MARKET ANALYSIS

 

Current Fundamentals

 

Weekly Market Analysis Mar 1st 2009

 

Economic Releases over next 5 days

Time (GMT)
Indicator
Previous
Consensus

09:00 (Mon)

Eurozone: Manufacturing PMI

34.4

33.6

09:30 (Mon)

UK: CIPS Manufacturing PMI

35.8

35.2

10:00 (Mon)

Eurozone: Flash CPI Estimate

1.1%

1.0%

13:30 (Mon)

US: Personal Expenditure

-1.0%

0.4%

13:30 (Mon)

Canada: GDP Quarter 4

0.7%

-0.6%

15:00 (Mon)

US: ISM Manufacturing Index

35.6

34.0

00:30 (Tue)

Australia: RBA Rate Decision

3.25%

3.00%

06:45 (Tue)

Switzerland: GDP Quarter 4

0.0%

-0.7%

14:00 (Tue)

Canada: Bank of Canada Rate Decision

1.00%

0.50%

10:30 (Wed)

Australia: GDP Quarter 4

0.1%

0.0%

09:00 (Wed)

Eurozone: Services PMI

42.2

38.9

09:30 (Wed)

UK: CIPS Services PMI

42.5

42.0

13:15 (Wed)

US: ADP Employment Report

-522K

-600K

15:00 (Wed)

US: ISM Services PMI

42.9

41.1

05:00 (Thu)

Germany: Retail Sales

0.1%

0.1%

12:00 (Thu)

UK: Bank of England Rate Decision

1.00%

0.50%

12:45 (Thu)

Eurozone: ECB Rate Decision

2.00%

1.50%

13:30 (Thu)

US: Initial Jobless Claims

667K

657K

15:00 (Thu)

US: Factory Orders

-3.9%

-3.6%

06:45 (Fri)

Switzerland: Consumer Prices

-0.8%

0.1%

13:30 (Fri)

US: Non-farm Payrolls

-598K

-622K

13:30 (Fri)

US: Unemployment Rate

7.6%

7.9%

13:30 (Fri)

US: Hourly Earnings

0.3%

0.3%

15:00 (Fri)

Canada: IVEY PMI

36.1

37.1

 

 

 

Overview

It is a very busy week ahead with no fewer than four Central Banks deliberating on monetary policy, with each one almost certain to cut interest rates. The euro and the pound are unlikely to be able to sustain any meaningful rallies ahead of Thursday's key Bank of England and ECB rate announcements, although the dollar looks to be overbought at present, having attracted extensive haven flows over the past fortnight at the expense of the Japanese yen. The yen could stage a comeback this week as Japanese companies start repatriating funds back to Japan ahead of the year end at the end of this month. The most important economic data of the week will come on Friday, when the US Labor Department releases the latest non-farm payroll employment report. The Australian and Canadian dollars could be set to hit fresh yearly lows over the coming days, although they could bounce back later in the week.

 

 

Support/Resistance levels

EUR/USD USD/JPY GBP/USD USD/CAD
 

Resistance

1.3320

102.80

1.5280

1.3030

1.3100

100.00

1.5000

1.2850

1.3000

98.90

1.4680

1.2750

1.2630

97.50

1.4291

1.2747

Support

1.2520

94.50

1.4200

1.2150

1.2400

89.70

1.4000

1.2000

1.2330

87.20

1.3720

1.1750

Current spot level is in bold type

 

 

Sun 20:00 GMT Currency strategy: With so much on the event card we could potentially be in for a further week of highly volatile trading. The dollar will benefit if the downturn in global stocks is sustained, but there is the risk of a sharp correction lower for the US currency, if markets stabilise and begin to tick upwards, particularly later in the week. The yen could start to retrace some of the sharp losses incurred over the past two weeks, particularly with so many risk events on the calendar for the other major currencies this week. The euro needs to hold 1.25 against the dollar if longer-term confidence is not to be eroded and there is the prospect of a big rally for the single currency towards the latter part of the week, once the ECB meeting is out of the way.

 

Market analysis

 

Euro/dollar:

The euro briefly revisited the year's low of 1.2520 on Friday before rallying during the US session. The dollar's value is significantly inflated because of the large value of haven flows that continue to flow into the currency and there is the risk of a sudden reversal. The ECB is likely to cut rates to 1.50% on Thursday and the euro's short to medium-term prospects will be influenced by the comments of the ECB President Jean Claude Trichet, following the interest rate announcement. Economic data is likely to remain depressed for both jurisdictions this week and with pessimism to the fore only significantly better than forecast economic numbers are going to influence markets. The euro offers reasonable value on dips towards 1.25, although there is the risk of a probe towards 1.2330, if the key 1.25 price support gives way. We could witness another wide trading range, with the euro more than capable of returning back above 1.29 through any sustained rally, which there may be dips back to or below 1.25 over the next 5 days.

 

 

 

Yen:

In February the yen had its worst one-month performance against the dollar in over 2 decades and most of that decline has come in the past fortnight, when the yen lost over 7%. The reason for the sudden reversal has to do with an abandonment of the yen as a haven currency, primarily following the country's Quarter 4 GDP numbers that revealed the economy shrunk by over 12% during that period, over the previous year. However on Friday, we see that the US economy shrunk by over 6% in the same period and with the US deficit problem rising and the Fed's Balance Sheet expanding at a phenomenal rate, there is little reason to hold any long-run confidence in the US dollar. With no economic data of any real importance this week, the yen's fortunes will depend on the markets reaction to US data and as to whether or not there will be a gradual move back towards the yen as a haven currency. There is also expected to be a repatriation of funds back to Japan from its overseas companies with the financial year closing out at the end of March. The yen needs to pus the dollar back to at least 95 yen to gain further sustained support, but it will come under selling pressure on any major rallies until such time as a decisive move back below 94 yen has been made.

 

 

 

Sterling:

The pound has spent the past week trading across another 5 cent range, from 1.42 to 1.47, even dipping below 1.42 on Friday last. Sterling has however managed to retain most of its gains againt the euro. This week will offer another stern test for the currency, with the Bank of England expected to cut interest rates to 0.50% on Thursday, thereby pushing the pound alongside the dollar and the yen as the market's lowest yielding currencies. The Services and Manufacturing PMIs on Monday and Wednesday are unlikely to inspire any confidence in the economy and what is going to be more important this week will be the fate of the UK banks, with both RBS and Lloyds having come under serious pressure last week. Any further government intervention to prop up the financial services sector will undermine the pound, particularly against the US dollar. A dip back to 1.40 is probable, although selling the currency on prices below this level is a risk.

 

Swiss franc:

 

TBA

 

 

 

 

Australian dollar:

 

TBA

 

 

 

Canadian dollar:

 

TBA

 

Disclaimer: TodayFX and partner's market analysis is not investment advice and must not be taken as recommending particular market positions.We can take no responsibility for any actions taken by investors.