Japan Suffers While The Market Awaits Tonight's Figures

Europea Morning Update

Releases from Australia:

Australia's private sector credit appears to be on the wane. While the March's rise was in line with forecasts, the revision lower in February's figure brought the YoY pace to 14.9%. Business credit growth did see a +0.9% rise which shows that while early signs are positive for the RBA there is still sufficient pace in the market to forestall a dramatic decline at this point.

Along with a more cautious consumer and the global slowdown there should be further easing across the board over the coming months.

Releases from Japan:

Japan does seem on the brink of further doldrums with softness seen just about everywhere. The -3.1% drop in industrial production will leave a choke in the throat of both government and BOJ as it sees household spending burn and crash in March which will spell further problems for the already struggling domestic economy.

Unemployment may well have ticked lower but the jobs-to-applicant ratio dipped further highlighting the lack of jobs for the out-of-work. Lower housing starts, a reducing vehicle production and a continuing decline in the Nomura/JMMA manufacturing PMI complete a black day for Japan.

The BOJ unanimously retained an unchanged policy and it is widely believed that the new governor Shirakawa will downgrade the growth forecast for this year from the current +2.1% to around +1.5%.

With inflation at 10 year highs some expect the BOJ will hike rates. However, the risk is very low given the correct observation by Ota that the increase has not been driven by demand so that it makes no sense to hike rates against external factors - oil and foods prices.

The following economic releases are due today:

Q1

U.S. GDP Annualized (Q1 A) 0.4%
U.S. GDP Price Index (Q1 A) 3.0%
U.S. Personal Consumption (Q1 A) +0.7%

March

Euro-zone Unemployment Rate 7.1%

April

German Unemployment Change - 30K
German Unemployment Rate 7.8%
Italian CPI (MoM) +0.3%
Italian CPI (YoY) +3.4%
Euro-zone CPI estimate (YoY) +3.4%
Euro-zone Business Climate Indicator 0.69
Euro-zone Consumer Confidence -13.0
Euro-zone Economic Confidence 98.9
Euro-zone Industrial Confidence - 1.0
Euro-zone Services Confidence +9.0
Swiss KOF Leading Indicator 1.46
U.S. ADP Employment Change - 60K
U.S. Chicago PMI 48.0

Yesterday saw movement than I thought would happen and mostly in the wrong direction though not exceedingly so. What did come through was the decline in Euro-Yen of which I had warned and this was mostly driven by Dollar-Yen, less so by the Euro. The Pound declined nicely as expected but then exceeded target and has opened up potential for a possible different corrective pattern.

Almost inevitably the various moves have less clarified the current status of the Dollar but more allowed a greater variety of scenarios which tends to occur naturally at times when there is a potential larger pattern that could mean a decisive break. Given the U.S. GDP numbers out tonight together with the FOMC decision and tomorrow's ISM data it shouldn't really come as too much of a surprise.

Back to basics here. I remain with a 106.82 target for Dollar-Yen. The Swissie remains on a broad upward path and the bigger break picture for the Euro comes at around 1.5497-1.5510 and beyond that around the 1.5295-1.5340 area.

The question remains whether we'll see direct Dollar gains or whether there will be a pullback. Frankly either could still fit into the broad bullish picture and therefore it'll be wise to note the break levels that imply each scenario. However, if it does prove to be the downside I still feel it will be for a correction only. Daily & weekly cycles are now bullish Dollars and unless I've got them placed incorrectly we should see an eventual move higher.

Just to cover the Pound - the break of 1.9700 doesn't appear to fit into a bearish scenario - unless it is very, very bearish which is something I doubt. Therefore I still feel we are in a correction that could conceivably still make its way back to 2.0025-47… The break levels are around the 1.9599 low but we should allow for 1.9436 though that seems to be pushing credibility.

Euro-Yen also looks as if it should remain below 162.48 and see additional losses - so something's going down whether it be the Euro or Dollar-Yen…

Note important support and resistance areas

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

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