tough nut to crack. |
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JPY
Data starts to improve, but BOJ still concerned
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Industrial production
showed its first expansion in three months
in April and while it is forecasting a slump
in May, another rebound in June is expected.
However, the Bank of Japan remains concerned
about the economic outlook in an environment
that deflation is still the overriding problem.
Therefore, it is keen to avoid a sharp increase
in the value of the JPY, which could undermine
economic activity further. USD/JPY looks
set to test 109 before coming lower. |
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GBP
Sterling risks technical rebound
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This week is quite
light on the data front with the focus to
be the consumer confidence survey in Tuesday
following the apparent slump in domestic
activity of late. This indicator is expected
to slip back into negative territory although
the risks to Sterling appear to be increasingly
to the upside following the recent sharp
sell-off. GBP/AUD looks set to be well supported
as it approaches key support. |
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AUD
Data week in Australia
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The focus will
be on the raft of economic data due this
week following the mixed economic signals
of late. Data includes current account deficit
and retail sales (Tues), GDP (Weds), trade
balance (Thurs) and house prices (Fri).
All of these have the potential to influence
the AUD, but the near-term bias is for continued
AUD weakness. |
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CAD
Strong growth, deteriorating current account
surplus
|
GDP data this week
is likely to show growth accelerated in
Q1 to an annualised 2.6% from 1.7% in Q4
2004. This is likely to keep the central
bank focused on raising interest rates.
For now, we expect the CAD to regain some
of its lost ground. |
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SGD
GBP/SGD challenging 2.98-3.00 support
|
3.00 has proven
to be more than merely psychological support
for GBP/SGD. During the crisis, GBP/SGD
hit 3 before falling sharply. Then, after
breaking through this level in late 2003,
despite testing it twice, we have yet to
close below it on a weekly basis. This suggests
that, in the near-term at least, the risks
are skewed to higher levels. This is reaffirmed
by the fact that GBP/SGD has a negative
correlation with the USD, which we expect
to weaken significantly at some point in
the coming weeks. However, it is important
to note that over the long term, we expect
GBP/SGD to come significantly lower. |
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IDR
Rupiah supportive flows expected to slow
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We are potentially
re-entering a period of an imbalance of
supply/demand for foreign currency after
the cessation of Philip Morris/Sampoerna
related inflows. With FX reserves already
having been depleted, the risks are for
further IDR weakness going forward. The
response of the central bank in this scenario
would be crucial. A failure to show the
willingness to hike interest rates significantly
to ward off inflationary pressures could
push the rupiah back towards 10k. The government,
meanwhile, is rightly focusing on improving
the business environment in order to increase
the future flow of foreign direct investment
into the country. |
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INR
High oil prices may hurt the rupee
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The sharp rise
in oil prices in the past week has undermined
support for the rupee. Clearly, as a country
that is heavily dependent on oil imports
to satisfy domestic demand, high oil prices
are detrimental to the countrys already
deteriorating external balance. The fact
that the Reserve Bank will not be unhappy
with the rupee weakening, given its overvalued
nature, could give further impetus to INR
losses. However, funding of the current
deficit is unlikely to be hugely problematic
and therefore rupee losses are likely to
be limited, especially if the USD corrects
against other major currencies as expected. |
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ZAR
Another rate cut on the cards?
|
Weaker than anticipated
inflation data last week has increased speculation
that the South African Reserve Bank could
cut interest rates yet again. In an environment
of rising interest rates elsewhere in the
world, most notably in the US, such action
would lead to significantly narrower interest
rate differentials. Meanwhile, alongside
increased FX reserve accumulation, it would
send a strong signal that the recent weakening
of the ZAR was insufficient, in the central
banks eyes, to restore external imbalances.
