Forex Market Overview 19 August 2008
The Usd was stronger in Asian session, as concerns over slowing growth persisted. The EurUsd traded lower from 1.4700 to 1.4651, the while UsdJpy rallied from mid day 109.69 lows to 110.24, as the day progressed. The AudUsd came under pressure, as RBA minutes showed the members did contemplate an "early reductions", which sent the pair from 0.8700 to 0.8635 and the NzdUsd followed falling, from 0.7172 to 0.7045. Concerns of a tropical storm directly impacting the gulf's oil production eased slightly overnight (although not completely clear just yet), while crude hovered around the $111.50bll mark, which was Usd supportive. Wall Street traded lower yesterday led by the financial sectors, as worries over Fannie and Freddie and larger then expected q3 losses scared investors. Asian stock markets are currently trading lower and European stock futures are pointing to a lower opening.
As was universally expected, the Bank of Japan decided to hold rates steady at 0.5%. The BoJ stated domestic demand could soften further and both downside risks to growth and upside risk to inflation remain intact. In addition, the assessment of the domestic economy was lowered again, as concerns growth hat weakness in the US (and weakness in general exports) will send Japan into a fully blown recession.
In Australia, the RBA minutes showed that members did consider an "early reduction" in rates. However, the concerns that elevated inflation could lead to rising wages kept the bank on hold. We believe that the overall tone of the minutes supports a September cut, but a stronger case can be made for 25bp then 50bp (roughly 70bp of cuts have already been price in this year).
European activity will be centered on the German ZEW. We are expecting continued deterioration and a surprise to the downside. Investors sentiment did tick up in August from a very low level, while current conditions are certainly under-pressure. However, from a macro perspective, ZEW has not been tightly correlated with GDP growth in the past, so any market reaction will be short lived.
AUDUSD
R 3: 0.8846
R 2: 0.8797
R 1: 0.8757
CURRENT: 0.8651
S 1: 0.8633
S 2: 0.8593
S 3: 0.8503
EURJPY
R 3: 164.41
R 2: 163.88
R 1: 163.10
CURRENT: 161.11
S 1: 161.01
S 2: 160.14
S 3: 158.61
USDSGD
R 3: 1.4265
R 2: 1.4219
R 1: 1.4193
CURRENT: 1.4167
S 1: 1.4025
S 2: 1.3891
S 3: 1.3819
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