The Week Ahead

THE WEEK AHEAD...

The economic calendar is jam-packed this week. From US, early focus will be on Monday's retails sales. PPI and CPI inflation then take center stage. Also featured will be trade balance, and TIC capital flow. Two regional report manufacturing will be released from NY State and Philadelphia with industrial productions. Another round of housing data will be featured with NAHB index, housing starts and building permits.
From Eurozone, main focus will be on Q2 GDP, Jul HICP inflation and most importantly the German ZEW. PPI and CPI inflation data from UK will also be closely watched together with employment report and retail sales.
But after all, the impact of economic data to the markets would be temporary as the focus of attention will likely remain in the credit markets and further unwinding of carry trades.

Weekly Review

THE WEEK IN REVIEW...

BNP Paribas suspended redemption from three funds that are exposed to US subprime markets triggered concern that investors would seek redemptions from other funds, which could in term dry up the markets. LIBOR rates spiked higher in the middle of the week and that in turn, triggered injection of cash from central banks around the world, including Fed, ECB, BoJ, BoC and RBA. But the fear in the makets continued, with stocks stumbling and carry trade unwinding massively. The markets only stabilized on Friday after the Fed added another $38b and pledged more fund will be injected "as necessary" to calm the markets. Looking ahead, news about the credit markets and subprime problem will continue to take the center stage. Economic calendar is jam-packed this week, which could trigger further volatility in the markets. But impact from data could be temporary as they continue to play a secondary role in moving the markets.

Fed kept rates unchanged at 5.25% as widely expected. Tightening bias was, to some's surprise, maintained in the accompanying statement as "the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected," even though downside risks to growth have increased. Regarding inflation, Fed members still think that the sustainable moderation in inflation pressure is not "convincingly demonstrated" yet. Regarding growth, Fed still expects "the economy seems likely to continue to expand at a moderate pace over the coming quarters", but added that it will be "supported by solid growth in employment and incomes and a robust global economy."

Another major events of last week was the BoE quarterly inflation report which confirmed market's expectation that one more rate hike is needed to bring CPI inflation back to 2% target in 09. Sterling was also boosted temporarily by hawkish comments from BoE Governor King who said that the starting point of UK economic growth is stronger than the latest ONS numbers and that inflation expectations have not fallen back yet. Housing market also remains strong.

RBA raised Australian interest rates to a decade-high of 6.5% to curb persistent core inflationary pressures as widely expected. However, reaction to the news was muted as this was already widely expected. Also, markets are speculating that RBA will be on hold at 6.5% for the remainder of the year. Kiwi and CAD was boosted temporarily by lower than expected unemployment rate but just like others, both were pressured again as carry trade unwinding returned to be the focus.

FX Trading Signals for August 12

Sunday, August 12th, 2007 (1950 New York Time/ Monday 0520 IST) JAPAN
Then, on Sunday at 7:50 p.m. NY time we will have Japanese GDP coming out. It is expected that Japanese GDP q/q will come out at around 0.2%. There are going to be several numbers, and this is going to be the most important one. If it comes out at 0.5% or higher, we may possibly see USD/JPY going down by 50 pips or more in the first hour of the report. At the same time, if the GDP reads at 0% or negative, I think USD/JPY may possibly gain 50 pips or more in the first hour of the report. This report is a time sensitive one, and may affect eventually the Japanese government's decisions to either hike or not hike the rate.

3. Sunday, August 12th, 2007 (2130. New York Time/ Monday 0700 IST) AUSTRALIA
Then at 9:30 p.m. New York time we will have Australian inflation report. I don't think this is worth trading.

4. Monday, August 13th, 2007 (0830. New York Time/ 1800 IST) USA
Then on Monday at 8:30 a.m. New York time we will have U.S. retail sales coming out. Probably the most important number is the U.S. retail sales CORE which is expected to read at 0.4%. If it reads at 1% or higher, I think GBP/USD may possibly go down by 30 pips or more in the first hour of the report. On the other hand, if the retail sales come out at zero or negative, I think GBP/USD may possibly gain 40 pips or more in the first hour of the report. That would largely depends on where the price is right before the report. This is definitely not the key indicator so be careful on it.

5. Monday, August 13th, 2007 (1845 New York Time/Tuesday 0415 IST) NEW ZEALAND
Then, at 6:45 p.m. New York time on Monday we will have New Zealand retail sales coming out. It is expected to read 0.5%. If it reads 0.8% or higher, I think NZD/USD may possibly gain 35 pips or more in the first hour of the report. If the retail sales reads 0.2% or lower, I think NZD/USD may possibly go down by 35 pips or more in the first hour of the report.

