Forex Trading Australia, FX Trading Strategies

Week ending 3 July 2009: The forex trading week was abbreviated by the U.S. holiday and traded with subdued volumes, seeing some exaggerated currency movements on renewed risk aversion but much consolidation within continuing ranges.

The RBA meets Tuesday, 7 July, and while a cut is possible they’re widely expected to remain on hold at 3.0%. May retail sales rose 1.0% m/m, while the trade balance shrank to a deficit of AU$556Mn. May private sector credit printed −0.1% m/m, 3.9% y/y, and building approvals are down −22.4% y/y. The June AiG Performance PMIs printed 38.4 manufacturing, 50.2 services, and DEWR skilled vacancies fell −3.7% m/m. AUD/USD traded within its June range of roughly 0.8160 and 0.7800, closing at 0.7975 in the range’s centre. Read More

U.S. Federal Reserve Chairman Ben Bernanke utilised the term “green shoots,” during a television news programme interview, to describe early symptoms of the U.S. recession easing on 15 March. That prognostication set off a global equities rally and sent business and consumer confidence surveys higher, albeit off record lows. But has the recession truly eased its grip on the U.S. economy?

Certainly few traders are looking for the besieged U.S. consumer to spend the world’s way out of the slump. In May, retail sales rose 0.5%, almost entirely on higher petrol prices but also pushed up by retail building materials; however, sales remain down −9.6% on a year/year basis and the savings rate has risen to a fifteen-year high of 6.9%, a clear indication of the U.S. consumers’ financial wariness. Read More

Week ending 26 June 2009 saw continued consolidation as the forex trading market sought direction in a light data week. The Swiss National Bank indirectly intervened through BIS to weaken CHF against EUR and USD, lending credence to the theory of 1.5000 as the EUR/CHF “line in the sand.”

In a light data week, the Australian April Conference Board leading indicator rose 0.7%. AUD/USD fell early in the week on risk aversion but regained its range and closed at 0.8067, roughly flat; traders note this is the fourth consecutive week with lower highs, potentially bearish pressure building.

The U.S. FOMC held interest rates unchanged at 0.0–0.25% and its quantitative easing schedule steady; the announcement balanced risks and possibilities to a hair and left markets searching for direction. The final print for 1Q2009 GDP was unchanged at −5.5% annualised, with personal consumption rising 1.4% q/q. May personal income rose 1.4% m/m but spending only 0.3%, with savings surging to 6.9%. May existing home sales rose 2.4% m/m, less than expected, while new home sales fell −0.6% and housing prices slipped −0.1%. May durable goods orders rose 1.8% m/m, 1.1% ex-transport, the second consecutive strong increase.

The ECB meets Thursday, 2 July, and is likely to remain on hold with rates at 1.0% to assess the effect of their liquidity measures in place. June PMIs printed 42.4 manufacturing, 44.5 services, and 44.4 composite, while the April current account printed a deficit of €5.9Bn, €9.2Bn n.s.a. April industrial new orders fell −1.0% m/m, down −35.5% y/y, and German June CPI rose 0.1% y/y, 0.0% EU harmonised. EUR/USD rose into the upper reaches of its current range but could not hold gains above 1.4135, closing at 1.4068.

In the U.K., Rightmove June housing prices broke their recent winning streak, falling −0.4% m/m, −5.5% y/y. GBP/USD continued rangebound between 1.6230 and 1.6600, closing at 1.6523, while EUR/GBP tightened within a triangle range, closing at 0.8511.

With no major data releases, the Canadian dollar traded in line with commodities, particularly crude oil, and equities prices. USD/CAD trended up for the fourth week, gaining 1.6% to close at 1.1539, and AUD/CAD rose strongly within a continuing regression channel, closing at 0.9309.

New Zealand 1Q2009 GDP printed −1.0% q/q, −2.7% y/y, the fifth consecutive contraction and the largest in 18 years; the 4Q2008 reading was revised down from −0.9% to −1.0%. The 1Q2009 current account balance printed a deficit of NZ$1.247Bn. NZD/USD closed at 0.6456, the upper edge of its range from 0.6260, and AUD/NZD closed at 1.2491 and may be finishing another trend leg, best seen on daily charts.

