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The U.K. economy grew at its slowest pace in three years at 2.5%. The quarterly measurement fell to 0.4% from 0.6% compared to the last three months of 2007. A housing slump and tight credit markets have stifled growth and continue to weigh on the economy. Services, which have remained resilient, only grew 0.6%- the lowest since Q1 2005. Tighter lending standards from banks have seen mortgage approvals fall to the lowest levels in a decade. This has led to falling house prices, which have started to weigh on consumer confidence, as Britons are left with less wealth and high mortgage payments. As a result consumers have tightened their purse strings resulting in retail sales falling for the first time in three months. The BoE expressed concern at their last policy meeting that the downside risks to consumption would continue. In an attempt to spur lending from banks and propel demand for houses, the central bank recently infused £50 billion in liquidity into the markets. Although inflation remains a concern for the MPC, they may have to reduce their benchmark lending rate to fuel future growth.

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Today’s Comment

Majors & Scandies

Sentiment in the financial markets has shifted and investors are starting to speculate that Fed rate cuts are coming to an end. In addition the EUR came under immense pressure yesterday as the German IFO index fell short of expectations. Thus EURUSD dropped markedly and stop loss on our buying recommendation was triggered. Risk on the currency cross rate in the near term remains on the downside but support is likely to be found around 155.00. We have chosen to adopt a neutral stance for the time being

On Thursday afternoon the weekly unemployment data from the US were released. The numbers turned out better than expected and caused the CHF in particular to weaken dramatically. EURCHF may move a bit higher and at this point we cannot reject that we will revisit the 163.45 region. Technically however evidence is building against EURCHF. Thus we find that going long at this point is too risky and have chosen to adopt a neutral stance today.

The JPY was supported as data showed that inflation accelerated o the fastest pace in ten years thus fuelling speculation that the BoJ will have to raise rates to curb the inflationary pressure. As we believe that the EUR will remain under pressure in the short term we have chosen to recommend selling EURJPY at this point targeting 161.60.

The SEK has strengthened quite a bit in the course of the past week but this week the central bank reiterated that rates are expected to remain on hold for a long time. Furthermore technical analysis suggests that EURSEK is bound for a correction higher. Thus we have chosen to recommend buying the currency cross rate

Emerging Markets

Yesterday was another good day for highyielding currencies as the positive global mood continues to shrink the risk-premia on highyielders with large current account deficits. Both the ZAR and the TRY thus ended the day up against the EUR, the latter giving our short EUR/TRY recommendation a good start. The ISK was unable to follow the other currencies higher - but this was due to an Icelandic holiday (celebrating the coming of Summer) rather than anything more sinister. The EM calendar offers a few releases in LatAm but nothing spectacular - and as the US calendar is also thin, we see no reason why the positive mood should be derailed today. With the AKP court case seeming to have disappeared from the headlines for now and with the Icelandic banks’ CDS spreads continuing to drop, we thus stick to our sold positions in EUR/TRY and EUR/ISK - but adjust both the target and stop lower on the former. And today, we are pretty certain that the Icelandic markets will be open!

Today’s key events

• N/A ECB’s Weber speaks (EUR)
• N/A ECB’s Gonzalez-Paramo speaks
• 09:30 Trade Balance (SEK)
• 10:00 Euro Zone M3 (EUR)
• 10:30 GDP, preliminary (GBP)
• 16:00 Michigan Consumer Confidence (USD)

Jyske Core Positions - Recommendations

Jyske Markets - FX Research
http://www.jyskebank.dk/finansnyt

The analysis is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor for transactions made on the basis of the information or the estimates of the analysis. The estimates and recommendation of the analysis may be changed without notice. The analysis is for personal use of Jyske Bank’s customers and may not be copied.

Aside from the broad advance of the US dollar across the majors, the other FX theme was a rebound in risk appetite. This proved an unfavorable wind for the Japanese yen, which would fall over 100 points against the US dollar through Thursday’s session.

However, the gravity of risk trends were relatively mild in comparison to past weeks, though fundamental over the coming week could quickly change that fact. Growth numbers from the UK and US and a FOMC rate decision could rouse caution; but for the yen, tonight’s CPI numbers will be front line event risk. The National numbers are expected to step up to a new decade high. Will this alter weak BoJ rate expectations?

Is it a thin line between a recession and a slowdown? Today’s data added more confusion to the tantrum as we see the dollar dancing against majors in the beginning but losing its groove after the shameful housing data…

The Commerce Department released its durable goods order for March coming in with a drop of 0.3% which is worse than the projected reading of 0.1% but much better than the prior revised reading of -0.9% from -1.7.

As for its durable goods excluding transportation for March it came in showing a gain of 1.5% which is much better than the projected reading of 0.5% and the prior revised reading of -2.1% from -2.6%

Soft demand is evident as durable goods fall for the third consecutive month due to a strike in the auto industry. Inventories of durable goods built up this month as they leaped 1.1% applying more pressure that there could be a possibility of future job lay offs and decreasing production output.

During a recession, the manufacturing sector is usually hit hard as the domestic environment is deteriorating. But in this case, strong demand from foreigners helped support manufacturing keeping it stronger than thought. Shipments declined only 0.4% in March from a large dip of 2.6% in February.

The strike at American Axle hit the durables bad as the decline in the reading this month was led by the sinking of orders for motor vehicles as it sunk 4.6%. Orders for defense capital goods also witnessed a sharp downturn of 19.8%. Excluding the defense goods, durables would have inclined 0.3%.

The support to upside was seen from orders of civilian aircraft as they rose 5.5% and orders of machinery as they impressively gained 6.2% from a previous fall of 12.6% in February. Fabricated metals also rose 1.7% this month.

