Outlook for next week - part 1

Salam guys n gals,

OK here’s my perspective on both fundamental and technical (Since it is quite long, I’ll break it up into 2 parts – fundamental and technical):

Fundamental

1. Round-up from last week:

1.1 Outcome of the FOMC meeting:

On Wednesday, the Fed decided to hold the fund rate at range between 0.00%-0.25% at least by the end of this year. They’ve also decided to keep on purchasing Treasuries worth $300bil. Bernanke believed that they can still able to contain inflation even as they continue spending.

1.2 SNB Intervention

Also, last week saw intervention by the Swiss central bank, SNB. They sold CHF to enhance quantitative easing. This caused EUR/CHF and USD/CHF to shoot up and thus helped EUR/USD to trade between 1.38 and 1.41 range. The SNB could decide to intervene again in the market. So watch out!

EUR appears to be volatile as ECB is being pressured by OECD to cut interest rates to zero and keep it low well into 2010. Credit Suisse’s overnight index swap index reveals traders are now pricing in a 56.5% chance of a 25 basis rate cut. Trichet says that current rate is ‘appropriate’. Hmmm that’s vague…

1.3 China’s call for a super sovereign reserve currency

USD’s future as THE currency is being questioned yet again by China on Friday while World Bank economist Timmer says the global financial crisis may reduce the USD role as a global reserve currency and hasten the search for an alternative to the USD.

2. Expectation of Upcoming Important Data for next week:

Consumer confidence - to improve to 56 from 54.9 last month.

ISM manufacturing index - to improve to 44 from 42.8 in May.

Pending Home Sales Index - to rise to 92.5 from 90.3 last month.

Nonfarm payrolls - to increase (bad) -368k from -345k

Unemployment - to rise (also bad) to 9.6% from 9.4% last mth.

German Retail Sales – to drop (bad) for the 4th consecutive time

German Unemployment – to increase (bad) to 8.3% (16-mth high).

Overall, looking at all fundamental news and data, in my opinion, it is pointing towards a bearish sentiment against the USD, as investors continue selling the USD for the foreseeable future, as a funding for carry trades. US consumers needs to spend to boost the economy.

However bear in mind that other countries/currencies have their own problems as well, GBP for e.g is not out of the woods yet! BOE's King warns UK economic outlook remains uncertain. King also expressed support for weaker GBP to help boost UK growth.

AUD, eventhough being supported by expectation that RBA would hold up their 3% interest rate and possibly tighten up the policy in the next 12 months amid expectations of economic recovery, IMF called on the RBA to lower the cash rate further as the economic outlook ‘remains weak and highly uncertain’.