6. Tuesday, August 14th, 2007 (0430 New York Time/ 1400 IST) UK
Then later, on Tuesday at 4:30 a.m NY time, we will have UK CPI coming out. It's an annualized number, and it is expected to read at 2.3% versus 2.4% last month. The year-over-year regular CPI is the most important reading that everybody cares about. In my opinion, we definitely want to focus on it. If the reading reads 2.5% or higher, I think GBP/USD may possibly gain 50 pips or more in the first hour of the report. At the same time, if the CPI reads 2.1% or lower, I think GBP/USD may possibly go down by 50 pips or more in the first hour of the report. This is definitely a very, very, very key indicator at this point of the economy, and even a deviation of 0.1 % can create a move. I will see how the market is acting before the report, but I am very excited to trade this one.

7. Tuesday, August 14th, 2007 (8:30 a.m. New York Time/ 1800 IST) CANADA
Then, at 8:30 a.m. NY time we will have U.S. trade balance, and we will have Canadian trade balance coming out. The Canadian trade balance is the most important one, in my opinion. It is expected read at 5.5 billion versus 5.9 billion last month. If it reads 6B or higher, I think EUR/CAD may possibly go down by 50 pips or more in the first hour of the report. At the same time, a reading of 5 billion or below will probably force EUR/CAD up by 50 pips or more in the first hour of the report. Watch out for some volatility that may be caused by the U.S. trade balance, although I think if you focus on EUR/CAD and Canadian trade balance, it should work OK.

FX Trading Signals for July 02, 2007

On Monday we have three reports coming out, and all three are pretty important as they can cause a move.

1. Monday, July 2nd, 2007 (4:30 a.m. New York time) UK
We will start Monday with UK Manufacturing PMI. It is supposed to measure manufacturing activity in the United Kingdom, and it is expected to come out at exactly the same level as it came out last month at 54.9. If it comes out at 56 or higher, it would be a big surprise because the Pound has been strengthening, and a stronger pound is usually bad for manufacturing activity, plus a reading of 56 or above would be a historic high reading as this report never read higher than 55.4. So, I think it would be a possible buy on GBP/USD if it comes out at 56 or higher. On the other hand, if the report comes out at 52.9 or lower, it would be a very low reading, the lowest reading in the last few months, and I think GBP/USD may possibly go down by about 30 pips or more in the first hour of the report. Of course, watch out for strong price levels before this report because it may minimize the move. If my trigger is hit, I think we should be able to see at least 30 pips either direction in the first hour of the report.

SUMMARY:* Report: UK Manufacturing PMI*
Possible BUY on GBP/USD if reading comes out at 56 or higher*
Possible SELL on GBP/USD if reading comes out at 52.9 or lower*
Expect 30 pips move or more in the first hour of the report if a trigger is hit.

2. Monday, July 2nd, 2007 (10:00 a.m. New York time) USA
Then at 10 a.m. we have an ISN manufacturing index coming out of the United States, along with ISN manufacturing prices. The U.S. manufacturing index is the most important one, and it is a measure of manufacturing activity in the United States. It is a very respected indicator as it has been coming out since the 1920s. It is also expected to come out the same reading as last month at about 55. If for some reason the reading is 57 or higher, that would mean that manufacturing is really picking up in the U.S., and that would probably be good for the dollar so GBP/USD may possibly go down by 40 pips or more in the first hour of the report. On the other hand, a reading of 53 or lower would be pretty bad for the dollar because the dollar has been weakening against world currency pairs and is supposed to make their products more competitive on the world market, and make the manufacturing activity grow. So, if it actually declines to 53 or lower, I think it would be bad for the dollar, and GBP/USD may possibly go up by 40 pips or more in the first hour of the report.

SUMMARY:* Report: U.S. manufacturing index*
Possible SELL on GBP/USD if reading comes out at 57 or higher*
Possible BUY on GBP/USD if reading comes out at 53 or lower*
Expect 40 pips move or more in the first hour of the report if a trigger is hit.

3. Monday, July 2nd, 2007 (9:30 p.m. New York time) AUSTRALIA
Then at 9:30 p.m. New York time we have Australian retail sales and building approvals coming out. Retail sales is definitely the more important one here, and it came out very low last month, at 0.1%. It is expected to rebound to about 0.7%. If it comes out at 1.1% or higher, it would be the highest reading in well over a year, and I think it would be bullish for the Australian dollar, so we may see AUD/USD going up by 30 pips or more in the first hour of the report. If, however, the report comes out at 0.4% or lower, I think it could be devastating for the Australian dollar simply because 0.4% is a relatively low reading, especially that the prior number was 0.1% so it is a low number after low number. It means that the retail sector may be shrinking in Australia, and they may have to hold on some of their hawkish interest-rate decisions so we may see AUD/USD going down by, I think, as much as 40 pips or more in the first hour after the report.

SUMMARY:* Report: Australian retail sales*
Possible BUY on AUD/USD if reading comes out at 1.1% or higher*
Possible SELL on GBP/USD if reading comes out at 0.4% or lower*
Expect 40 pips move or more in the first hour of the report if a trigger is hit.