Japan’s May national CPI fell −1.1% y/y, with or without fresh food, and −0.5% ex-food and energy. The May trade balance printed a surplus of ¥299.8Bn although merchandise trade exports are down −40.9% y/y, imports −42.4%. 2Q2009 industrial surveys improved markedly, with BSI large manufacturing rising to −13.2 from −66, and large all industry to −22.4 from −51.3, while the April tertiary industrial index rose 2.2% m/m and the all-industry activity 2.6%. USD/JPY closed at 95.19, the lower edge of its range from 98.60. EUR/JPY could not hold gains above 134.75, closing at 133.92, and AUD/JPY, the risk barometer, continued to dither sideways and slightly down, closing at 76.79.

By far the most important fundamental release scheduled for this forex trading week is the U.S. Federal Reserve’s FOMC interest rate decision, slated for Wednesday, 24 June 2009, 6:15 PM GMT (Thursday, 25 June, 4:15 AM Canberra time). There’s little suspense regarding the rate decision itself; markets widely anticipate steady rates at 0–0.25%; however, traders are widely debating the tone of the announcement itself with its discussion of the general economic situation—whether the FOMC sees the U.S. economy as still cooling down, finally heating up, or lukewarm at best.

The bulls seized control of global risk appetite in February, pushing commodities and equities prices higher and causing rapid appreciation of growth currencies such as the Canadian, Australian, and New Zealand dollars, generally at the expense of safe-haven currencies such as the U.S. dollar, Japanese yen, and Swiss franc. However, the bulls’ outlook on the global economy has waned in the past few weeks, with expectations for rising inflation and therefore higher interest rates unwinding amidst continued releases of mixed economic data that indicate no such result, at least not in the short term.

Since late May but most particularly since early June, many currency pairs have traded within narrow ranges as the bulls’ control waned and the bears pushed back. This has created some pent-up tension within the forex trading market, positioning several major currency pairs near key support and resistance levels, and many traders are therefore watching the FOMC announcement as a potential event trigger.

Should the announcement strike a more bullish tone than the one of 28 April, the bulls should breathe a sigh of relief and re-enter the markets with gusto, pushing commodities, equities, and growth currencies higher and weakening USD and JPY. This could also initiate the conversion of a number of bears into bulls, strengthening their position and reinstating their domination of the markets.

However, if the announcement is dovish or if additional quantitative easing measures are initiated, the potential scenarios are rather more mixed. Although a sharp and serious correction remains possible, with investors shifting their capital from equities, commodities, and growth currencies to bonds and safe-haven currencies, this scenario seems less likely than it did earlier in the year. More likely scenarios include a more modest correction or even further rangetrading, with investors awaiting better news down the road.

Forex traders are advised to watch their technical indicators and their chosen currency pair’s price action closely in the first minutes following the announcement. Volatility can be expected, particularly in a dovish scenario, and therefore traders will wish to keep their stops trailing and tight enough to lock in profits without being so tight they’re triggered accidentally, costing pips and profits.

The second important release is the New Zealand 1Q2009 GDP print scheduled for Thursday, 25 June 2009, 10:45 PM GMT (Friday, 26 June, 8:45 AM Canberra time), and this release may be traded at face value. Markets are expecting a decline of −2.3% y/y. A worse reading could see the currency depreciating, particularly against AUD, while a better reading could see continued range trading or further appreciation against the RBNZ’s wishes.

Week ending 19 June 2009: Further consolidation within the forex trading market in a light data week as economic bears and bulls await direction.

Australia’s April Westpac leading index rose 0.7% m/m but is down −3.5% annualised, while the 2Q2009 Westpac-ACCI survey of industrial trends (PMI) improved to 47.6 from 35.3; however, 1Q2009 dwelling starts fell −4.0% q/q. AUD/USD remained rangebound between 0.7880 and 0.8125 and closed at 0.8055, unable to sustain short-term gains above long-term resistance at 0.8160. Read More

Recent fundamental data releases from the U.K. have shown signs of economic life.

Retail sales, the lifeblood of many industrialised nations, remain in positive territory. In April, the latest month for which figures are available, sales rose 0.9% m/m and remained 2.6% higher than in April 2008. This is in stark contrast to the U.S., where retail sales are down −9.6% y/y even after a 0.5% m/m rise in May, driven almost entirely by sales of petrol, automotive clearances, and retail building materials.

The next release of U.K. retail sales is scheduled for Thursday, 18 June, 8:30 AM GMT (6:30 PM Canberra time). Forecasts are varied; however, a 0.3% rise for May is a median estimate.

The U.K. housing market has recently shown signs of stabilisation. Home prices have risen slightly within the past few months, including 2.6% in the Halifax reading for May, and improved readings have also been noted in net lending secured on dwellings and mortgage approvals.

