Forex Fundamental Analysis - 22 January 2008

Tuesday, January 22th, 2008 (8:30 a.m. New York Time) CANADA
At 8:30 a.m New York time we will have Canadian Retail Sales headline coming out. It is expected to come out at 0.3, and I believe the headline number is a little more watched than the core number. Because we will have Canadian interest rate statement, that may interrupt this trade a little. Deviations of 0.3 and 0.4 are quite risky, 0.5 is a little better but because of the interest rate statement coming out later I would use 0.6 deviation on the headline retail sales. If it comes out at 0.9% or higher I would sell USD/CAD; if it comes out at -0.3% or lower, I would buy USD/ CAD. If the trigger is hit, I would expect 25 to 35 pips move in the first 30 minutes after the report. With a big deviation such as 1 or 1.2, it can easily move the market by 40 to even 70 pips or more. Recently retail sales came out, in general, lower so if you consider any pre-news trade, you may consider it towards Canadian dollar weakness. It is better chance it will come out lower than higher although I am NOT saying it will be lower for sure.

Tuesday, January 22th, 2008 (9:00 a.m. New York Time) CANADA
Then at 9.00 a.m we will have Canadian interest rate statement. Everyone is expecting them to cut the rates by 25 bp (0.25%) so if they do anything else, it is going to be a big surprise. If they left rates unchanged, it would be very strengthening for the Canadian dollar so you can sell USD/CAD and expect at least 50 pips price action. If the cut the rates by 50 bp (0.50%) to 3.75% then you can buy USD/CAD and expect at least 50 pips price action in the first 1 hour.

Tuesday, January 22th, 2008 (7:30 p.m. New York Time) AUSTRALIA
At 7:30 p.m. we will have Australian CPI coming out. Here is the problem. Last quarter it came out low deviating by 0.2; however, they just started releasing the new type of CPIs such as Trimmed Mean CPI so what happened was the headline came out low but the Trimmed Mean CPI came out high also deviating by 0.2 so we had a conflict and actually it went the other way. I would be very careful with this trade. You still want to trade 0.2 deviation but you need to make sure there is no conflict with the other CPIs; in fact, you can even trade them if you have an access to that information. The CPI q/q is expected to come out at 1.0%, and y/y is expected at 3.0. If the q/q comes out at 1.2%, that would be buy on AUD/USD. If it comes out at 0.8% or lower, it would be a sell signal on AUD/USD. Again, make sure the other CPIs deviate the same direction before you enter the trade.

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