European Morning Update 16th April 2007 European Morning Update 16th April 2007
Dollar appears to be heading for a reversal higher
The U.K.’s Rightmove house price survey has shown a surprise 15% YoY rise over the March-April period, the fasted pace in four years and up from the prior month’s 12.2%. Asking prices climbed by 3.6% over the month, this itself the highest increase in five years. With price inflation still above the BOE’s upper target band (in spite of the Pound being at 15 years highs against the Dollar) the prospect of a further rate hike appears highly probable now which can only provide further strength for the Pound over the coming 1-2 months.
Australian business confidence has risen by 4 points to +10 to take it well above its long term average. Greater confidence was seen in small to medium sized companies and most strong in financial services and property construction. Of the larger businesses energy and construction recorded the highest confidence. This underlying strength will keep the pressure on the RBA to hike rates once again in spite of PM Howard’s suggestion it may not be required.
Japan’s February Industrial Production saw a sharp rise of +0.8% MoM, far above forecasts of -0.2% to bring the YoY rate to +0.7%. The rise was generated by the government’s annual modification of the output numbers and thus a little caution should be used for this result. Capacity Utilization was released at 106.3 being down by 0.4% on the month and -2.1% YoY. It is rather difficult to react to these figures without knowing the full extent of the revision. However, METI has forecast a rise in manufacturing output over March of as much as +1.8% but revising the original April reading of +1.3% down to only +0.4%. The Cabinet monthly outlook report is due today and it is still expected that they will still downgrade the assessment of manufacturing to “flat” from “increasing modestly” and this outlines the more likely situation.
Japan’s March Tokyo Condominium Sales were lower by 28% YoY and down from February’s 19.4% drop. The average price of a condominium apartment was 11.8% YoY higher with the average price per square metre being higher by 10.6%. These are quite surprising numbers with land prices only less than 1% higher over a year ago and CPI around flat. Take home wages are minimally higher and it doesn’t take a mathematician to work out that corporate profits are much higher.
The following economic releases are due later today:
FebruaryU.K. DCLG House Prices (YoY) 11.3%U.S. Business Inventories +0.2%
MarchGerman CPI (MoM) +0.3%German CPI (YoY) +1.9%U.K. PPI s.a. (MoM) +0.9%U.K. PPI n.s.a. (YoY) +0.2%U.K. PPI Output Prices (MoM) +0.3%U.K. PPI Output Prices (YoY) +2.2%U.K. PPI Input Prices (MoM) +0.3%U.K. PPI Input Prices (YoY) +2.7%Euro-zone CPI (MoM) +0.6%Euro-zone CPI (YoY) +1.9%U.S. Advance Retail Sales +0.5%U.S. Retail Sales (less autos) +0.8%
AprilU.S. Empire Manufacturing 7.5U.S. NAHB Housing Market Index 35.0
It is a bit difficult to be too definite after the movements on Friday. The Dollar strength that I had suggested we should see into the close did happen but then the reversal bit far too deeply. As I mentioned on Friday we are seeing new lows for the Dollar against the Euro but Friday’s losses still failed to see these moving to the 1.2029 low and the depth of the pullback from 1.2067 has been such that it doesn’t appear to really support a bearish scenario.
However, if I look at the general picture across the board there does seem to be a common picture of a major Dollar low developing today and causing a few weeks of a corrective pullback. There appears to be a weekly cycle low in the Euro around mid-May and therefore I am beginning to get more bullish for the Dollar but we need to pick out levels carefully.
The pound seems set for 1.9912-15 while USDJPY remains with a particularly strange pattern but if I have any preferences it is still for a move to the 120.53 area. Watch EURJPY along with this which still looks to have potential to 162.75-163.25.
Aussie looks spent and has a tentative topping pattern at 0.8357 (max 0.8385) while the Canadian Dollar is beginning to suggest it may just have found its low…
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSDRes: 120.34-53 1.3640-66 1.2291-20 1.9985-16Res: 119.93-07 1.3590-16 1.2205-45 1.9912-15
Spt: 119.03-10 1.3540-50 1.2029-74 1.9840-50Spt: 118.10-20 1.3440-50 1.1969-97 1.9741-80


