Dollar reverses sharply after earlier knee jerk gains on G7’s change of languages. Little support was provided to the greenback after better than expected March retail sales report in US. Euro and Sterling are both boosted by strong economic data earlier today and remains firm against dollar. Headline retail sales in US rose 0.2% in March, beating expectation of 0.0%. Feb’s data was also revised upward from -0.6% fall to -0.4%. However, much of the strength was indeed a result of food and energy price inflation. Business inventories in US rose 0.6% in Feb, down from prior 0.9%.

Released earlier UK PPI output rose strongly by 0.9% mom, 6.2% yoy, beating expectation of 0.5% mom, 5.6% yoy. The yoy rate is the highest since 1991. Input price rose 1.8% mom, 20.4% yoy. Core PI rose 0.3% mom, 3.0% yoy. The persistently strong inflation outlook is reaffirming the views that it will keep BoE’s easing pace slow. from Eurozone, industrial production rose 0.3% mom, 3.1% yoy in Feb, also reaffirms that economy in Eurozone remains sound and supports ECB to be on hold in the near future.

There were some knee jerk reactions after change in G7 language prompted speculations of coordinated intervention from the world’s major central banks. The post meeting communique of the G7 meeting released on Friday stepped up rhetoric on the forex markets. The officials were "concerned" about the volatility in the forex markets, rather than just saying it’s "undesirable" in the prior statement. The statement said that "since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability." Regarding recent market turmoil, the statement also said that "the turmoil in global financial markets remains entrenched and more protracted than we had anticipated," and "near-term global economic prospects have weakened."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5745; (P) 1.5799; (R1) 1.5859; More

EUR/USD’s sharp retreat from 1.5913 was supported by mentioned 1.5674 minor support and rebounds even more sharply today. At this point intraday outlook remains neutral. Though, note firm break of 1.5913 high will confirm that consolidation from 1.5902, which is likely in form of an ascending triangle, has completed. In other words, in such case, medium term up trend should have resumed for next target of 1.6 psychological level first. On the downside, though, below 1.5674 will indicate that consolidation from 1.5902 is still in progress with another fall leg to retest 1.5342 before completion.

In the bigger picture, rise from 1.4309 has just missed 100% projection of 1.3360 to 1.4966 from 1.4309 at 1.5915. Though, the structure of the rise from 1.4309 suggest that there should at least be another rally attempt, probably to 1.6000 psychological resistance before completion. Hence, even though below 1.5342 low again will indicate that deeper correction should be seen, downside should be contained above 1.4951 resistance turned support and bring another rise. Though, below 1.4591 will dampen this view and argue that a medium term top is already in place.

Forex News Digest

• Upside Surprise to U.S. Retail Sales Fails to Spur Optimism Among Economists
• U.S. Advance Retail Sales Rebound in March
• Morning Market Update: Fixed Income Mixed, Equities Decline
• Mersch Says ECB Not Likely To Cut Rates Marco
• BOJ Keeps Rates Unchanged Despite Projected Economic Slowdown, Minutes Show
• Overnight News Recap: G7 & IMF, UK PPI, EU Ind’l Production Beat Forecasts
• SNB to Improve Liaising With Banks Operating in Switzerland
• Euro Zone Industrial Production Comes in Higher than Expected in February (Update)
• UK March Output PPI up 6.2% Y/Y; up 0.9% M/M (Update)
• Dollar Declines Against Euro as Wachovia Posts Unexpected Quarterly Loss
• Dollar’s Decline May Start to Slow After G-7 Comments, Goldman Predicts
• Pound Rises on Bets Faster U.K. Inflation Will Curb Interest-Rate Cuts
• Options Show Dollar-Yen May Decline After G-7 Meeting, Bank of Tokyo Says

More Forex News

Economic Indicators Update

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Perfect time to buy EURUSD?

EURUSD Outlook

The EURUSD made a big gaps, closed at 1.5807 on Friday, open at 1.5702 Monday. It is 105 pips gap. In my early days trading forex, my mentor always say this about gaps: ‘Gaps are made to be filled’. If that’s true, why do not buy EURUSD now? In my last technical view, I showed you the potential of bullish scenario, about every time EURUSD reach the psychological at area, the pair always made a higher low, and we also have a potential bullish triangle. Here are the chart I showed you on Friday (chart #1) compare with what happen early today (Chart #2).

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Do you see the highlighted eclipse on Chart #2? The candle bottom is very near to triangle line. This means, if the bullish triangle is valid, this bottom could be the other higher low after touched psychological level. So, here are what I have in mind:

• Strong bullish momentum of technical analysis
• We have gaps, big gaps of 105 pips. Usually, this gaps are filled. And if it is filled, it goes in the same direction as technical view.

