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Weekly Outlook - 31st August 2011

Written by Imran Allana, Dealer

CURRENCY TRADING SUMMARY 31/08/2011

GBP/USD suffered a major downtrend early last week with the pair finding good support at 1.6264 which is the 50 % retracement level from the high we witnessed on 28nd April (1.6747).  This level has proved to be very significant after being tested a number of times in late July.  Announcements last week were somewhat thin on the ground for both the UK and US with only the unemployment claims figure from the US being worthy of note coming in at 417k, forecast at 403k.  The only other piece of information that was promising to be a mover in the market was the Jackson Hole Symposium speech delivered by Ben Bernanke on Friday in which he alluded to there being no plans for further stimulus (QE3) going forward.  This being said, however, rumours still continue to circulate that there will indeed be a further round of quantitative easing.  The week thus far has not been a very exciting one with the UK on a public holiday on Monday; the pair has been ranging, in a roundabout way, between the 50% retracement level (1.6264) and the 61.8% retracement level (1.6378) with the pair currently trading at 1.6286.   It is once again flirting with that 50% level, a break of which could open the way for further losses to the next level of 1.6150.  Traders’ attention is now, no doubt, focused on the non-farm payroll announcement due from the US on Friday expected to come in at 90k.

EUR/USD has had a rough ride of late what with euro debt concerns coupled with US debt concerns to European bank stress tests.  Last week we saw a slightly lacklustre performance with no major moves.  The pair seemed to be trading in a range between the 50% retracement level (1.4394) and the 61.8% level (1.4519) from the high that we saw on the 4th May (1.4940).  The market was awash with a flurry of announcements from the Eurozone early last week including manufacturing and services PMI figures for both France and Germany (Tue 23rd Aug).  Arguably on that day, the most significant news was concerning the German ZEW economic sentiment which came in at -37.6 (forecast, -24.8).  This is a leading indicator of economic health and is conducted by surveying German institutional investors and analysts who, by virtue of their job, are highly informed.  A figure of above 0.0 indicates optimism and below 0.0 indicates pessimism.  Clearly, the German economy is not viewed as robust as Germans would hope and this will no doubt add extra weight to the overall European debt concerns.  Already out today, we have seen German retail sales improve M/M from -1.5% to 0% but to the downside, we have seen the European unemployment rate rise to 10% from 9.9%, not a significantly large move, but still a concern.  Going forward, we have the US ADP employment change due, seen by many as the precursor to the non-farm payroll due on Friday, sure to be a big mover in the market.

USD/JPY has been on a roller coaster ride for investors as the Yen has been plagued by strength for a number of weeks now, with many traders and investors still waiting for intervention.  Former Finance Minister Noda (now Prime Minister Noda), however, has eluded to new methods of intervening which include top banks disclosing their FX transactions till the end of September and also making available a substantial fund to aid M&A activity.  The most excitement we have seen for the Yen has been two spikes in the price.  The first on the 22nd of August, shifting the pair, momentarily, to a high of 77.21 and then again on the 25th of August to a new high of 77.70.  News announcements were unsurprisingly thin on the ground last week with the unemployment rate rising slightly from 4.6% to 4.7% and retail sales Y/Y falling from 1.1% to 0.7%.  Newly appointed Prime Minister Noda does indeed have his work cut out for him, what with a strengthening Yen (currently trading at 76.59 against the dollar); a recent downgrade of their debt, the infrastructure damage caused by the major earthquake and the subsequent nuclear disaster, out of the G7 leaders, and it is arguably he who has the toughest task.

Gold (XAU) has seen monumental moves over the last month or so, achieving a high of $1912.48 on the 22nd of August before massive profit taking took hold that week pushing the precious metal down to a low of $1703.13, a correction that many have been waiting for.  Currently trading at $1832.52, it seems that demand has once again gripped the market but it is unclear if we will see the huge appreciations that were witnessed last month.  With significantly increased demand out of China and Indian consumers traditionally buying more gold at this time of year, gold once again seems to be on the rise.

Oil has seen massive drops of late due to reduced demand off the back of global slowdowns, reaching a low of $75.97 a barrel on the 9th of August, after which it moved to a high of $88.94 on the 17th of August, before again moving down to a low of $79.01 just a couple of days later.  Demand does seem to be creeping back into the market very slowly with the “black gold” currently trading at $88.40.  With Chinese and Indian GDP set to rise, increased demand from these two emerging economic super powers could send the price of oil higher, but only time will tell.

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