After a week of relatively consistent losses, the Japanese Yen had an unexpected gain today on the unwinding of carry trades.

If this trend should continue over the few trading sessions, there is potential for the Yen to end up near its support level of 95. With no economic news released\, investors look forward to next week, with the G7 meeting and BoJ minutes due for release this weekend. This should set the tone for Monday’s trading session, along with providing investors vital information about the issues that are of main concern for officials.

Rising risk aversion and the 250 point drop in the Dow has driven the Australian, New Zealand and Canadian dollars lower against the greenback.

New Zealand reported their REINZ house prices, which hit a 7 year low, as record high interest rates start to take a toll on the overall economy. Next week’s retail sales figures are also anticipated to drop, as personal savings grow. In contrast, New Zealand’s consumer prices and food prices should report cheery figures, as dairy prices remain high. With economic slowdown creeping into the picture, RBNZ officials show no remorse, as wage pressures continue to boost inflationary pressures. On the other hand, Australia did not have any releases, but yesterday’s unemployment report indicated that the once resilient economy is starting to weaken. Next week’s depressed home loan and investment lending releases will prove to investors that the housing sector is already in a slump. On the Canadian front, new housing prices grew at a slower pace than anticipated, as the housing market starts to mimic the US housing market. Next week’s CPI releases indicate that inflation is slowly approaching the 2% safety zone, but it should not be a concern for officials.

The Euro Dollar fell yesterday from a fresh all time high. Cornelius Luca, economist at Global Forex Trading advanced the possibility of a choppy session today: “Euro/dollar fell sharply on Thursday after nailing a new all-time high. We have a bearish reversal here, but the last 2 times the pair peaked, the following day was choppy with virtually no change on the close.” Support and resistance levels, according to Luca, stand as follows: “Only a break below 1.5720 signals a further decline though. Below this level, important support is at 1.5623. Distant support is at 1.5540. Initial resistance now comes at 1.5785. The next key levels are 1.5885 and 1.5914. Distant resistance remains at 1.6160.”
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The Japanese yen rebounds stronger in early US session following negative open in the US stock markets. GE reported disappointing Q1 earnings which dropped 6% and that sent the DOW over 100 pts lower in the opening. Worst than expected U of Michigan consumer sentiments, which dropped to the lowest level since 1982 at 63.2 adds further weight to the stocks and extra boost to yen and Swissy on risk aversion. Other data released today saw import price index rose more than expected by 2.8% mom, 14.8% yoy in Mar. Canadian house price index rose 0.3% in Feb comparing to expectation of 0.4%.

G7’s finance ministers and central bank governors will be meeting at the IMF/World Bank Spring meeting this weekend on 12-13. Markets are expecting some discussions on coordinated actions regarding recent credit market crisis. Regarding the forex markets, though, G7 statement will probably remain largely unchanged. The statement will probably continue to describe "excess volatility and disorderly movements" as undesirable and will continue to urge China for faster appreciation of the yuan.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 100.62; (P) 101.33; (R1) 102.64; More.

USD/JPY’s rebound from 100.02 was limited at 102.25, below trend line support turned resistance and weakens again sharply in early US session. At this point, intraday outlook remains neutral. On the upside, while another high could still be seen, decisive break of 103.59 resistance zone is still needed to indicate underlying upside momentum is still strong, otherwise, corrective rebound from 95.77 is still expected to end soon, if not completed and bring resumption of reason down trend. On the downside, below 100.02 will suggest that fall fro 102.94 has resumed for 98.55 first. Further break will confirm that rise from 95.77 has completed and will bring retest of this low.

In the bigger picture, as discussed before, USD/JPY has broken out of multi-year triangle consolidation pattern that started in 1998 at 147.68. The decline from 124.13 has met 76.4% retracement of 79.75 to 147.68 at 95.78 so far. Some support is seen at this level. But still, there is no sign of reversal yet. Also, the structure, of the current fall from 124.13 argues that USD/JPY is still in the middle of a larger down trend only.

Medium term outlook remains bearish as long as 103.59 cluster resistance (61.8% retracement of 108.59 to 95.77 at 103.69) holds. Sustained trading below 95.78 will encourage further fall to next important psychological level at 90 first. However, firm break of 103.59 cluster resistance will argue that a medium term bottom is already in place. In such case, stronger medium term rebound should be seen to correct the whole fall from 124.13.

Forex News Digest

• U.S. Consumer Sentiment Falls Further in April, Says Rtrs/ U of Michigan Report
• No Room For ECB to Cut Rates, Says ECB’s Weber
• Morning Market Update: Equities Open Down Sharply After GE Misses Estimates
• IMF Says Asian Economic Region to Grow 6.2% in 2008
• Canadian New Home Prices Increase at Slower Rate in February
• U.S. Import Prices Continue to Surge in March, Rising 2.8%
• PBOC Reserves Rise in March to US$1.68 Trillion
• Japanese CGPI Increases 0.5% in March
• Dollar Falls to Within Cent of Record Versus Euro as G-7 Officials Convene
• G-7 Meets as Trichet, King, Paulson Warn of Greater Credit-Crisis Impact
• Pound Falls to Record Against Euro on Speculation of Further Rate Cuts
• Australian, New Zealand Currencies Gain This Week as Commodities Advance
• Asian Currencies: Singapore Dollar Set for Biggest Weekly Gain in Decade

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