Author Bio

Last week’s comment circled around the outlook for the Dollar and saw how various macro events were negative for Canada, Australia and the Euro, whilst being positive for the Dollar and Yen.  Pretty much all of this has panned out so far, but what was the key point last week and what is the focus for the coming week? For me, the highlight was the minutes from the FOMC (Federal Open Market Committee) meeting, where inexplicably all reference to the woes of the housing market were completely removed. This, in a week when the stats from Case Shiller Home Price Index continued to drift lower and the 4 week average of mortgage applications made fresh lows since the downturn began. The key to any economic recovery is personal spending and consumption, and with a jobless recovery combining with falling wage growth, it is difficult to see how recovery can accelerate. The huge stimulus can be likened to pushing on a piece of string, and any hint of removal can lead to an overreaction in negative sentiment. It seems that the Fed’s statement was more of a political than an economic one, and was duly punished with equity weakness once the statement had been digested the following day. Whilst the GDP numbers appeared strong, a large percentage of that increase was due to a rise in inventories, which simply don’t correlate to the business inventories for October and November (December still has be released). The rise shown in the 4th quarter inventories implies a complete reversal of the previous 4 quarters’ decline, which seems unlikely.

After sharp falls, equity markets find themselves at a critical juncture with support weak and distant across many indices, meaning that the new month needs to see a swift recovery that overcomes the huge blocks of time that are above.

For currencies it has been a relatively subdued week with the trends hinted at last week slowly continuing. In fact, the lack of volatility has been surprising with Cable the notable exception. It has been pushed up and down by weak GDP numbers one day, a BOE member saying they were not a true reflection on the U.K’s economic outlook the following day, whilst it was rumoured that much of the strength was due to the conclusion of the Kraft takeover of Cadbury’s, which injected 7 Billion into the market.

For the week ahead, the early focus will be on the Aussie Dollar as there is employment data and an interest rate decision. Regardless of how the market interprets the data, the currency technically remains weak with support distant at 0.8742. Falls could be swift, especially if equities resume their slide. 0.9038 needs to cap any bounce to maintain the negativity.  From there focus will inevitably shift to Non-Farm Payrolls once again, but ahead of that the major support in the Eurodollar at 1.3830 to 10 should cause at least a temporary bounce, such is its power.

=====

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.