Forex Market Update: US April Housing Figures to Close the Week

With mixed economic signals and rising unemployment, today's Housing Starts will provide for further direction to markets on the state of U.S. economy.

MAJOR HEADLINES - PREVIOUS SESSION

• GE GDP QoQ/YoY (1Q P) out at 1.5%/2.6% vs. 0.7%/1.8% expected.
• GE CPI MoM/YoY (Apr F) out at -0.2%/2.4% as expected.
• E-Z GDP QoQ/YoY (1Q A) out at 0.7%/2.2% vs. 0.5%/1.9% expected.
• E-Z CPI MoM/YoY (1Q A) out at 0.3%/3.3% as expected.
• US Initial Jobless/Continuing Claims out at 371K/3060K vs. 370K/3035K expected.
• CA Manufacturing Shipments MoM (Mar) out at -1.6% vs. -0.4% expected.
• US Empire Manufacturing (May) out at -3.2 vs. 0.0 expected.
• US Total TIC Flows (Mar) out at -$48.2B vs. $67.5B expected.
• US Industrial Production (Apr) out at -0.7% vs. -0.3% expected.
• US Capacity Utilization (Apr) out at 79.7% vs. 80.1% expected.
• US Philly Fed (May) out at -15.6 vs. -19 expected.
• US NAHB Housing Market Index (May) out at 19 vs. 20 expected.
• NZ PPI Inputs/Outputs (1Q) out at 2.3%/1.8%. Vs. 1.3%/1.5% prior.
• JN GDP Annualized (1Q P) out at 3.3% vs. 2.5% expected.
• JN Industrial Production MoM/YoY (Mar F) out at -3.4%/-0.7% vs. -3.1%/-0.4% expected.
• JN Consumer Confidence (Apr) out at 35.4 vs. 37.8% expected.

THEMES TO WATCH - UPCOMING SESSION

Key Risk Events (All times in GMT)

• CA March New Motor Vehicle Sales (12:30)
• US Apr Housing Starts (12:30)
• US Apr Building Permits (12:30)
• US May 16 U. of Michigan Confidence (14:00)
• MX Interest Rate Decision (14:00)

While the U.S. economy continues to give mixed signals on the health of the economy, with the discussion on a technical recession slowly fading away, the unemployment is creeping higher at a steady albeit very gradual rate. Bearing in mind the continued weakness in the U.S. housing sector and the subsequent wealth and unemployment effect, today's Housing Starts and Building Permits will come under close scrutiny. While the median expectations for the Housing Starts point to 939K new houses, the surveyed estimates display a high range of 875K to 1000K. The results will be all time more significant as the the median estimate is only about 20% above the low of last 2 decades, registered in January of 1991.

Following a strong Asian and even stronger American equity sessions, the positive sentiment has already spilled into the European session. With the global equity markets enjoying from a pick up in risk willingness, we look to establish positive exposure to high yielders that have been continue to enjoy from strong fundamentals. In particular, we observe a peso-bullish move in USDMXN with the pair breaking lower from a bear flag formation. We have been sellers from 10.4700 offer and are looking for an extension of the downtrend towards the 10.32 area.

EURCHF is showing an interesting formation - will we see a break-out of the highs or will the double-top be confirmed? Trading the two scenarios would either imply buy above the 1.6350-level, targeting the 1.6430/60-range for a test of trend resistance from October 2007. On the longer term, we see the double-top formation confirmed at the break of the mid-point-lows at 1.6065, which technically will target 1.5782. The latter supports our mid- to longer term fundamental view, that the Euro will suffer during the second half of 2008.

Note: the support/resistance levels used in the matrix's of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.

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