Of course, there is no 100% accuracy of any analysis and no one knows the future. But we should act based on the most logical thinking.

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The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results

Asian Morning Update

European news from Friday:

Friday was pretty quiet in Europe. Both the U.K.’s Telegraph and Times newspapers warned that mortgage costs will rise even if the BOE cuts rates as banks widen lending margins. With inflation high and consumer confidence low it can only impact on spending patterns which will squeeze businesses further.

States releases overnight:

U.S. figures continue to provide no relief from the wretched series of numbers with the University of Michigan Confidence index falling to the lowest in 26 years. The group announced ‘There have only been a dozen other surveys that have recorded a lower level of consumer sentiment in the more than 50-year history of the survey.’

‘Persistently high food and fuel prices as well as rising unemployment have caused consumers to view their future financial prospect more negatively than at any other time since 1980.’

Why didn’t I start with a report on the G7 meeting?

Well, I wanted to initially highlight the continuing squeeze on consumers and this isn’t just happening in the States but globally. This has the potential to provide a domino effect as high inflation and reduced consumer spending power outside of energy and food could see a systemic reduction in real spending.

And this is what G7 have to address.

The G7 statement itself was inconclusive. The area concerning Forex rates read:

‘We reaffirm our shared interest in a strong and stable international financial system. Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate. We welcome China’s decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effective exchange rate.’

Obviously the majority of the statement concentrated on the credit crisis since it is where the majority of the stress lies.

Mention was made of ’significant deleveraging’ and one paragraph summarizes the current issues:

‘The turmoil in global financial markets remains challenging and more protracted than we had anticipated. In the context of a weaker economic outlook, financial markets confront the interrelated issues of: re-pricing of risk and significant de-leveraging; managing counterparty risks; accommodating balance sheet adjustments; raising capital; improving the liquidity and functioning of key markets. We welcome efforts by many financial institutions to improve disclosure of exposures to structured products and related risks, and raise significant new capital.’

What immediate impact may this have?

The Dollar has opened sharply higher this morning indicating that some feel that there is a higher risk of concerted intervention. I’m not sure this is likely at the current point though it is something to consider.

If any thing, in isolation, the comments on Forex rates which some consider to be harsher compared to the February statement, can be simplified as changing from ‘we think the market is full of naughty traders’ to ‘we think the market is full of very naughty traders.’

Words may have temporary impact but away from the immediate reaction of covering some short positions for safety they will soon be forgotten when the next negative set of figures are released.

It reminds me of the phrase ‘Action speaks louder than words.’

Well, action implies concerted intervention. Is this likely? I’m not sure that it is from the wording of the statement but we can’t totally ignore the possibility.

As I have mentioned before, concerted central bank intervention has not been vogue for over a decade and more like two decades. The EU’s Juncker even suggested they had no interest since it is ineffective. One European official said that they had pressed President Bush who reaffirmed a strong Dollar policy.

I find the statements confusing since they almost appear to suggest that because the President wants a firm Dollar then they’ll do something about it – that something being intervention. However, Juncker himself said that unilateral intervention is worthless.

Even so, we are not talking about normal market conditions but conditions that are providing greater strain since, as some have described it, the 1930’s Great Depression.

From that point of view intervention can smooth Forex movements and potentially give time for other action to occur. Thus, we cannot rule it out should G7 ministers and central bankers feel it will reduce stress in the financial markets.

However, it isn’t a remedy for the problems and this is where the solution will lie. The credit crisis has been a direct result of over leveraging, poor risk control and excessive risk. The only solution can be imposition of controls over excessive leveraged trading which will reduce volumes and more likely bring two-way trading that dampens market moves.

These controls are unlikely to be decided upon quickly. In the meantime there may be a possibility of limited intervention but at this moment there is no real indication that it is favored.

Thus this morning’s gap high in the Dollar could quite easily be reversed. How the Dollar reacts this week could set the scene for the coming weeks, possibly months.

More later once the daily analysis has been done…

There following releases are due from Asia due today:

Australian February Home Loans (MoM) +0.5%
Australian February Investment Lending (MoM)

Bank of Japan publishes the minutes of the March Monetary Policy Meeting

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

DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Initial Focus on Reactions to G7’s Tougher Statement

It was a rather mixed week last week even though it’s not lack of event risks. The more noticeable bias was the broad based weakness in Sterling before and after BoE’s anticipated rate cut. Euro edged to new record high against both Dollar and Pound with ECB on hold and Trichet maintaining the hawkish stance. Though, the momentum in EUR/USD is not convincing yet. Yen staged a rebound as risk aversion came back to the markets towards the end of the week. Over the weekend, G7 issued a statement which is interpreted as taking a tougher stance on foreign exchange movements and initial focus this week will be on the reaction to this statement Afterwards, focus should be back to economic data, in particular with inflation data from US, UK, Eurozone and Canada featured.

