European Morning Update 23rd April 2008
Dollar stable before the European PMI numbers
Releases from Australia:
Forecast Actual
Q1 CPI (QoQ) +1.1% +1.3%
Q1 CPI (YoY) +4.0% +4.2%
Q1 RBA Trimmed Mean (QoQ) +0.9% +1.2%
Q1 RBA Trimmed Mean (YoY) +3.8% +4.1%
Q1 RBA Weighted Median (QoQ) +0.9% +1.3%
Q1 RBA Weighted Median (YoY) +4.0% +4.4%
April DEWR Skilled Vacancies (MoM) -2.2% (prior) - 0.8%
April DEWR Skilled Vacancies (YoY) -6.8% (prior) - 3.9%
Not good news for Australia as inflation leapt much more strongly than expected in Q1 with the headline RBA measurements seeing a +4.1% YoY rise in the trimmed mean and a +4.4% rise in the weighted mean. This is well above the RBA’s 3% upper band.
Of course, no prizes in guessing that energy prices fueled the rise. Automotive fuel was up by a hefty 5.4% and even more in pharmaceuticals – a massive 13.1% gain.
The figures brought out the Treasurer Swan who commented that inflation was broad based across the economy and still looks to add to price pressures over the coming months. It boosted the Aussie Dollar to the next resistance point, and a 24 year high at 0.9515 as traders anticipate higher interest rates again.
Releases from Japan:
March Forecast Actual
Merchandise Trade Balance Total JPY 1405bn 1119bn
Adjusted Merchandise Trade Balance JPY 890bn 770bn
And the squeeze on Japanese exports continues… March saw the adjusted trade balance fail to reach forecasts returning a 770bn surplus. This is an annual decline of 30.2%. Of course, no prizes in guessing that energy prices fueled the rise in imports. Overall imports have risen by 11.1% YoY while export growth has dipped to +2.3% YoY as U.S. demand fell again for the 7th consecutive month.
The following economic releases are due today:
February
Italian Retail Sales (MoM) - 0.1%
Italian Retail Sales (YoY) +0.6%
Euro-zone Industrial New Orders (MoM) - 0.4%
Euro-zone Industrial New Orders (YoY) +5.7%
March
French Consumer Spending (MoM) - 0.3%
French Consumer Spending (MoM) +2.8%
April
French Manufacturing PMI (P) 51.6
French Services PMI (P) 56.8
German Manufacturing PMI (P) 54.8
German Services PMI (P) 51.5
Euro-zone Manufacturing PMI (P) 51.6
Euro-zone Services PMI (P) 51.4
Euro-zone Composite PMI (P) 51.5
The Bank of England minutes are due to be released
Euro 1.60 has finally been achieved and the divergence between this and the Swissie is quite clear. Still we haven’t seen the latter move back to even retest the 0.9870 corrective low. The same goes for Dollar-Yen where losses have been limited.
So we continue to watch the target I have outlined as being a potential top – at 1.6065 – to see if this can be the final high for the year. Technically just about all pieces fit – bottoming Dollar cycles, weekly, daily and now intra-day indicators are displaying Dollar bullish divergences. There is perhaps just a little lack of divergence in the 4-hour chart but otherwise perfect.
Now all that we need is a catalyst and this is where we need to be alert. Clearly there aren’t many who feel comfortable buying Dollars so it hardly seems to be a suitable time to buy Dollars and close your eyes. However, it wouldn’t do to totally ignore the technical signals either.
If there was any news overnight that really hasn’t been discounted then it was the fact that the fifth German bank was taken under the control of the Bundesbank yesterday suffering from lack of liquidity under the weight of its property loans. Add to that the U.K.’s second largest bank having to go cap in hand to its shareholders to ask for a massive GBP12bn to replenish its capital.
Tough times indeed. The biggest problem I see facing the global economy is the diversion of consumer budgets to pay for increased energy and food prices and leaving less for “real economy” products. That is something facing the entire world and not just the States.
As a caveat on the Dollar bottom which I have been pointing out should be coming, these technical conditions are ripe for a reversal. However, they always require confirmation. What can happen at these times is a break of supports which allows the underlying trend to resume – and normally quite aggressively. Thus while I remain more bullish than bearish, given the situation there are greater risks than normal to this type of outlook.
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 103.92-05 1.6110-56 1.0161-07 2.0047-69
Res: 103.27-59 1.6042-71 1.0065-82 1.9997-25
Spt: 102.32-66 1.5932-45 0.9966-96 1.9880-98
Spt: 101.50-77 1.5840-86 0.9846-70 1.9785-04
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