japanese yen

Asian Equities Mixed, Australian Business Investments Plunge Lower in First Quarter

Asia Session Key Developments

· Japanese retail trade improves in April

· Australian business investments falter in first quarter

Asian Equities Mixed, Australian Business Investments Plunge Lower in First Quarter

Price action in the Asian equities market was mixed on Thursday, with the Nikkei tipping higher following the drop in the Japanese yen. The USD/JPY surged higher to trade above 96.00 on speculation Japanese investors were increasing their purchases of foreign assets, while a report by the government showed domestic demands rose more than expected in May. Meanwhile, business spending in Australia plunged 8.9% in the first quarter after rising 7.3% in the three-months through December, and fears of a deepening downturn weighed on the markets as RBA Deputy Governor Battellino continued to hold a dour outlook for global growth.

NKY 225 9438.77

The Japanese benchmark equity index added 12.62 points (0.13%) to close at 9451.39 in Tokyo, led by a 1.19% gain in technology. The advance was following by basic materials, which gains 1.00% during the session, while telecommunications led the decline in the market as the sector slumped 1.58%. Sanyo Electronic Co, the world’s largest maker of rechargeable batteries, jumped 5.2% after the government announced it will try to raise its dependence on rechargeable cells, while Toyota Motor Corp, the world’s largest automaker, advanced 2.7% following the drop in the Japanese yen. At the same time, Japan Tobacco Inc tumbled 6.9% on policymakers look to increase taxes on cigarettes, while Sumitomo Metal Mining Co, the largest gold producer in the region, advanced 6.1% on speculation investors will increase holdings of the precious metal in order to hedge against inflation.

HSI 17885.27

The Hong Kong equities market was closed for the Tuen Ng Festival (Dragon Boat Festival)

ASX 200 3755.70

The ASX fell 45.40 points (1.19%) to end the trading session at 3,755.70, with 9 of the 10 components falling lower. Health care dropped 2.97% to lead the decline, and was followed by a 2.42% drop in industrials, while oil & gas gained 0.04% after Carnarvon Petroleum Ltd discovered a new oil reserve in Thailand. Meanwhile, share of BHP Billiton and Rio Tinto dropped 1.8% and 0.6%, respectively, following the drop in commodity prices, while Australian and New Zealand Banking Group lost 1.2% after the firm sold shares at discount.

Notable Asian Session Event Risk / Economic Releases

japanese yen

US Dollar Plummets as US Assets Lose ‘Safe Haven’ Luster, Japanese Yen Mixed Ahead of BOJ Announcement

- Euro, British Pound Rally Continues Despite UK Outlook Downgrade by S&P
- Canadian Dollar Could Break Recent Highs vs. US Dollar on Canadian Retail Sales Report

US Dollar Plummets as US Assets Lose “Safe Haven” Luster, Japanese Yen Mixed Ahead of BOJ Announcement
The combination of the plunge in the US dollar and Treasuries, vast drops in FX carry trades, the equity markets, and oil, along with a jump in the CBOE’s VIX volatility index tells us one thing: the greenback and US assets in general may be losing their luster as “safe haven” assets. Following S&P’s downgrade of the UK’s economic outlook from “stable” to “negative” due to “deteriorating public finances,” there has been increased discussion of the same thing happening to the US as national debt levels soar in light of the government’s efforts to bail out Main Street and Wall Street. However, the Japanese yen did, to a certain degree, maintain its link with risk trends.

Meanwhile, the release of the US Labor Department’s jobless claims report reflects very little change in the employment outlook, as initial claims fell by 12,000 during the week ending May 16 to 631,000 while continuing claims jumped by 75,000 during the week ending May 16 to another record high of 6,662,000. Indeed, these moves suggest that while the pace of job losses, as reflected by non-farm payrolls (NFPs, will slow further, the unemployment rate is likely to continue climbing higher. This was something projected by the Federal Reserve during their April policy meeting, as the FOMC meeting minutes showed that the range of forecasts shifted from 8.0 percent – 9.2 percent up to 9.1 percent – 10 percent.

In more positive news, the Conference Board’s leading economic index jumped 1.0 percent in April, the first increase since June 2008 and the biggest increase since November 2005. The improvement was led by components such as average workweek, jobless claims, consumer goods orders, stock prices, interest rate spread, and consumer expectations. Also, the Philadelphia Fed’s manufacturing activity index rose to -22.6 in May from -24.4, signaling a slower contraction.

Looking ahead to Friday, there will be very little in the way of US event risk ahead of Monday’s US Memorial Day holiday and market closure. That said, RSI on the daily charts of the DXY index has fallen into oversold territory, and when this happened in December 2008 and March 2009, we subsequently saw price bounce higher. As a result, there is potential for the greenback to stage a recovery versus the majors in the near-term, though it could ultimately be short-lived. For the Japanese yen, traders will see the release of the Bank of Japan’s rate decision, and they are widely anticipated to stay neutral at 0.10 percent. The thing to watch will be the BOJ’s economic outlook, as indications that the recession is nearing an end could offer a boost to FX carry trades overnight.