Pro Commentary Lite April 16th 2007 ... GBPUSD
An excerpt from FX-Strategy's Pro Commentary

Price: 1.9875
Resistance:
1.9886
1.9912
1.9951
1.9985
Support:
1.9840
1.9810
1.9780
1.9741
Bias:
Mixed – waiting for breaks
Daily Bullish:
The wave structure is not clear. We do feel there is risk for 1.9912-15 to be tested but wait for a break above the 1.9886 high. Care at 1.9912-15 as this could cap – and if it does then we should also see a bearish divergence. Thus a stronger bullish stance requires breach of 1.9915 and if seen would extend the upside towards 1.9951 and 1.9985 at least. Next resistance is at 2.0016.
MT Bullish:
We retain our bullish stance and while 1.9670-00 supports this should move to 1.9985 minimum and we suspect 2.0016 and possibly as high as the 2.0078 level which should cap for a larger decline. (April 12th)
Daily Bearish:
We have seen gains to 1.9886 within an unclear wave structure. We tend to favor a small breach for 1.9912-15 but are not too confident there will be any further gains. Support is at 1.9540-50 and if this gives way then the downside becomes favored for a move back through 1.9780 (which could initially cause a small correction) and then down to 1.9723-41 which could again cause a pullback.
MT Bearish:
We are getting a little more cautious about the upside with risk of the 1.9912-15 capping for a reversal back to the 1.9589 low once again. (April 16th)

ELLIOTT WAVE COMMENTS
13th April
While we have seen a break above 1.9817-23 we feel this is most likely in an expanded flat Wave –b- with a 38.2% expansion at 1.9853. This should cause a pullback to the Wave a low at 1.9723 and possibly the 50% pullback at 1.9706 before Wave –c- can start.
16th April
We are a little cautious but feel there is risk of a cap being seen at the 38.2% expansion of the 1.9823-1.9589 decline which rests at 1.9912-15. This would imply a second test down to 1.9589 and possibly just below in an expanded flat Wave –iv-.
Ian Copsey


GFT Market Recap: Asia Session
The majors opened slightly different than Friday’s closes following the G7 meeting this weekend. The market was pretty volatile early in the session. The G7 statement on FX was unchanged from the last meeting.

RANGES

3:00 pm-11:00pm EST

Low
High
EUR/USD
1.3549
1.3575
GBP/USD
1.9853
1.9885
USD/JPY
118.97
119.66
USD/CHF
1.2123
1.2136


GFT Daily Forex Market Commentary
Forex Market Commentary for April 16, 2007 by Cornelius Luca
GFT Daily Forex Market Commentary
The dollar fell sharply versus the European currencies on Friday on renewed expectations of higher rates outside the U.S. versus flat domestic borrowing costs and the yen sank on misplaced disappointment that the G7 was not planning to criticize Japan for its artificially weak currency.
Euro/dollar
Euro/dollar rallied to a 2 ½ years on Friday. It’s overbought, but sell it only if a bearish reversal is confirmed. On a medium-term basis, the euro/dollar formed several bullish flags.
Initial resistance is at 1.3620. Above 1.3705, distant resistance is at 1.3805.
If 1.3620 holds, look for a correction toward 1.3440. Intermediate support is at 1.3540 and 1.3500.
Oscillators are rising.
NEAR-TERM: Mildly bullish MEDIUM-TERM: Bullish LONG-TERM: Bullish
Dollar/yen
Dollar/yen encountered very volatile conditions on Friday, when it reached a 1 ½-month high and formed the range for the entire week. It’s still facing the key Gann levels that bordered it last week, so only closes outside them will inject new life in this pair. Dollar/yen has been pushing against the top of its rising resistance for six consecutive days, so unless it breaks higher quickly, the downside will become really favored. Initial resistance remains at 119.65 from another 50-point pivot that targets 119.15 and 120.15. Distant resistance now comes at 120.75. Below 118.75, strong support remains at 118.25 from a 50-point pivot that targets 117.75 and 118.75.
Oscillators are rising.
NEAR-TERM: Slightly bearish MEDIUM-TERM: Slightly bullishLONG-TERM: Bullish
Sterling/dollar
Sterling/dollar nailed an over 2 ½-month high of 1.9886 on Friday. It should attempt to pad its gains, but it is difficult to ignore the fact that the MACD provides a bearish divergence and that the pair is overbought. This suggests that long positions should be accompanied by fairly close stop-loss orders.
Initial resistance is at 1.9905. If this Gann level breaks, the pound would likely take attack another Gann level at 1.9990. This is only a hair away from the psychological 2.0000 level. Immediate support is at 1.9825. Below 1.9780, strong support follows at 1.9700.
Oscillators are rising.
NEAR-TERM: Slightly bullish MEDIUM-TERM: Slightly bullish LONG-TERM: Slightly bullish
Dollar/Swiss franc
Dollar/Swiss franc fell to as low as a three-week low on Friday, but when the dust settled, it failed to close outside its rising channel. Expect more attempts to close below this line, now at around 1.2145.
If successful, look for a re-test of the support at 1.2068. Below it there is a key level at 1.2030. Dollar/Swiss franc then has strong support at 1.2000. Initial resistance comes at 1.2230. Next level is 1.2290. Distant resistance is at 1.2370.
Oscillators are mixed.