Currency Heat Map Weekly View

The post meeting communique of the G7 meeting released on Friday stepped up rhetoric on the forex markets. The officials were "concerned" about the volatility in the forex markets, rather than just saying it’s "undesirable" in the prior statement. The statement said that "since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability." Though, the part about China was unchanged.

In the FOMC minutes released last week, Fed members saw that economic outlook has weakened considering and has substantially cut the GDP forecast. Also, some members believed that "a prolonged and severe economic downturn could not be ruled out given the further restriction of credit availability and ongoing weakness in the housing market."

US pending home sales dropped more than expected by -1.9% from an upwardly revised 86.2 to 84.6 in Feb. Wholesale inventories climbed 1.1% in Fe, above expected of 0.5%. Trade deficit unexpectedly widened to -62.3b in Feb. Import price rose more than expected by 2.8% mom, 14.8% yoy in Mar. U of michigan consumer sentiment tumbled further to the lowest level since 1982 at 63.2. Though jobless claims provide the positive by dropping sharply from 410k to 357k.

ECB left rates unchanged at 4.00% as widely expected. In the introductory statement in the post meeting press conference, Trichet, as widely expected, emphasized that "upside risks to price stability prevail over the medium term". The economic fundamentals of the Eurozone is still described as "sound". However, Trichet also emphasized that the financial markets turmoil is still having "unusually high" uncertainty and may last longer than initially expected.

Data from Eurozone saw Q4 GDP confirmed at 0.4 % qoq, 2.2% yoy. Germany trade surplus widened to 16.4b in Feb, due to unexpected drop in imports by -0.4%. Industrial production unexpectedly rose 0.4% mom, 6.1% yoy in Feb.

BoE cut rates by 25bps to 5.00% as widely expected. In the accompanying statement, the committee members are clearly concerned that credit market situation is worsening and prospect for output growth abroad have deteriorated. While inflation would remain "above the target" of 2%, the committees judges that "the disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target." Focus turns to meeting minutes on Apr 23.

UK Halifax house price index which showed the sharpest decline in house prices since 1992. The decline in house prices accelerated to -2.5% mom in Mar, much worse than expectation of a modest -0.3% fall. Yoy rate was dropped steeply down from 4.2% to 1.1%.

Industrial production climbed 0.3% mom, 1.3% yoy in Feb, above expectation of 0.1% mom, 1.2% yoy. Manufacturing production climbed 0.4% mom, 1.9% yoy, above consensus of 0.1% mom, 1.5% yoy too. Trade deficit narrowed from a revised -7.92b to -7.49b in Feb

BoJ left rates unchanged at 0.5% as widely expected. In the monthly report, BoJ has somewhat downgraded the outlook assessment, noting that the economy is lowing on higher energy and rat material costs. Prior assessment was moderate economic expansion. Japanese lawmakers endorsed acting chief Masaaki Shirakawa as BoJ’s new governor, finally approving the government’s third nominee for the job. Japanese domestic CGPI accelerated sharply to a 27 year high of 3.8% yoy in Mar.

Swiss unemployment rate was unchanged at 2.6%.

Australia trade deficit unexpectedly widened to -3.3b in feb due to -4% plunge in exports. Australian business confidence falls to the lowest level since September 2001 at -4. New Zealand business confidence dived to 34 year low of -64. unemployment climbed from 4.0% to 4.1% in Mar. But the economy added more than expected 14.8k jobs.

Canadian building permits unexpectedly fell or the fourth consecutive month in Feb by -1.0%. Though housing starts remains robust and dropped only slightly to 254.7k. Trade surplus widened from revised 2.7b to 4.94b. New house price index rose 0.3% in Feb comparing to expectation of 0.4%.

