Sunday, July 26, 2009

Outlook for the last week of July - Fundamental

Salam Friends,

This week's outlook is quite long..so as usual I am going to break it into 2 parts; Fundamental and Technical.

Fundamental

Over the past 2 weeks, strong earnings results by corporates have fired up the bullish sentiment in the stock markets. This in turn have given investors the confidence to invest in higher yielding currencies.

However, with most blue chip companies had already reported their earnings and even last Friday saw disappointing figures by Microsoft and American Express, there will be less reason to spur risk appetite further.

Going forward, fundamental data would take over as guidance to the movement in the currency market. One important data to come out this week that could provide the single most important clue to growth would be US 2Q09 GDP. It is due to be announced on Friday. Economists are expecting an improvement; -1.3% compared to -5.5% last quarter.

Other important data to come out in the week includes New Home Sales (Monday) – expected to be better than last mth, Consumer Confidence (Tuesday) – expect a decline, Core Durable Goods Order (Wed) - decline, Unemployment Claims (Thu) – rising.

Just by looking at US fundamental data coming out this week, it seems that recovery would be very slow and investors could potentially buy back USD this week provided that corporate earnings are also worse than expected.

Cable - The pair actually ended higher last week even as 2Q GDP preliminary reading showed a deeper than expected contraction of 0.8% against expectations of 0.3%. Economic growth on the year dropped by a 5.6% which was the most since record keeping began in 1955. Rally in the equity market helped spur the pound buying.

Data out this week would give further insight on the British economy; Realized Sales (Tue) – improving (-12 vs -17), net lending to individuals (0.9bil vs 0.6bil) and Mortgage Approvals (48k vs 43k) (Wed) – improving, Housing Price Index (Thu) – decline (0.3% vs 0.9%).

Cable could be trading on the sideways this week looking at the mixed outlook on the data.

Fibre – Recent strong data had provided support for Euro currency. The Euro Zone and German PMI indicators for manufacturing and service sector activity extended their recovery to hit 10-month highs. Covering a significant portion of the economy, these indicators are essentially leading indicators for broader growth. However, it is notable that they are all still under 50.0.

This week, important data from the Euro Zone is pretty light; German Consumer Climate (Monday) – stabil (2.9), German CPI (Wed) – decline (0.2% vs 0.4%), German Unemployment (Thu) – rise (44k vs 31k).

The single European currency looks bearish for this week, with German’s inflation turns to –ve the 1st time in 23 years. This put more pressure on ECB to cut down rates further. Right now they are resisting, preferring to provide money support to the region’s banks totalling about EUR442bil, while also buying bonds up to EUR60bil.

Aussie – Important data out this week; Leading index and quarterly business confidence (Mon), New Home Sales (Tue), Building Approvals (Wed) – improve, and Private sector credit (Thu) – improve.

If these positive expectation were to materialized, we could see the pair move higher this week, provided that results from corporate earnings also remain positive.

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