» European Morning Update 13th May 2008

Dollar trades in ranges in a quiet Asian session

News from Asia:

April                                                Forecast    Actual
U.K. BRC Retail Sales Monitor   (YoY)                  - 1.5%
U.K. RICS House Price Balance           - 80.0%    - 95.1%

The only economic releases during Asian trading have both been from the U.K. and neither paints a rosy picture. Quite the opposite in fact as the Royal Institution of Chartered Surveyors reporting that 95.1% of surveyors saw house prices decline in April. That is up from 79.4% in March. They also reported a fall in the number of new buyer inquiries.

RICS commented, “The real issue is the collapse in the number of housing transactions. This has very real implications, not just for the property industry but also the high street and the wider economy.”

However, despite the increase in foreclosures they also reported that there has been no sign of distressed selling, mortgages in arrears remain low and a still firm employment market has prevented stronger declines.

However, the BRC reported lower high street sales in April, the second month in a row and the first time this has happened in three years. The BRC reported that the numbers provide “further evidence that hard-pressed customers are really watching the pounds. With higher fuel and utility bills eating away at people’s spare cash, they are concentrating on essentials like food. Despite heavy discounting, clothing and footwear were at their weakest for at least eight years and more expensive housing-related goods continue to struggle.”

Once again it echoes the warnings of the IMF which highlighted inflation as the largest threat to the global economy. Certainly there is no sign anywhere that inflation is going to loosen its grip any time soon…

The following economic releases are due today:

March
U.K. DCLG House Prices (YoY) 4.5%
U.S. Business Inventories (MoM) +0.5%

April
U.K. CPI                              (MoM)   +0.5%
U.K. CPI                               (YoY)   +2.6%
U.K. RPI                              (MoM)   +0.6%
U.K. RPI                               (YoY)   +3.9%
U.S. Import Price Index         (MoM)   +1.6%
U.S. Import Price Index         (YoY)    15.0%
U.S. Advance Retail Sales      (MoM)   - 0.2%
U.S. Retail Sales less autos   (MoM)   +0.2%

Yesterday saw a mixed set of moves and I can only refer to the descriptions of where price appears to be within the individual currency pairs. Yesterday saw a divergence in positioning between Cable and the mainland European currencies. The sharp recovery from 1.9441 appears to have placed it in the position I had wanted yesterday – matching the Dollar declines elsewhere.

The only possible problem with this is that the Euro pushed even higher and stalled below the 1.5593 corrective high but higher than I’d normally feel comfortable. The Swissie did see a deep pullback but didn’t manage to break below the 1.0389 low.

What can we make of this? Well, what should be noted is that the Euro’s lows at 1.5283 were accompanied by bullish divergences in both hourly and 4-hour charts. With what should have been a positive reversal signal it hasn’t been able to surpass that 1.5593 high and this is still technically required to break the sequence of lower highs.

What else? Well, Euro-Yen did what it oughta – made it back to 161.23-68 and that should be the top for now with one additional decline expected. This will clearly require either Dollar-Yen to break lower – or the Euro. I can be stubborn, but I do like that 106.82 target and therefore the Euro should be the one that comes under pressure…

The only thing to watch out for is that we’re very close to an intermediate Euro cycle low so we do have to be a little careful. I’ll stick to one more low, but I wouldn’t fight a break above 1.5593… Once this cycle low is over it suggests a rally into the middle of next month at least, possibly the end. This matches with the Dollar-Yen cycles which are coming to a peak and should soon turn lower into the first two weeks of July which should see new lows. Thus don’t expect too much out of any Dollar strength seen from this point.

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF       GBPUSD
Res:  104.95-27    1.5692-14    1.0548-75    1.9631-66
Res:  104.02-30    1.5593-15    1.0486-10    1.9553-90

Spt:   103.12-25    1.5480-85    1.0406-24    1.9486-14
Spt:   102.18-56    1.5392-26    1.0298-31    1.9379-11

See Also

• Thinking of trading currencies?
  Read more about the opportunities in the Forex market

Source :

This entry was posted on Tuesday, May 13th, 2008 at 7:31 and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.