Asian Morning Update 16th April 2007
Dollar starts the week on a soft note
Euro-zone February Industrial production saw a healthy +0.6% MoM and +4.1% YoY rise against forecasts of +0.4% and +4.1% respectively. The numbers correspond well with the results from the big three and maintain prospects for growth this year.
The U.S. February Trade Deficit narrowed to US$58.4bn against forecasts of US$60.0bn, the improvement driven by a large drop in oil imports by 21% to the lowest level since February 2003. Total imports were down by 1.7% and exports down by 2.2%.
U.S. March PPI saw a +1.0% MoM and +3.2% YoY rise, higher than forecasts of +0.7% and +3.0% respectively and follows Thursday’s import price index which saw a much higher level on the back of a hefty rise in oil prices. Core PPI was flat on the month. PPI for consumer goods was up by +1.4% MoM with gasoline again providing the main impact. Not particularly good numbers but the Fed will find some solace in the unchanged core rate.
Finally from the States the Reuters/University of Michigan consumer confidence index dipped to 85.3 in April versus forecasts of 87.5 and down from March’s 88.4. Current conditions was down by 1.1 to 102.4 while the economic outlook was down by 0.4 to 74.3. The subdued readings of consumer confidence appear to be spreading across surveys now and do have some threat of snowballing the overall slowdown.
The ECB’s Weber was talking at the G7 conference saying “We see in the medium term an inflation rate in the Euro area of about 2 percent, perhaps slightly more. We assume that growth in the first quarter in the Euro zone could be moderated some way because of the German (value-added tax increase but a solid trend is still working and could lead to a more positive growth than we had expected originally.” The continued strength of the European economy was considered a significant positive suggesting that globalization allows the global economy to maintain growth even if one economic power sees below average performance which should allow a faster recovery. Interestingly Mersch commented that even if the U.S. was to undergo a hard landing the Euro could withstand a 10% depreciation against the Dollar.
The G7 communiqué was upbeat stating: “Although risks remain, the global economy is having its strongest sustained expansion in more than 30 years and is becoming more balanced." However, no special mention was made regarding the weakness of the Yen using the same wording from the February statement, “Japan's recovery is on track and expected to continue," the G7 said. "We remain confident that the implications of these developments will be recognized by market participants and will be incorporated in their assessment of risks. Indeed, recent Yen weakness has been mostly confined to the Pound and antipodean currencies while the Euro has been strong all round, not just confined to the Yen.
The economic calendar is fairly full this week with the Dollar remaining weak on Friday in spite of a sharp initial pullback on Friday. The immediate implication does appear to suggest the Dollar’s downside should extend with the Euro rising to new highs in early Asian trade though still remains above lows against the Pound and Swiss Franc.
Although there are recurrent rumors that G7 will be looking further into the carry trades position, the Yen has weakened further all round on the back of the fact that interest rates are unlikely to move higher over the next 2-3 months at least.
More later when the analysis is complete.
Asian economic releases expected today are:
Japanese March Tokyo Condominium SalesJapanese February Industrial Production (MoM) -0.2%Japanese February Capacity Utilization Japanese Cabinet April Economic Report
U.K. Rightmove House Prices