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Forex outlook:
The dollar could have ended a seven weeks in arrow gains against the Euro but inflation data stimulated a sales rally of the greenback. However, the stealth rally has been so slow and steady that it was almost difficult to notice. The greenback’s gains are not doubt due in large to the improvement of the US data over the past several weeks as well as the upward creep in inflation gauges. PPI skyrocketed by 0.9% vs. 0.3% expected and CPI also registered its biggest headline gains since August 2005, but the market chose to focus on the slightly softer core CPI reading which dipped to 0.1% from 0.2% expected. Due to the light calendar expected this week the dollar is expected to be traded in technically mostly unless will have some bad surprise from the housing data.
With a complete and utter lack of market-moving data out of the Euro-zone last week, EURUSD closed out Friday almost completely unchanged. With the annual rate of CPI growth still holding at 1.9 percent – just below the European Central Bank’s ceiling of 2.0 percent – the monetary policy committee will likely maintain their stance that rates are still “accommodative.” However, with first quarter labor costs softer than expected at 2.2 percent, traders may perceive the central bank’s fear that wage growth will lead to an up tick in inflation as being unwarranted. Until markets see strong gains in price pressures, they may not be ambitious in pricing in another ECB hike, which creates major downside potential for EURUSD. Nevertheless, as many traders are aware of, all it takes to get a solid rally going for the pair is a bit of hawkish commentary by ECB President Jean-Claude Trichet.Event risk out of the Euro-zone is filled with sentiment reports this week, as the ZEW and IFO surveys will both released. Sentiment is anticipated to reflect optimism amongst investors, as equity markets continue to reach new highs and businesses throughout the Euro-zone outperform, though the IFO is forecasted to ease back slightly. Not to be forgotten, manufacturing PMI and industrial new orders are both predicted to falter, as export demand could feel the effect of the appreciation of the euro. From a technical perspective, given the fact the EURUSD managed to hold above six month ascending trend line at the all-important 1.3300 level, the pair could be in for further gains if 1.3400 gets taken out, and resilient sentiment could be the fundamental trigger.
Strong data coming from down under supported the Australian dollar record high levels. The data offered a good overview of the economy with a look into employment, business and consumer sentiment and housing. Taking it chronologically, the Australian Manpower Survey started things off with a third quarter forecast that pulled back to a net 24 percent positive read from 31 percent the previous quarter. A realized pull back in employment from 33-year highs would be a welcome relief by the RBAThe single indicator of interest in the data trickle is Tuesday evening’s first quarter dwelling starts. There is no official consensus available for the number which may help to boost its appeal among event traders. Setting up the release, the housing sector has not been one of the stands out sectors in GDP, though it is often times a good barometer for consumer strength and their tolerance for lending rates. Looking outside of the fixed boarders of the docket, carry trade sentiment will likely act as the rudder for the Australian dollar. Last week, RBA Governor Glenn Stevens diffused speculation for a rate hike anytime this year.
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