Forex Trading Focus – 14TH November 2011
AUD/USD Weekly Forecast
The Aussie had another week of losses with the crisis in Europe, now enveloping Italy and threatening France too, weighing on the Aussie. After starting the week trading a high range capped by the 1.04 line, it then fell sharply and bottomed out at 1.0050, before recovering late on Friday taking out a couple of important technical levels in thin trade before closing at 1.0260. Employment figures came out within expectations, with a gain of 10,000 jobs, a small drop in the unemployment rate and with other indicators looking OK too, but not good enough to lift the Aussie in the face of Eurozone troubles. The economic highlight of the week for the Aussie will be the RBA Meeting minutes from the recent decision to cut the rates, which many expect will provide a hint of future interest rate cuts. We will be clear of any economic news after Wednesday with New Motor Vehicle Sales as well as the MI Leading Index released on Tuesday and the Wage Price Index, an indicator combining inflation and employment which could add to pressures for another rate cut, released on Wednesday. Technically, the momentum in the short term appears to have further upside potential, possibly to around the swing low in June at 1.0400 or the 200 Day Moving Average at 1.0414. Following that, 1.0480 was weak support in August and should be watched on any recovery attempt but I'd be surprised to see this early in the week as Berlusconi's resignation will provide further relief for the short term rally, following the improved news from the EU. On any break higher, the round number of 1.06 will provide substantial resistance but if broken 1.0764, which was a swing high in August, is possible. But I am Bearish and the daily charts still point lower with immediate support at the 2010 peak of 1.0254. It is closely followed by 1.02, which cushioned a fall during November then 1.01 which was the area that provided support after the surge in October and then 1.0050, which was a swing low. The next line is parity which strengthened in September after capping a recovery attempt. Below parity, 0.9930 is weak resistance on the way to the last line for now at 0.9850.
EUR/USD Weekly Forecast
The Euro started the week with an attempt to rise but then Italian yields crossed the "bailout barrier" of 7% freaking the markets and sinking the Euro all the way down to 1.3480, taking Berlusconi's career with it. A gradual recovery turned into a strong one after Italy's institutions made progress on passing new austerity measures and some serious intervention from the ECB, until the pair bounced off resistance at 1.38 and closed at 1.3740. Italy is now expected to follow Greece and appoint a non-politician as the head of state. Following the Italian Senate's approval of the budget-cuts, promised to the EU in exchange for assistance to reduce the national debt, they have been ratified over the weekend by the lower house and Berlusconi has finally resigned, which could give further encouragement to the Euro early in the week. In Greece, the new PM, Papademos has the difficult task of implementing the austerity measures in order to ensure the next tranche of the bailout package is handed over by the EU. In the meantime, the core Eurozone economies aren't doing well and there are clear signs that the euro-zone is already in recession as contagion continues. Italy and Greece remain in a precarious state, as concerns continue to build over Spain, after the Spanish GDP data showed the country coming to a standstill in Q3, amidst growing unease that deficit reduction targets will not be met. Spanish bonds are catching up with those of Italy, finishing Friday at 5.9% and with elections due on November 20th; it is anyone's guess whether the new Government will have the mandate to implement the required austerity measures. The whole Eurozone GDP figures are the news highlight of the upcoming week, which also includes CPI on Wednesday, German PPI on Thursday, EU Consumer Confidence and German PPI on Friday; but regular economic news is now regularly being eclipsed by other developments and all I am prepared to predict is that we may well have some more consolidative, but choppy, action ahead. Technically the Euro has broken up from its lows and indicators for Monday look as though we might be in for further strength and it would not surprise now to see a move back to 1.4000. Beyond here would be doubtful, and given the ease with which the EU Officials manage to find ways of pushing the panic button, we are continually just a press statement. The immediate support now looks to be 1.3720 and then 1.3670. We are unlikely to move too far from the wide but volatile 1.34/1.40 range in the coming week.
GBP/USD (Cable) Weekly Forecast
The euphoria and relief felt in the markets on Friday obviously did not spread to Downing Street where David Cameron queried the future of the Euro and the Chancellor George Osborne, described the current climate as dangerous, and said that the issue is severely affecting Growth and Job prospects in the UK economy. Cable made a big drop earlier in the week, falling off the round number of 1.60 and after bottoming out above the 1.5850 line spiked higher on Friday as some progress was seen to be made in Europe which saw the pair climb and close at 1.6044. In the mean time Britain's trade deficit leaped to almost 10 billion and weighed on the Cable while on the other hand, manufacturing was OK, at least during September, and even though British bond yields have distanced themselves from Eurozone counterparts, the situation in Britain remains dire. We will discover just how bad on Wednesday when the unemployment numbers are released and expected to rise from the 8.1% seen in August to 8.2% now. Currently price sits at 1.6070, just below last week's high at 1.6130, which is where the 200 Day Moving Average currently lies. An early week test of this level looks possible and any break higher could then see the October 31 high at 1.6170 tested. Above that I have resistance lines at 1.62, and 1.64 but I cannot see Cable reaching that high this week. On the downside 1.5985 provides minor support ahead of the messy consolidation area around 1.5900/40. My downside indicators are muddled and it is difficult to know what to think but I suspect trade ranging between 1.58/1.62 should cover it for now. The indicators are trying to turn lower and a break of the uptrend support could precipitate a move down on the important economic news this week.
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