This Week in Fundamentals

[fx_analyst]

With every market keeping its eyes on the bailout bill, so much of the news has gone un-noticed. Especially in Australian news. We had retail sales refusing to fall as well as surprisingly, and I don’t use that word lightly, resilient trade balance. Yet, we still have the AUDUSD at two week lows. This is mainly due to the substantial risk aversion in the markets. Next week brings the RBA’s rate decision and a likely yet unexpected hold would give a nice upward push to the AUD, as it is primed both fundamentally and technically for a correction.

There was one fundamental news event that was watched, and that was the ECB interest rate statement. Surprisingly Trichet brought down his hawkish tone and acknowledged the reduction in upward price pressure, Trichet’s key word for inflation. However, don’t hedge your bets on a rate cut this year. In the UK we just heard what we already know: the situation there is getting worse. We saw sharp contractions in both the manufacturing sector and in the current account as well as the continual fall in housing prices.

The US experienced the same contraction in manufacturing that the UK had. However, this did not curtail the dollar buying that we have been seeing. The consensus is still that as bad as the situation is in the US, the rest of the world will fare worse. Tomorrow’s non-farm and unemployment numbers will further highlight the slowdown, but with all eyes on the bill don’t expect anything market moving from these numbers.

__________________
David Leal
Market Analyst
951.823.0686 office
Yahoo IM: IFXleal
DLeal@IntegrityFXllc.com
www.IntegrityFX.com