Trade data this week is likely to reinforce
this view, although the ZAR is expected
to take a breather at some point in the
next two weeks given the size of its losses
in recent times. |
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Key Levels
| Currency |
Support |
Resistance |
| EUR/USD |
1.2345**** |
1.2120*** |
1.2775** |
1.2930**** |
| USD/JPY |
105.00**** |
103.30** |
111.45**** |
113.35** |
| GBP/USD |
1.7920*** |
1.7700**** |
1.8475**** |
1.8475*** |
| AUD/USD |
0.7250**** |
0.7100*** |
0.7535*** |
0.7700** |
| USD/CAD |
1.2475 ** |
1.2300 *** |
1.2675 *** |
1.2850 *** |
| USD/SGD |
1.6610**** |
1.6450*** |
1.6935**** |
1.7180*** |
| USD/IDR |
9400 **** |
9335 **** |
9530 ** |
9620 *** |
| USD/INR |
45.30**** |
44.85*** |
46.20*** |
46.50*** |
| USD/ZAR |
6.0750*** |
5.8700**** |
6.6000**** |
6.7700*** |
Key: (*)-Minor; (*****)-Major
Key Events
| Event |
Day |
Implication |
| Indonesia inflation |
Unknown |
Key to the central banks interest rate
response to any IDR weakness |
| Japan industrial production |
Monday |
Showed first expansion in three months |
| Canada current account |
Monday |
Surplus expected to almost halve in size |
| Japan HH spending, jobs |
Tuesday |
Little sign of a near-term recovery |
| Australia retail sales, current
acc |
Tuesday |
Retail sales growth of 0.3% seen,
c/a deficit still wide |
| South Africa credit data |
Tuesday |
Alleceration not worrying from inflation
perspective |
| South Africa GDP |
Tuesday |
Slight moderation seen following
strong Q4 |
| France/Germany unemployment |
Tuesday |
Unemployment rate expected to remain
steady |
| Eurozone confidence indices |
Tuesday |
Expected to remain weak and possibly
weaken further |
| UK Gfk consumer confidence |
Tuesday |
Expected to move back into negative territory |
| US consumer confidence, Chic PMI |
Tuesday |
Former may bounce while biz confidence
slides further |
| Australia GDP |
Wednesday |
Significant strengthening seen,
but backward-looking |
| Singapore PMI |
Wednesday |
Expected to push back into expansion
territory |
| Eurozone PMI (manufacturing) |
Wednesday |
Still sluggish activity expected |
| UK net consumer credit/CIPS PMI |
Wednesday |
|
| US manufacturing ISM |
Wednesday |
Still in expansion territory, prices
paid index to fall |
| EU Comm publishes Q2/Q3 GDP forecasts |
Wednesday |
Unlikely to paint a rosy picture |
| Netherlands vote on EU Constitution |
Wednesday |
Given French no vote,
this is less important than it could have been |
| Australia trade balance |
Thursday |
|
| South Africa retail sales |
Thursday |
Rebound expected |
| ECB rate decision |
Thursday |
No change expected |
| Australia house prices |
Friday |
Crucial to outlook for consumer
confidence |
| Eurozone PMI/retail trade |
Friday |
Retail trade has picked up, continuation
would be +ve |
| US employment report |
Friday |
Solid job/wage gains expected |
| US non-manufacturing ISM |
Friday |
Slight weakening likely |
Recent FX Performance (%, +ve = USD decline)
| Currency |
Past 1 Week |
1 Month |
3 Months |
1 Year |
| EUR/USD |
0.21 |
-2.24 |
-4.98 |
2.46 |
| USD/JPY |
0.22 |
-2.94 |
-2.49 |
3.03 |
| GBP/USD |
-0.15 |
-4.43 |
-4.95 |
-0.88 |
| AUD/USD |
0.94 |
-2.33 |
-2.98 |
9.67 |
| USD/CAD |
0.94 |
0.33 |
-1.26 |
7.75 |
| USD/SGD |
-0.07 |
-1.36 |
-1.75 |
3.00 |
| USD/IDR |
-0.38 |
0.89 |
-2.34 |
-0.48 |
| USD/INR |
-0.18 |
0.00 |
0.38 |
3.63 |
| USD/ZAR |
-0.49 |
-7.28 |
-11.78 |
-1.50 |
|
|
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