FYI | Jul 04 2012
By Chris Tedder, Research Analyst FOREX.com
It was an interesting session during Asian trade with some very jumpy price action in the FX market due to low levels of liquidity, with many investors choosing to remain on the sidelines ahead of the US holiday. Early in the session, low volume created a divergence between risk currencies with the euro pushing lower at the same time as commodity currencies were moving towards their overnight highs. But the currencies were shocked back into moving in sync on the back of better than expected retail sales data out of Australia, which sparked a small USD sell-off in the low liquidity environment. The exception, however, was the yen which moved against overall sentiment throughout the session.
Retail sales in Australia increased 0.5% m/m, modestly higher than the expected 0.2% increase. Surprisingly, food sales were the biggest loser in May, dropping 0.1%. But a strong bounce-back in the household goods, department stores and restaurants sectors more than offset the weak showing from food sales. At the same time, the prior month’s figure was revised up to +0.1% from -0.2%. Overall, the data is a positive sign that consumer sentiment is turning around.
However, the retail sales data is not enough to stop the RBA for continuing its rate loosening cycle, unless we see the trend continues throughout the economy – i.e. CPI rise above the bottom-medium of the RBA’s target range for inflation. Given the recent CPI prints, we are more leaning towards fairly low inflation prints in the Q2 report released later month. Hence, we maintain our view that the RBA will cut rates in August, largely in response to the Q2 inflation report providing significant scope for more easing.
AUDUSD rocketed through 1.0300 on the back of the retail data, before retracing all of its gains. We think the low volume environment is amplifying the moves in risk currencies, similar to what we have seen in the past when there is a major public holiday or significant event that causes investors to watch rather than get involved. The price may have created a new short-term ceiling for the pair around 1.03200, at least until the ECB/BOE meetings tomorrow night.
The euro pushed through 1.2600 against the dollar early in the session, this level then acted as resistance for the pair. NZDUSD found some resistance around its overnight high around 0.8065, before dropping back below later in the session. The kiwi has been trading in a fairly tight range against the dollar since the pair broke through 0.8000 at the end of last month, thus a break on either side may lead to more upside/downside depending on the direction of the break.
Tonight, investors will be wary of the low levels of volatility but will also be on the lookout for headlines from the Merkel/Monti meeting in Rome to discuss the recent EU summit and economic cooperation. Whilst not much is expected from the meeting, there is the possibly that something will be leaked or announced.
All views expressed are the author's and not by association FNArena's (see our disclaimer).
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
DISCLAIMER
Foreign exchange and CFD trading involve significant risk of loss and may not be suitable for everyone. You should make sure you understand the risks involved in Foreign exchange and CFD trading, seek independent advice if necessary. To make an informed decision about these products, please refer to our PDS/FSG and our full risk warning. This email contains confidential information belonging to FOREX.com and is intended solely for the addressees. The unauthorised disclosure, use, dissemination or copying (either whole or partial) of this email, or any information it contains, is prohibited. FOREX.com assumes no responsibility for errors, inaccuracies, or omissions in these materials. FOREX.com does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. We respect your privacy. Email addresses are not released to third parties.
FOREX.com is a trading name of GAIN Capital FOREX.com Australia Pty Limited ABN 97138414605 and is regulated by the Australian Securities and Investments Commission (ASIC). FOREX.com holds Australian Financial Service License No. 340255.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.
