Dollar Firms Up In Asian Trading

European Morning Update

News from Australia:

All is not well downunder. Home loans not only crashed in March but also saw the February number revised lower by 0.8% to -6.7%. This well in excess of consensus forecast and reflects how much Australia has caught up with the rest of the world in recording savage loss of confidence by consumers.

Business confidence has also declined into a soggy mess according to the NAB as April's headline number declined by 4 points to -8 which is its lowest since 2001. The slide from the economy's highs at the end of last year has been sharp with most impact seen in the interest-sensitive sectors together with retail and transportation confidence.

New orders provided a stark warning of the risk of a sharp turn down as they registered a fall of 5 points to -5.0 which is the lowest reading in around 6 ½ years. Wage pressures are on the rise and this will keep the RBA with its finger firmly pressed on the 'no change' button when assessing interest rate moves.

As such the slowdown may well accelerate over the coming months.

Releases from Japan:

There is no real change in Japan's slowdown according to the Eco Watcher's Survey which reflects the sentiment of 'on the street' service providers such as taxi drivers, hairdressers and local food vendors. The decline in the headline numbers has been consistent and reflects the growing lack of consumer confidence stemming from higher prices.

The new BOJ Governor Shirakawa has reiterated the need for interest rates to be raised in the medium to long term should the economy 'achieve a sustained expansion from a long-term viewpoint.'

However, ha also acknowledged that 'Japan's economic growth is slowing and is expected to continue to slow in the near term' due to higher energy and basic material prices which are expected to continue hurting corporate profits and hit consumer spending further.

Japan is currently undergoing a correction in property prices following the past few years of gains. Developers are clearly under pressure as they find it more difficult to clear the stock of recently completed condominium projects with second hand housing seeing settlements some 10% below asking price.

However, price pressures remain with companies having announced price hikes over each of the past 3 months, and normally between 5% and 10%. As elsewhere in the world this is causing downward pressure on consumer spending which has further hit and already soft domestic economy.

The BOJ therefore also face the same issues as other central banks with rising inflation, slowing growth and a tight credit market that is a dissuading factor to hiking rates. Interestingly recent figures have suggested that wages hikes have been awarded which could accelerate inflationary pressures.

The following economic releases are due today:

March

Italian Industrial Production (MoM) +0.0%
Italian Industrial Production (YoY) - 1.0%
U.K. Visible Trade Balance GBP - 7.5bn
U.K. Total Trade Balance GBP - 4.4bn

April

Japan Machine Tool Orders (YoY) +3.3% (Prior)
U.K. PPI Input (MoM) +1.8%
U.K. PPI Input (YoY) 21.4%
U.K. PPI Output (MoM) +0.6%
U.K. PPI Output (YoY) +6.4%

I'm really not 100% sure what to make of Friday's moves. The Euro pushed a little above my favored resistance, the Swissie stalled around the right place, as did Dollar-Yen and strangely the Pound also bounced from its target support.

So from this I'd expect the Pound and the Swissie to move higher, possibly too Dollar-Yen but the Euro to come off. Somehow I can't see all of these happening…

Taking a step back, ideally I would have liked to see the Euro take one more dip towards the 1.5154 area. It is still possible. Since I still feel Dollar-Yen should ideally reach the 106.82 target I do have a stronger attachment to a final rally in the Dollar. It would suit the view in the Pound as well but it would appear to suggest very little pullback in the Pound and direct resumption of losses.

Throwing one other observation into the pot, Euro-Yen bounced nicely from just above the 158.47 target. This should bring a recovery here though not an exceptionally large one but does seem to have potential to 160.60-80 at least. If anything this does seem to be right on track so strength here should equate to a higher Dollar-Yen.

Now all we have to do is work out what Dollar-Europe is going to do. It has started Asian trading with the Dollar looking on the firm side. I'll retain this as my preferred view but we'll have to watch key breaks to make sure we don't get caught by any more complex corrective pattern.

Note important support and resistance areas:

Ian Copsey
Global Forex Trading
http://www.gftforex.com

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