» European Morning Update 24th April 2008

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European Morning Update 24th April 2008

Dollar slightly firmer in Asian trading

Releases from Japan:
                                                               Forecast    Actual
February All Industry Activity Index   (MoM)    - 0.5%    - 1.4%
March Corporate Service Price           (YoY)     +0.7%    +0.4%

Japan’s All Industry Activity Index inevitably followed the poor showing in the Tertiary Index earlier in the week with a -1.4% decline in February. Rather surprisingly it has been the weakness in the services sector that has provided the drag with lower spending on financial and insurance services.

However, given the breakdown of the services sector it is clear that the consumer has been limiting spending on services such as retailing, dining and travel which have been hit by loss of confidence and higher energy prices.

However, on the brighter side corporate service prices rose less than forecast. It was the 20th consecutive monthly rise but saw transportation costs rising by less – mainly linked to the higher value of the Yen.

Still, there were price rises going through at the beginning of April and this should maintain the upward pressure over the coming months.

The following economic releases are due today:

March
U.K. Retail Sales                               (MoM)   - 0.3%
U.K. Retail Sales                                (YoY)   +4.3%
U.S. Durable Goods Orders                 (MoM)   +0.1%
U.S. Durable Goods Orders ex transp (MoM)   +0.5%
U.S. New Home Sales                         (MoM)   - 1.0%
U.S. New Home Sales                                       584K

April
French Business Confidence Indicator               108.0
French Production Outlook Indicator                 - 13.0
Italian Consumer Confidence Index                   99.6
German IFO: Business Climate                        104.3
German IFO: Current Assessment                    111.0
German IFO: Business Climate                          98.0
U.K. CBI Quarterly Industrial Trends
U.S. Initial Jobless Claims                  (19th)    375K
U.S. Continuing Claims                      (12th)    2960K

Hmmm, no follow-through for the Euro above 1.6018 yesterday and a pullback instead. In normal circumstances I may just feel more confident of having seen the top. However, the rally from the 1.5510 low has been anything but normal and until I see a stronger reversal signal I’d prefer to take the middle road.

The market does still seem to have its bit between the teeth in condemning the Dollar but frankly it really hasn’t performed that badly against the Swissie and Yen. It’s not a one way market by any means just yet at the moment. And the overall technical signals remain with the beginnings of bullish Dollar cycles which should last for the rest of the year…

So it does seem to come down to whether the Euro has satisfied its lust having had its way with 1.60 or whether it’ll go back for one more gloat.

Elsewhere The Pound dropped nicely back towards the 1.9744 low – and may well get there before a small pullback. However I feel there is room for 1.5690-1.5720 before a larger pullback – and if any correlation does return with the Euro then that may be where the latter may attempt to surmount 1.60 again.

And the other pair to watch to provide clues on the Euro is Euro-Yen. That 164.96 resistance held perfectly yesterday from where we have seen initial losses. I’m not sure it will accelerate too much just yet and while I do expect some minor losses at least I still can’t rule out further broad consolidation. However, this should eventually break lower and I suspect on the back of the Euro first. However, I suspect we’ve seen the top here.

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res: 104.63-90    1.5985-18    1.0249-82    1.9944-72
Res: 104.18-25    1.5914-26    1.0192-20    1.9830-70

Spt: 103.01-21 1.5814-32 1.0103-29 1.9741-70
Spt: 102.32-66 1.5710-65 1.0020-60 1.9690-16