In a different report, the U.S. released its initial jobless claims for the week ending April 19 showing that 342,000 filed for first time aids as it dropped to hit a two month low after last weeks reading was revised to 375K from 372K. Expectations were also for 375K but the actual was much more impressive than projected.

This was all it needed ladies and gentlemen! The trigger to somewhat restore confidence in the markets. A rebound in the labor market might actually show that the U.S. is climbing out of a recession and only facing a slowdown. Again, mix up remains as the four week average of continuing claims rose 20,500 to 2.96 million marking the highest level since May 2004. This is a sign that previously laid off workers are finding difficulty to find new jobs.

The dollar stood firm against majors after the release of the report as the Euro slipped to 1.5700s and the Sterling fell to 1.9700s. Crude which was at a record high near the $120 per barrel level a couple of days ago has now fallen below $117 per barrel level.

But this was all before the release of the New Home sales as the reading plunged to 526 thousand in March from a previous reading of 590K. Expectations were for only a slight slip to 584,000 but the reading was abysmal!

The slash in prices wasn’t enough to pull sales up as it sunk 8.5% to a 17 year low this Month while over the past year, sales fell 36.6%. The report still showed dreadfulness in the economy with the only good point being the dropping inventories of unsold homes as it fell for the twelfth straight month. The supply in the markets rose to 11 months marking the highest in 27 years.

Sales in all four regions declined; dropping 19.4% in the Northeast to a 27 year low, 12.5% in the Midwest to also a 27 year low, 12.9% hitting a 17 year low in the West and slipping 4.6% marking a 12 year low in the South.

Markets slightly reversed at the release of the housing sales as the dollar depreciated a bit. The argument of whether the U.S. is in a slowdown or a recession is still in the air with no specific direction to go. It is not know where investors will lean towards now because the markets remain moving in both directions.

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

Was 1.6018 THE top that we were looking for.  The intraday pattern suggests so.  Resistance should be strong in the 1.5800 area and the EURUSD should remain below 1.5870.  The bearish objective is not until below 1.5342.

Finally, a top appear to be in place.  Remember, we had treated the advance from 1.5342 as an ending diagonal and suggested yesterday that the top may be in at 1.6018.  Today’s decline obviously reinforces that view.  We’ll focus on the very short term pattern this morning for timing purposes. With respect to the count shown above, 1.5870 is a 3rd wave that will extend lower, and probably quickly.  Expect a rally to end in the 1.5775/1.5815 as wave ii of 3.  One can argue that wave 2 is inordinately small, but this is a MAJOR turn and markets typically do not allow many people in at major turns.  In other words, many will wait for a larger correction that never happens.  Resistance is strong in the 1.5775/1.5815 zone.

STRATEGY:  Look to get short in the 1.5775/1.5815 zone, against 1.5905, target below 1.5342  

Visit our recently updated Euro Currency Room for specific resources geared towards this currency.

There is no change to the USDJPY count.  We expect the decline to accelerate soon.  “The best count for the USDJPY from 95.72 is a double zigzag (a-b-c-X-a-b-c).  With the second zigzag close to equal with the first zigzag, a bearish bias is warranted against 104.64.  Those with a longer term horizon can keep risk above 107.20.  The rally from 95.72 is a 4th wave within the 5 wave drop from 114.65 and the objective is below 95.72.” 

Visit our recently updated Yen Currency Room for specific resources geared towards this currency.

STRATEGY: Bearish, against 104.64, target below 95.72

We are treating the drop from 2.0396 as a leading diagonal (wave 1 of C within the A-B-C decline from 2.1160).  Under this interpretation, the GBPUSD rally from 1.9599 is wave 2 within the 5 wave drop (wave C) from 2.0396.  We wrote yesterday that “with the rally to 2.0025 in 3 waves and with waves i and ii of the next leg down possibly complete at 1.9997, a bearish bias is warranted against that level.”  Cable has dropped, tested 1.97 this morning, so the bearish bias is correct to this point. Coming below 1.9599 would bolster this outlook.  Near term resistance is at 1.9820. 

Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.

STRATEGY: Bearish, against 1.9997, target below 1.9337

We stood down from the bearish bias yesterday due to the lack of clarity that the drop from 1.0283 provided.  This proved wise given the 250 pip rally from Tuesday’s low (to this point).  Still, the structure of the rally from .9871 is unclear.  The advance is most likely a C wave that could test 1.0473 (where C = A).       

We remain aggressive USDCAD bulls as advances since the .9055 low are in 5 waves and declines are in 3 waves.  Near term, price should remain above .9998 and we will not even think about an objective until the pair has exceeded 1.0324.

Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency

STRATEGY: Bullish, against .9987, target above 1.0324

The rally from .7673 is the final leg of the diagonal.  Each leg of a diagonal unfolds in 3 waves (A-B-C).  Wave C of this final leg is from .8512.  Objectives for the end of the rally are at .9936 and 1.0238.  As long as price is above .9270, another leg higher is likely.  Strong support is at .9435 (near current price) and .9389.  If we get 5 waves down from .9541, then we’ll get bearish against that level. 

The intraday patterns remain a mess so we are sticking with the bigger picture.  An a-b-c (corrective) advance may be complete at .8033.  Our longer term bias is that a large wave B of an expanded flat is complete at.8215 and that the NZDUSD is headed lower in a C wave that will eventually drop below .5927.  The combination warrants a bearish bias.  Risk can be moved to .8033

STRATEGY: Bearish, against .8033, target below .7781 

Tell us what you think about this report: contact the strategist about the article at jsaettele@dailyfx.com

[1] STRATEGY is a summary of our best technical ideas.  The ideas are subjective and are subject to change everyday although trades are typically held for at least a few days and sometimes a few weeks or more.  Ideas are also included for crosses throughout the week; these are published at separate articles at DailyFX.