Unemployment has risen steadily for five quarters and is not expected to fall before 3Q2010. The economy is expected to lose 60K jobs at the next employment change announcement, 17 June, 8:30 AM GMT (6:30 PM Canberra time) and the rate is expected to tick up from the current 7.1% to 7.3%. This makes the readings for home and retail sales even more impressive.

Industrial production in the U.K. reached its lowest level in March after falling since March 2008, and the last two announcements have shown small rises although it remains 12.3% lower on the year. In part this is due to rising commodities prices, which have encouraged oil and gas exploration in the North Sea; automobile production has also risen.

PMI readings have also improved lately and past estimates have been revised higher. Readings for May registered 45.4 manufacturing from an upwardly revised 43.1 previous; 45.9 construction, surging from 38.1 previous; and 51.7 services, surpassing 50.0 which marks the breakeven level between expansion and contraction.

Consumer prices in the U.K. remain stubbornly high, despite disinflationary pressures that have reduced CPI readings into flat or even negative territory in the U.S. and the Eurozone. While these figures in themselves will not allow for a BoE rate hike within 2009, they may allow for an earlier unwinding of quantitative easing programmes. Below is a table comparing these figures:

Note that figures for the U.K. and the Eurozone were released Tuesday, 16 June, whereas the U.S. figures are scheduled for release Wednesday, 17 June, at 12:30 PM GMT (10:30 PM Canberra time).

Set against fundamental data that is only possibly stabilising in the U.S. while that in the Eurozone is still falling, the recent strength in GBP becomes more understandable. EUR/GBP remains in a downtrend and has crossed beneath its MA-200 on daily charts, as shown below:

GBP/USD, on the other hand, is having trouble pushing through resistance at 1.6610, a level respected as long ago as late October 2008. If U.K. retail sales or employment change surprise positively this level could surrender. However, this could also be a double-top formation in progress:

Week ending 12 June 2009: The forex trading week focused on increasing risk acceptance possibly beyond economic fundamentals, with many majors consolidating and commodity currencies gaining. Traders are encouraged to read Westpac’s weekly analysis for insights into global investors’ mindsets.

Australia lost 26.2K fulltime positions and gained 24.5K part-time ones in May, for a total loss of −1.7K jobs and an unemployment rate of 5.7%. May NAB survey printed −14 business conditions but a sharp gain to −2 in business confidence, while job advertisements fell −0.2% m/m. June Westpac consumer confidence surged to −12.7% and consumer inflation expectations to 2.8%. AUD/USD could not hold gains beyond 0.8200 nor reach last week’s high of 0.8262, closing at 0.8131 for a weekly gain of 2.4%.

U.S. May advance retail sales printed 0.5% m/m, 0.5% ex-autos, and flat ex-autos, building materials, and petrol stations. The April trade balance widened to a deficit of US$29.2Bn.

The Eurozone June Sentix investor confidence rose to −27.0 from −34.3 although April industrial production fell −1.9% m/m, −21.6% y/y. EUR/USD traded flat within a tightening range of 1.4135 and 1.3920 for much of the light data week, closing at 1.3998.

The U.K. May NIESR GDP estimate improved to −0.9% m/m from −1.5% previous. April DCLG house prices rose to −13.0% y/y and the May RICS house price balance to −44.1%. April industrial production improved to 0.3% m/m, −12.3% y/y, manufacturing production 0.2% m/m, −12.7% y/y. The April visible trade balance deficit widened to £7003Bn, the total trade balance to £3014Bn. GBP/USD regained last week’s losses but could not push beyond strong resistance at 1.6600, closing at 1.6427, while EUR/GBP trended strongly down to close at 0.8518.

Canada’s April international merchandise trade fell CA$0.2Bn. April new housing price index fell −0.6% m/m and May housing starts rose 128.4K. USD/CAD also consolidated within a range of 1.1260 and 1.0940, closing at 1.1176. AUD/CAD slammed through resistance at 0.8920 for a weekly gain of 2.1%, closing at 0.9088.

The RBNZ left rates unchanged at 2.5% and emphasized continued downside risks while acknowledging possible stabilisation. April retail sales rose 0.5% m/m but fell −0.1% ex-autos. 1Q2009 terms of trade index fell −3.0% q/q and May manufacturing PMI fell to 42.7 from 43.7, while May REINZ house sales rose 43.9% y/y and house prices fell −8.1%. NZD/USD was capped by resistance at 0.6460, closing at 0.6424, while AUD/NZD traded flat for the week, closing at 1.2648.