Suggested Readings:

• This Week’s Market Outlook
• FX Briefing: EUR-USD Between Fear and Hope

G7

• Comments by G7 Policy-Makers Regarding Economic Growth Outlook
• G7 Takes Tougher Stand on Forex (Update)
• G7 Statement: Sharper Stance on Currencies
• G7 Communiqué Concedes Slowing Global Growth
• Statement of G7 Finance Ministers and Central Bank Governors - Full Text

ECB

• Bank of England Cuts as Expected; ECB Still Firm
• ECB Signals Interest Rates Won’t Change Anytime Soon
• ECB’s Trichet "Deplores" Volatility in Exchange Rates
• Trichet Keeps Hawkish On Upside Inflation Risks
• (ECB) Press Conference Introductory Statement 10 April 2008
• ECB’s Trichet Sees Strong Short-Term Inflation Pressures, Strong EU Money Growth

BoE

• Bank of England Cuts as Expected; ECB Still Firm
• BoE Cuts 25 Points, As Tight Credit Markets Outweigh Inflation Concerns
• Bank of England Cuts April Benchmark Rate by 25 Bps to 5.00%
• (BOE) Bank of England Reduces Bank Rate by 0.25 Percentage Points to 5.0%

Fed

• FOMC: More Doom and Gloom
• The Economy And Financial Markets Still Require The Fed’s Help
• Fed Judges Contraction in Growth ‘Likely’ And Risk of ‘Severe’ Downturn Possible

BoJ

• Japan: Unchanged Interest Rate but Softer View on the Economy
• BoJ Leaves Rates Unchanged

The Week Ahead

Initial focus will be on the reaction to the G7 statement after it stepped on the language on volatile exchange rates movements from "undesirable" to being "concerned". But after that, markets will likely focus back to economic data with another round of first tier economic data scheduled to be released across the atlantic.

From US, key economic data include retail sales, CPI & PPI, housing data including NAHB & new residential construction, Empire state and Philly Fed survey & industrial production, TIC capital flow. Fed’s beige book will be featured to. From Eurozone, HICP final, German ZEW will be major focus. From UK, focus is on PPI & CPI as well as employment report. From Japan, BoJ minutes, industrial production will be watched. Canadian CPI and Swiss retail sales & ZEW will be featured too.

Suggested Readings:

• Economic Calendar Summary 4/13 - 4/18
• Economic Outlook: Beige Book - Spotlight on the Economy
• US Dollar: Bearish Potential Looms as US Advance Retail Sales Could Disappoint
• The Weekly Bottom Line
• Weekly Focus: The Challenges are Many
• Australian/Canadian Dollar Long Term Bullish Breakout
• The FX Market- by Leaps and Bonds
• Musings on the U.S. Recession

GBP/USD Weekly Outlook

Cable’s choppy fall from 2.0391 continued last week, diving to 1.9650 first, then rebounding to 1.9842 before weakening again. Nevertheless, prior break of 1.9730 support suggest that fall from 2.0391 has resumed. With rebound from there being limited by 4 hours 55 EMA, such fall should still be in force. Initial bias is on the downside this week as low as 1.9768 minor resistance holds. Below 1.9650 will encourage further decline towards 1.9337 low. On the upside, while another rebound could still be seen, break of 2.0049 resistance is still needed to indicate fall from 2.0391 has completed. Otherwise, fall from 2.0391 is still expected to resume even in case of strong recovery.

In the bigger picture, down trend from 2.1161 have made a low at 1.9337. Subsequent corrective rebound from 1.9937 has likely completed with three waves up to 2.0391. However, the question is on whether such corrective rebound represents the whole correction to fall from 2.1161, or just part of it. In the latter case, choppy sideway trading will extend further in rather unpredictable manner. Nevertheless, with 61.8% retracement of 2.1161 to 1.9337 at 2.0464 remains intact, the fall from 2.1161 is still expected to extend further.

Meanwhile, on the downside, firm break of 1.9337 low is needed to confirm down trend from 2.1161 has resumed for next target of 1.8565/8619 cluster support (100% projection of 2.1161 to 1.9337 from 2.0391 at 1.8565, 61.8% retracement of 1.7407 to 2.1161 at 1.8619). On the upside, as discussed before, decisive break of 2.0464 fibo resistance will dampen this view and encourage a retest of 2.1161 high.

In the longer term picture, prior break of medium term rising channel at least indicate that rise from 1.8090 has already completed at 2.1161, so is the medium term up trend from 1.7047 probably. Hence, sustained break of 2.1161 is needed to confirm the whole up trend has resumed. Otherwise, another fall is still expected towards 61.8% retracement of 1.7047 to 2.1161 at 1.8619 after finishing the current rebound. Also, while cable is still staying above 55 months EMA (now at 1.8727) as well as the long term trend line support (now at 1.8929) there is no indication of the completion of up trend from 1.3680 (01 low) yet. However, bearish divergence in monthly MACD and RSI suggest that 2.1161 is at least a medium term top and more downside is in favor in medium term even if the long term up trend will resume eventually.

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