Currency Focus

GBP - I appreciate that the MPC [Monetary Policy Committee] has to control inflation, but a stronger pound performs a similar role in dampening economic activity. The strength of the pound may modestly dilute the need for rates to go markedly higher. However, much will still depend on companies' pricing policies and power, the strength of consumer spending and wage developments.

JPY - There has been a change in stance in Japan with recent comments suggesting that the government is concerned with yen weakness. In light of what appears to the first signs of a sustained campaign of verbal intervention from the MoF in support of the yen, this change (Watanabe departure) looks potentially meaningful. The yen has gained on this (BoJ comments), but it remains far from clear whether this will be sufficient to generate a broader shakeout in carry trade activity. The change in Japanese rhetoric remains very incremental, and BoJ officials have yet to hint that the weaker yen could generate a meaningful monetary policy response

FX Trading Signals for Mar 09

1. Friday, March 9th, 2007 (4:30 am New York Time) UK
We have UK Industrial Production coming up. Industrial Production measures both manufacturing and mining activity in the UK. It's expected to come out at 0.2%. Do you want really safe triggers? I believe that if Industrial Production comes out at 0.6% or higher, it would probably be good for the pound, and GBP/USD may possibly increase by 50 pips or more. If it comes out at -0.2% or more negative, it would probably be bad for the pound, so GBP/USD may possibly decrease by 50 pips or more. There maybe a nice retracement opportunity for after spike trade on this one. You may want to try to shoot for an entry within 15 pips of the pre-release price, 20 pips max. I may personally trade with a less conservative trigger, but if you are inexperienced and trading by yourself, I suggest the triggers above.

2. Friday, March 9th, 2007 (7:00 am New York Time) CANADA
We have Canadian Employment Report coming up. It's expected to come up at around 5K or so. Canadian employment market has been particularly bullish...nobody knows why :) Most other sectors of the economy are suffering, including GDP. Nobody can figure out where the jobs are coming from. If you want safe triggers...I would say a reading of 50K or higher would probably be good for the Canadian dollar, and USD/CAD may possibly go down by 50 pips or more. If the reading is at -50K or more negative, USD/CAD may possibly go up by 50 pips or more. Be aware of any conflicting revisions of more than 20K, and be aware of unemployment rate that's expected at 6.2. If unemployment rate conflicts by even 0.1%, I would be extra careful, because the reading of 6.1 would match the lowest reading in many years. If you miss the initial spike, I wouldn't chase this trade. Usually, it makes 90% of its move in the first 15 seconds, and usually doesn't retrace much, and doesn't go down much lower than the initial spike.

3. Friday, March 9th, 2007 (8:30 am New York Time) USA
Then we have US Non-Farm payroll coming out, together with Trade Balance. I wouldn't worry about trade balance too much...that report is a real dog...if it conflicts, it may simply be an opportunity to enter after spike in the right direction of Non-Farm. Non-Farm payroll is expected at 95K. If you want a nice conservative trade, I would say that if non-farm comes out at 165K or higher, it would be good for the dollar, and GBP/USD may possibly decrease by 80 to 120 pips or more. If it comes out at 25K or lower, GBP/USD may possibly increase by 80 to 120 pips or more, since it would be bad for the dollar. Price levels before this report may be important, so watch out for strong support and resistance levels. Definitely watch for revisions on Non-Farm payroll, and watch out for unemployment rate, that's expected at 4.6%. If unemployment rate conflicts by 0.2% or more, and/or revisions conflict by more than 20K, I would be extremely careful...

BoE on Hold, ECB hikes and Trichet's dovish comments

BOE KEPTS ITS INTEREST RATE UNCHANGED AT 5.25%.

ECB HIKED ITS INTEREST RATE BY 252BP TO 3.75% FROM 3.5% AND WE SAW THE DOVISH COMMENTS ROM ECB PRESIDENT TRICHED WHERE HE DID NOT USE THE WORD LIKE "STRONG VIGILANCE" AND "INTEREST RATE ARE STILL LOW". AND HE SAID THAT ECB WILL BE WATCHING INFLATION VERY CLOSELY.

Currency Focus

USD - The Beige Book revealed that some Fed districts had noted a slowing in activity, but this was not that major and is unlikely to significantly alter the Fed’s overall view of the economy. The report also noted some signs of stabilisation in the housing market and unchanged price pressures.

CAD - The Bank of Canada kept its key interest rate unchanged at 4.25% for a sixth meeting and signaled policy makers are not leaning toward a rate cut or hike soon. “Despite recent volatility in global financial markets, the Bank continues to judge that the risks to its inflation projection are roughly balanced.

