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Weekly Forex Market Commentary

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The US economic agenda will start on Tuesday with the release of the existing homes for March

Tue, Apr 22 2008, 06:55 GMT
by Cornelius Luca

GFT

Past Week's Data and Events

The dollar is trying to regain its footing amid (new) hopes the worst of the US financial disaster is over. That’s premature. The US currency is oversold and some significant retracement is likely. But buy it only on a confirmation.

United States
Bad earnings were ignored and the good ones loved (have you seen Google?) and there are budding hopes for the end of the financial nightmare. But the recession is under way, and the housing sector will be contacting longer. Meanwhile, jab the market with the bias on the upside.

Retail sales unexpectedly rose 0.2 percent in March from the upwardly revised decline of 0.3 percent in February. That was actually a bad number because excluding gas, the sales were unchanged.

PPI surged 1.1 percent in March a 0.3 percent increase in the prior month, as a result of crippling high fuel and food costs. The core PPI increased 0.2 percent.

Meanwhile, CPI rose 0.3 percent in March from a flat reading in February.Core prices rose 0.2 percent. Low inflation, huh? You gotta be joking!

Housing starts contracted 11.9 percent to an annual rate of 947,000 units in March, the slowest pace since March 1991. The February starts figure was revised upward to 1.075 million from the 1.065 million originally reported. Building permits fell 5.8 percent to an annual rate of 927,000, the slowest pace since April 1991, from the revised February rate of 984,000 units.

Industrial output unexpectedly rose 0.3 percent in March after a downwardly revised drop of 0.7 percent in February. Meanwhile, the capacity utilization rate edged up to 80.5 percent from 80.3 percent.

The New York Fed’s Empire index unexpectedly rose to 0.63 in April from March, when it contracted to a record 22.2.

Business inventories rose 0.6 percent in February from an upwardly revised January report of a +0.9 percent. But sales fell 1.1 percent, the biggest decline since January 2007.

Net overall capital flows rose to $64.1 billion in February from a revised $35.7 billion in January. Not bad, now it’s the time foreigners should load up on US assets.

The Federal Reserve Bank of Philadelphia's general economic index fell to -24.9 in April, the lowest since 2001, from -17.4 in March.

The Conference Board's index of leading economic indicators increased 0.1 percent in March, after falling 0.3 percent in February.

Initial applications for unemployment insurance increased by 17,000 to 372,000 in the week that ended April 12. The number of people seeking benefits rose to 2.98 million, the most since June 2004.

The Eurozone
The euro/dollar slipped from record highs, but the market failed to reach the 1.60 mark. It it fails, the pair will slide sharply. EU and ECB officials will need to lock horns, as the strong euro is obviously hurting the Eurozone economy.

The ZEW index of German investor and analyst expectations unexpectedly fell to minus 40.7 n April from minus 32 in March.

The German economy will expand less by 1.8 percent this year than was predicted six months ago (2.2 percent) because of the US subprime mortgage crisis, according to the leading economic institutes.

The Eurozone industrial production slowed to 0.3 percent in February from a downwardly revised 0.6 percent increase in January. On an annual basis, industrial production slowed to 3.1 percent from 3.3 percent in January.

France's business sentiment fell to 105 in March from 106 recorded in February.

The French consumer prices rose 3.5 percent in March from a rate of 3.2 percent in February on an annual basis.

European inflation rose to 3.6 percent in March, from 3.3 percent in February. The monthly inflation rate stood at 1 percentin March. Core inflation rose to 2 percenton an annual basis compared with 1.8 percentin February. From the prior month, the core consumer price index was up 1 percent.

Italian CPI rose 0.5 percent, at the same pace registered in the prior month. Annual inflation remained stable at 3.3 percent in March.

Italian total trade deficit narrowed to 408 million euro in February from 1.86 billion euro registered in the previous year.

Meanwhile, the Eurozone trade balance showed a surplus of 0.8 billion euros in February after a trade deficit of 11 billion euros in January.

