• U.S. Dollar Trading (USD) was reasonably subdued on Monday in the lead up to the Fed’s rate announcement on Wednesday, with the early session dominated more by profit-taking following Friday’s surge, only to recover somewhat in the New York session as favourable U.S sentiment returned. There was no data released on Monday to cause investors to budge on their positions and eyes are now looking forward to Wednesday with the Fed’s rate announcement and GDP figures sure to cause volatility in the market. Warren Buffet joined in on the recession debate on Monday, suggesting the U.S economy was in recession and that the contraction will be deeper and longer than people expect. In U.S share markets the most notable event was Mars’ $23b takeover bid for Wrigley’s, the world’s largest chewing gum producer. The Dow Jones fell by 20 points (0.2%), while the NASDAQ rose 1.5 points (0.1%). Oil prices continue to surge to new heights, reaching fresh highs near $120 a barrel as pipeline problems in the UK and supply disruptions in Nigeria continue to drive prices up. Prices hit highs of US$119.93, before pairing most of its gains to finish up US23c a barrel to US$118.75. Looking ahead for Tuesday, the S&P/Case-Shiller Home Price Index is released with forecasts of a fall to -12.2%, down from -10.7% previously.
• The Euro (EURO) was very much range bound on Monday amid speculation the Federal Reserve will signal the end to rate cuts at its meeting this week. Annual inflation in Germany fell more than expected from 3.1% to 2.6% in April. This data will give the ECB confidence in the fact that the Euro Zone inflation may have seen its peak at 3.6% in March. The German Consumer Confidence index rose to 5.9 in May, easily surpassing the 4.4 forecasted and rising from 4.8 in April. The EURUSD traded at a high of 1.5693 and a low of 1.5595, before closing at 1.5643 in New York trading. Looking ahead, investors are on pause as they wait for key data releases coming out of the U.S before they take up positions in the market. Sure to add volatility to the market, Euro Zone’s CPI estimate for April is announced on Wednesday with forecasts of a slight decline from 3.6% to 3.5%. However, given the larger than expected decline in CPI from Germany, the Euro’s largest economy, we may see a smaller number than predicted.
• The Japanese Yen (JPY) traded sideways throughout the day, held within a 60 pip range all day. The USDJPY traded at a high of 104.82 and a low of 104.24 before closing at 104.25 in New York. Looking ahead, the Japanese Unemployment rate is announced on Tuesday with expectations of no change since its last result of 3.9% in February.
• The Sterling (GBP) also managed to stay within range on Monday despite falling House Prices in April. House prices fell -0.6% in April, their seventh consecutive monthly fall, to be down -0.9% on a year earlier. Economic uncertainty and the global credit crisis were the blame for reduced activity in the residential property market. The GBPUSD traded at a high of 1.9964 and a low of 1.9784, before closing at 1.9896 in New York. Looking ahead, BoE Governor King is to speak in Parliament on Tuesday, as is BoE’s Blanchflower who was the only BoE official to vote for a 50bps rate cut this month. Mortgage Approvals for March are also announced with expectations of a drop to 69k, down from 73k for February.
• The Australian Dollar (AUD) grinded higher on Monday tracking commodity prices and a relatively quiet dollar as investors pause before the Fed’s rate announcement on Wednesday. The AUDUSD traded at a low of 0.9336 and a high of 0.9405, before closing at 0.9395 in New York. Looking ahead, the NAB Business Confidence for Q1 is announced on Tuesday, with not much change from its previous level of 6 expected.
• Gold (XAU) prices slowly rose on Monday as climbing energy prices boosted the appeal of the precious metal as an inflation hedge. Prices increased US$5.80 an ounce to US$895.50.
• Euro – 1.5655
Initial support at 1.5594 (Apr 28 low) followed by 1.5556 (Apr 25 Low). Initial resistance is now located at 1.5707 (Apr 25 high) followed by 1.5891 (April 24 high).
• Yen – 104.20
Initial support is located at 103.90 (Apr 25 low) followed by 103.32 (Apr 24 low). Initial resistance is now at 104.82 (Apr 25 high) followed by 105.58 (76.4% retracement of the 108.61 to 95.76 decline).
• Pound – 1.9910
Initial support at 1.9782 (Apr 28 low) followed by 1.9677 (Apr 25 low). Initial resistance is now at 1.9974 (Apr 23 high) followed by 1.9999 (50% retracement of the 2.0398 to 1.9600 decline).
• Australian Dollar – 0.9380
Initial support a 0.9292 (Apr 25 low) followed by 0.9272 (Apr 18 low). Initial resistance is now at 0.9422 (Apr 25 high) followed by 0.9496 (Apr 24 high).
• Gold – 892.60
Initial support at 878.30 (Apr 25 low) followed by 873.00 (Apr 1 reaction low). Initial resistance is now at 906.50 (Apr 24 high) followed by 922.86 (Apr 23 high).