EUR - Trichet comments are saying that ECB is pretty much dovish after hiking the 25bps to 3.75%. In his sppech he did not said anything like "strong vigilance" or "our interest are still low". This itself saying that Trichet comments is dovish. And he said that he'll be watching inflation very closely.

FX Trading Signal for Mar 08

1. Thursday, March 8th, 2007 (7:00 am New York Time) UK
We have UK interest rate statement coming out. About 85% of economists think that it will come out same as last month at 5.25%. There are still 15% of economists that are expecting a hike to 5.50%. If the UK hikes the rate, it would probably be good for the pound, and GBP/USD may increase 100 to 150 pips. UK won't probably cut the rates, they have absolutely no reason to do that. But of course as always, if rate is cut to 5%, it would probably be bad for the pound, and GBP/USD may decrease by 100 to 150 pips or more. If they keep the rates unchanged, then it would be a no trade. If for some reason there is a hike, and you can't get in before the spike, I would wait for approximately 40% retracement and get in then.

2. Thursday, March 8th, 2007 (7:45 am New York Time) E-12
Then we have Euro Zone interest rate statement, that's unanimously expected to be hiked to 3.75% from previous 3.50%. If for some reason the rate stays the same at 3.50% or is cut to 3.25%, it would probably be bad for the Euro, and EUR/USD may possibly decrease 80 to 120 pips or more. If the rate is hiked to 4.00%, it would probably be good for the Euro, and EUR/USD may possibly increase by 80 to 120 pips or more.

3. Thursday, March 8th, 2007 (8:30 am New York Time) E-12
Then we have Trichet speaking out of the Euro Zone. Unless you will be with me in the forexdiamonds.com room, or if you are an experienced trader, I don't suggest trading this speech, because it may cause crazy whipsaw action. But in general terms, if Trichet is hinting towards high inflation and more future hikes, EUR/USD may possibly increase by 30 to 50 pips or more. If Trichet is dovish, and is talking about slow inflation, and no hikes, EUR/USD may possibly decrease by 30 to 50 pips or more.

GBP/CAD - 60MIN CHART

GBP/CAD
A BREAKOUT EXPECTED...

This pair is on the verge of breakout, which is resisting for the last 4 days or so. The level that i'm talking about is 2.2750/75, and it found great bottom at 2.2645. Looking into 60min chart here i feel it looks similar to possible inverse head and shoulders and the neckline is placed at above mentioned resistence. Once the 2.2750/75 is taken out then it'll head towards 2.2900 level. And if 2.2645 is taken out then HNS pattern will demolished and it'l test the low of 2.2590.

FX Trading Signals for Mar 07

1. Wednesday, March 7th, 2007 (8:15 am New York Time) USA
We have ADP Employment Report coming out of the US. It's expected to come out at 100K or so. If the number comes out at 180K or higher, it would probably be good for the dollar, and GBP/USD may possibly decrease by around 30 to 40 pips. If the report comes out at 20K or lower, it would probably be bad for the dollar, so GBP/USD may possibly increase by around 30 to 40 pips. Remember, ADP employment will be scrutinized in order to receive clues of where the Non-Farm payroll will come out, though this report has been losing its reputation as a predictor of Non-Farm payroll, because few times, it came out completely off base. If you can't get into this trade within 10 pips of the pre-release price, I would suggest just skipping it. Chasing this report is probably not a very good idea, because it has a tendency to quickly spike up or down, and then retrace. Market sentiment prior to this report would be crucial.

2. Wednesday, March 7th, 2007 (3:00 pm New York Time) New Zealand
Then we have interest rate statement coming out of New Zealand. It is expected to come out at 7.50%, so they are expecting a rate hike out of bank of New Zealand. If it comes out at 7.50%, it will probably have a reverse effect on the New Zealand dollar, since this hike is expected and priced in, when the interest rate is announced, I think Bollard will say something about that they are not going to be raising rate in the near future, and it will probably drive New Zealand dollar down, rather than up. So...if for some weird reason, New Zealand raises the rate to 7.75% or higher, it would probably be good for the New Zealand dollar, and NZD/USD might go up by 80 to 100 pips or more. If there is no rate hike, and it stays unchanged at 7.25%, it would probably be bad for New Zealand dollar, and NZD/USD may possibly decrease by around 50 pips or more. Remember...there may be comments accomodating the statement, and the sentiment of the comments may completely change the direction of the price, so be careful on this one.

JPY - RIDING HIGHER AGAINST ALL MAJORS

JPY trading stronger against GBP at just below 228 after making the low of 227, nearly we saw a 1000 pips fall in this pair (GBP/JPY). Against EUR its trading above 154 and its weaker by nearly 500 pips against JPY. Against the USD trading just above 117 after makng 116.75 as the new low for the near term. Still JPY looking strong against all thee three majors. Well against te CAD, JPY is threatening to go below the 100 levels and against high yield currencies like AUD and NZD its still tading stonger.