Elsewhere, the Eurozone construction output slowed to 1.2 percent in February from 2.5 percent in January. On an annual basis, production rose 4.3 percent from a revised +3 percent in the prior month.

Japan
Dollar/yen rallied to a 1 ½-month high and still has upside risk while Japanese portfolio managers take advantage to buy on dips.Risk aversion will be the key through.

On the economic side, industrial production rose 1.6 percent in February, reversing an earlier estimate that showed output declined 1.2 percent. January output fell 0.5 percent, less than the 2.2 percent initially reported.

The UK
The sterling/dollar sank early last week amid ongoing weakness in the housing area, somewhat similar to that in the US. With the BoE minutes from April meeting reinforcing expectations for another rate cut, the pressure should continue, but at a reduced pace.

But the pound then made a dramatic recovery and may see some more strength early this week.

Producer prices rose 0.9 percent in March and 6.2 percent on a yearly basis from 5.9 percent in February.

The Royal Institution of Chartered Surveyors reported that the number of chartered surveyors reporting house price declines in March hit its highest level since the survey began in 1978.

Along the same lines, house price inflation slowed to 6.7 percent in February on an annual basis from 8 percent in January, according to the Department of Communities and Local Government (DCLG).

Unemployment fell 1,200 in March.The claimant count rate was unchanged at 2.5 percent in March. The unemployment rate as measured by International Labor Organization standards fell to 5.2 percent in the quarter through February from 5.3 percent.

Britain had a 10.2 billion-pound budget deficit in March, the largest for the month since records began in 1993, and widened from 7.1 billion pounds a year earlier

Canada
Dollar/Canada closed lower last week but remained in a trading range. More information is needed.

The CPI rose 0.4 percent in March, matching the increase reported for February. On a yearly basis, the CPI slowed to 1.4 percent in March from +1.8 percent the month before, and the core CPI by 1.3 percent from 1.5 percent in February. This leaves intact expectations that the Bank of Canada will cut rates by 50 basis points to 3.0 percent next week to alleviate the Canadian economy’s exposure to the recessionary US economy.

Canadian factory shipments rose 1.6 percent in February, twice the expectations.

Switzerland
Dollar/Swiss franc rallied to a five-week high but more information is needed for the low-yielding currency.

Swiss retail sales recorded an annual growth of 7.6 percent in real terms in February.

Australia
The Aussie/dollar struggled higher for the fourth consecutive week amid rising appetite for risk. But it held below its uptrend highs.

This Week's Data and Events

United States
The US economic agenda will start on Tuesday with the release of the existing homes for March.

Thursday will follow with the release of the new home sales-units report for March and of the durable goods orders report for April.

Friday will see the release of the University of Michigan report for April.

The Eurozone
The Eurozone economic calendar will start on Wednesday with the release of the regional manufacturing and services PMI reports for April, the Italian Consumer Confidence Report for April and the French Business Survey Report for April.

Thursday will see the release of Germany’s IFO Survey Report for April.

The less significant Italian Business Confidence Report for April is due on Thursday as well.

Germany’s GfK Consumer Confidence report for May is due on Friday.

Japan
The Japanese calendar will start on Monday with the release of the Tertiary Industry Activity report for February – not a market mover.

The Trade Balance report for March is due on Wednesday.

On Thursday, be on the lookout for the release of the All Industry Activity report for February.

Friday will see the release of the National CPI report for March and of the Tokyo CPI report for April.

The UK
The UK economic calendar will start on Monday with the release of the Nationwide House Prices report for April.

The report for retail sales for March is due on Thursday.

Friday will see the final reading of the UK GDP for the fourth quarter and of the Index of services report for February.

Canada
On Tuesday, the Bank of Canada will meet, and will probably cut interest rates (see above).

The retail sales report for February is due on Wednesday.

Overview

Euro/dollar
Last week's range: 1.5672 – 1.5985 (Up)
Previous range: 1.5628 – 1.5914 (Mixed)

The overbought euro/dollar made a new, if marginal, record high, and my model remains short. Again, bee careful, as this overbought pair should encounter more choppy trading. Its initial bias remains down.

