European Morning Update 29th January 2008
Asia spends a quiet morning session
Releases from Australia:
December Prior Current
Australia NAB Business Confidence + 6 + 5
Australia NAB Business Conditions +15 +17
Australian businesses are still operating within a buoyant market but their confidence is waning according to the NAB. The news does not surprise but for the moment the economy continues to grow strongly with a tight labor market and while moderation is expected the year should still return a strong growth figure.
Releases from Japan:
December Forecast Actual
Japan Unemployment Rate 3.9% 3.8%
Japan Job-to-Applicant Ratio 0.99 0.98
Japan Overall Household Spending (YoY) - 0.3% +2.2%
Japan Retail Sales (MoM) - 0.8% - 0.8%
Japan Retail Sales (YoY) +0.1% +0.2%
Japan Large Retailers’ Sales (YoY) - 2.0% - 1.5%
On the whole the numbers out from Japan today were slightly better than expected. Unemployment remained at 3.8% but there are fewer jobs than applicants. Household spending was unexpectedly firmer than anticipated but may be attributable to higher prices generated by energy prices than outright purchases.
However, much as been warned in these reports income is beginning to decline, falling by 2.7% including a 1.1% drop in bonuses causing disposable income to decline by 3.6%. This latter development is definitely a warning for the domestic economy and could well get worse if the export market continues to deteriorate.
The following economic releases are due today:
December
Swiss Trade Balance CHF 0.95bn
Swiss UBS Consumption Indicator
German IFO Business Climate Survey
U.S. Durable Goods Orders (MoM) +1.9%
U.S. Durable Goods Orders ex transport (MoM) +0.0%
January
French Consumer Confidence - 30.0
Italian Business Confidence 91.3
U.K. CBI Distributive Trade Reported Sales
U.S. Consumer Confidence 87.5
The Fed begins its two day Market Committee Meeting
Things appear to be getting more vague. It does encourage the view that we are in a consolidation which normally implies rather erratic movements. The biggest problem with these is the risk of getting whipped around.
First things first. While still tentative the signs are still that the next leg higher for the Dollar will be to begin due over the next 5-10 days. Thus whatever we go through now is merely base building for that rally. For the moment then, until there is some opposite signal to say I’m wrong it would be best not to get caught short of Dollars – and the fact that we’re closer to the low end of a Dollar range means we should be thinking more in terms of buying dips.
The way things went yesterday particularly against the Euro and Swissie the Dollar does seem to need one more low – around 1.4830 Euro and I think we could see 1.0806-11 Swissie. These areas should provide a base for the Dollar and indeed could prove to be the absolute low for the Swissie.
Dollar-Yen is getting more complex in the short term but it is really a similar story that the 104.95 low should be a significant low – though I have doubts it will get too far. Therefore the advice applies here too – that dips should be taken advantage of – the bigger issue being just where these will reach.
The Pound – now this one is really ambiguous. It has done enough to complete a correction though it is quite shallow. If the high we saw yesterday caps then we could be heading for a short term consolidation. I remain with the outlook I issued in December that we should be heading sub-1.9000 with a strong chance of seeing 1.85-1.87 over the coming 2 months.
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 107.88-30 1.4885-21 1.0988-15 1.9954-62
Res: 107.12-43 1.4796-32 1.0918-45 1.9890-00
Spt: 106.00-39 1.4728-55 1.0845-71 1.9793-22
Spt: 105.23-64 1.4659-80 1.0806-11 1.9677-27
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