The BoJ meets Monday, 15 June, and is expected to maintain steady rates at 0.10%. The 1Q2009 GDP was revised up to −3.8 q/q, −14.2 annualised, and the April leading index rose to 76.5. May consumer confidence improved to 36.3 from 33.2, the EcoWatchers survey to 36.7 current, 43.3 outlook. The April current account printed a surplus of ¥630.5Bn, the trade balance ¥184.3Bn. May machine tool orders improved to −79.3% y/y, April industrial production to −30.7% on a 5.9% m/m surge, while April machine orders sank to −32.8%. USD/JPY consolidated within a rising wedge, capped by resistance at 98.60, closing at 98.36. EUR/JPY could not force through last week’s high and closed at 137.70, while AUD/JPY continued its uptrend beyond resistance at 79.60 and closed at 79.99.

Week ending 5 June 2009 continued poor and marginal economic data were shrugged off by markets optimistically pushing the recovery angle in a forex trading week bracketed by the GM bankruptcy and major hedge funds unwinding currency positions entered in anticipation of a Rio Tinto-Chinalco deal;

The RBA left rates steady at 3.0% but indicated further potential for easing, a correct decision, as it proved, as 1Q2009 GDP defied gravity and rose 0.4% y/y. April trade balance printed a deficit of AU$91Mn and 1Q2009 current account another of AU$4614Mn. May PMI indices printed 37.5 manufacturing, 39.9 services, and 46.9 construction, while April new home sales rose 0.5% m/m, retail sales 0.3%, and May inflation expectations 1.5% y/y, the lowest since August 2003. AUD/USD rose to resistance at 0.8160 then pushed through to a high of 0.8262 before turning and falling to close at 0.7931, unable to sustain the rally even on the positive GDP reading.

In May the U.S. lost “only” 345K jobs and past data was revised upwards, however unemployment surged to 9.4%. April personal income rose 0.5% m/m but personal consumption fell −0.1% and consumer credit contracted US$15.7Bn, more than double estimates. May PMIs printed 42.8 manufacturing, 44.0 services, while April factory orders rose 0.7% m/m, construction spending 0.8%, and pending home sales 6.7%.

The ECB held rates steady at 1.0% as 1Q2009 GDP contracted −4.8% y/y and unemployment rose to 9.2%. May PMIs printed 40.7 manufacturing, 44.8 services, and 44.0 composite. April retail sales rose 0.2% but are down −2.3% y/y, and PPI fell −4.6% y/y. EUR/USD rose to a midweek high of 1.4338, however at that level reports that the BIS were selling Euros broke the rally. It fell further on the better-than-expected U.S. employment data, closing at 1.3963.

The BoE held rates steady at 0.5%. May PPI printed −9.4% y/y input, −0.3% output, and 1.2% output core. May Halifax house prices rose 2.6% m/m and April mortgage approvals rose to 43K, while May PMIs printed 45.4 manufacturing, 45.9 construction, and 51.7 services. GBP/USD was shoved about by the U.K. expenses scandal, rising to 1.6661 before falling to close at 1.5974. EUR/GBP was more volatile, bouncing beneath support at 0.8600 to bounce again from resistance at the 200-MA near 0.8850, closing at 0.8738.

The BoC held rates steady at 0.25% and 1Q2009 GDP contracted −5.4% annualised. May unemployment rose to 8.4% as the economy lost 41.8K jobs and the Ivey PMI fell again to 48.4 from 53.7. USD/CAD formed a textbook double-bottom on support at 1.0800, rising to close at 1.1188 on the employment reports. AUD/CAD remains rangebound between 0.8725 and 0.8925, closing at 0.8874.

The RBNZ meets Thursday, 11 June, and markets expect rates to remain steady at 2.5%. May ANZ commodity prices rose 2.7% m/m. NZD/USD tracked AUD/USD, rising then falling to close at 0.6262, while AUD/NZD continues bouncing beneath resistance on the 200-MA on four-hour charts, repeatedly respected since Wednesday, closing at 1.2663.

Japan’s 1Q2009 capital spending contracted −25.3% y/y, 25.4% ex software. USD/JPY surged through resistance at 97.00, closing at 98.84, while both EUR/JPY and AUD/JPY trended up for much of the week, closing at 138.01 and 78.40, respectively.