Immediate support is still at 1.5740. Below 1.5625, euro/dollar has support at 1.5540. This is followed by 1.5340. Distant support comes at 1.5150.

Initial resistance is at 1.5853. The next level is 1.5955. Above it, resistance remains at 1.5985. Distant resistance is seen at 1.6040.

NEAR-TERM:Mixed
MEDIUM-TERM:Bullish
LONG-TERM: Bullish

Dollar/yen
Last week's range: 100.31 – 104.64 (Up)
Previous range: 100.03 – 102.84 (Mixed)

Dollar/yen surged to the highest level since the end of February and my system went long. The risk is now on the upside.

Immediate resistance is at 104.64. The next levels are at 105.20 and 105.50. Distant resistance is at 107.45.

Initial support is at 103.40 from a 50-point pivot, which targets 102.90 and 103.90. The next level is at 102.30 from another 50-point pivot, which targets 101.80 and 102.80.

NEAR-TERM: Slightly bullish
MEDIUM-TERM: Slightly bullish
LONG-TERM: Bearish

Sterling/dollar
Last week's range: 1.9597 – 1.9998 (Up)
Previous range: 1.9651 – 1.9954 (Down)

Sterling/dollar rallied big on Thursday and closed above the resistance from its declining trendline. My model went long and for as long as 1.9853 holds, the upside is in good shape. But the initial move should be down.

Initial resistance now comes at 2.0000. There is a pivot high at 2.0046. This is followed by 2.0190. Distant resistance looms at 2.0275.

Immediate support is seen at 1.9920. This is followed by 1.9860. Below 1.9790, distant support is 1.9695.

NEAR-TERM:Slightly bullish
MEDIUM-TERM:Bearish
LONG-TERM:Mixed

Dollar/Swiss franc
Last week's range: 0.9927 – 1.0283 (Up)
Previous range: 0.9889 – 1.0172 (Mixed)

Dollar/Swiss rallied to its highest level since March 12 and my model went long. Choppy trading with upside bias is expected again.

Initial resistance now comes at 1.0250. This is followed by 1.0283. The next level is 1.0375. Distant resistance now comes at 1.0450.

Immediate support is now seen at 1.0090. This is followed by 0.9965 and .9875. Support is then pegged at 0.9790. Distant support is at 0.9642.

NEAR-TERM: Mixed with upside bias
MEDIUM-TERM:Mixed
LONG-TERM: Bearish

Dollar/Canada
Last week's range: 0.9989 – 1.0275 (Down)
Previous range: 1.0039 – 1.0249 (Up)

Dollar/Canada closed lower last week but remained in a trading range. Expect more consolidation.

Initial support now comes at 0.9990. The next level is 0.9945. Below 0.9865, distant support is pegged at 0.9745.

Immediate resistance is now seen at 1.0090. Above 1.0170, strong resistance is at 1.0250. Distant resistance is at 1.0325.

NEAR-TERM: Mixed
MEDIUM-TERM: Bullish
LONG-TERM: Bearish

Euro/yen
Last week's range: 158.26 – 164.66 (Up)
Previous range: 158.81 – 161.70 (Mixed)

Euro/yen surged every day of last week, prompting my system to go long. Remain cautiously long.

Resistance is at 164.66. Above 166.66, resistance is at 167.72. The euro/yen has distant resistance at 168.95.

Immediate support is at 163.23. This is followed by 162.50. The next level is at 161.10. Distant support is at 158.25.

NEAR-TERM: Bullish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Euro/sterling
Last week's range: 0.7876 – 0.8099 (Down)
Previous range: 0.7867 – 0.8037 (Up)

Euro/sterling fell from a new multi-year high and my model went short. Only a break below 0.7875 gives scope to a sustained pullback.

The next level is at 0.7823. Below 0.7785, distant support remains at 0.7605.

Immediate resistance is now seen at 0.7970. Above 0.8025, the next levels are 0.8080 and 0.8155. Distant resistance is then seen at 0.8270.

NEAR-TERM: Mixed
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Published on  Tue, Apr 22 2008, 07:01 GMT