Euro, British Pound Rally Continues Despite UK Outlook Downgrade by S&P
The British pound fell sharply this morning versus most of the majors, pushed GBP/USD down roughly 250 points toward 1.5550 and EUR/GBP up over 150 points toward 0.8850 on news that S&P lowered its outlook on UK debt to “negative” from “stable,” but ultimately affirmed their long-term credit rating at AAA. Negative news for the currency also came from the UK’s Office for National Statistics, which said that business investment contracted for the third straight quarter in Q1 at a rate of -5.5 percent, marking the steepest drop since Q1 2004 when investment plunged 21.38 percent. A breakdown of the report shows that manufacturers and non-manufacturers alike cut back on their investments, though construction firm reductions were less than in recent quarters at -9.0 percent. Ultimately, a lack of investment indicates a lack of confidence in future demand and the potential for further job cuts down the line. Positive news came in the way of a 0.9 percent rise in UK retail sales for the month of April, the second straight increase.

By the time the US trading session got going, though, a steady and steep plunge in the US dollar across the majors propelled both GBP/USD and EUR/USD above Wednesday’s highs while EUR/GBP eased back down toward 0.8750. Now, daily charts of GBP/USD show that RSI is in overbought territory while EUR/USD is nearing that point, suggesting we could see reversals in the near-term, though another spike higher may not be out of the question.

Looking ahead to Friday, UK GDP for Q1 is projected to go unrevised at a nearly 30-year low of -1.9 percent, while the annualized rate should hold at a 28-year low of -4.1 percent. If these figures are downgraded in any way, the British pound’s rally could easily be cut short, while readings in line with forecasts should have too much of an impact on price action. According to the Bank of England’s median growth projections published in the latest Quarterly Inflation Report, GDP may be posted at -4.72 percent in Q2, -4.54 percent in Q3, and -3.20 percent in Q4. These forecasts are based on interest rates staying on 0.50 percent and a continuation of the BOE’s 125 billion pound quantitative easing (QE) program, but if the growth outlook starts to deteriorate further, there’s no stopping the BOE from considering expanding their QE program further.

Canadian Dollar Could Break Recent Highs vs. US Dollar on Canadian Retail Sales Report
USD/CAD continued its consolidation above 1.1350 on Thursday, and on Friday morning the release of Canadian retail sales could offer a boost to the Loonie as spending is anticipated to have risen for the third straight month in March at a rate of 0.5 percent. Indeed, Canadian data has generally been better-than-expected latest, as the Canadian economy surprisingly added on employees during April and Ivey PMI rose above 50 – signaling an expansion in business activity – for the first time since October 2008. If the indicator rises in line with or more than expectations, the Canadian dollar could rally, but if retail sales actually fall, the currency could tumble.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com

japanese yen

US Dollar Plummets as FOMC Meeting Minutes Show Potential for Expanded QE, Downgraded Growth Forecasts

- Japanese Yen Gains as 15.2% Contraction in Q1 GDP Proves To Be Better Than Expected
- Euro, British Pound Rocket Through Key Resistance Levels, BOE Minutes Reveal Few Surprises
- Canadian Dollar Breaks to 7-Month Highs vs. the US Dollar Despite Drop in Canadian CPI to 14-Year Low

US Dollar Plummets as FOMC Meeting Minutes Show Potential for Expanded QE, Downgraded Growth Forecasts
The US dollar took a heavy hit on Wednesday, falling close to 2 percent against the British pound and tumbling over 1 percent versus the Canadian dollar, Japanese yen, and euro, suggesting that the currency has lost its link with risk trends. Indeed, US equities spent part of the day in positive territory but the S&P 500 subsequently ended the NY trading session down 0.5 percent.

Looking to the big US event risk for the day, the release of the minutes from the Federal Open Market Committee’s (FOMC) April meeting shed a bit more light on their policy bias. After the Federal Reserve’s last meeting, the markets saw no surprises as they left the fed funds target range at 0.0 percent – 0.25 percent and said that “conditions are likely to warrant exceptionally low levels…for an extended period.” Furthermore, the FOMC reiterated measures first announced in March, when they said they would still purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, as well as $300 billion of Treasury securities by autumn.

However, according to the minutes, some members noted that a further increase in the total amount of asset purchases may be needed later on in order “to spur a more rapid pace of recovery,” though all members wanted to wait and see how economic and financial market conditions progress. Meanwhile, the FOMC’s quarterly economic forecasts were revised, as the Committee now expects that a deeper recession in 2009, a slower rebound in 2010, a greater rise in unemployment, and a slight increase in prices.

Japanese Yen Gains as 15.2% Contraction in Q1 GDP Proves To Be Better Than Expected
An interesting thing happened in the FX markets on Tuesday night: the Japanese yen gained following better-than-expected Japanese economic data. Though Japan’s economy shrank by a record 15.2 percent in Q1 from a year earlier, the decline was not as severe as projected since Bloomberg News was calling for a 16.1 percent contraction. The drop was led by falling private demand, as consumption declined further and businesses cut back on investment. Furthermore, exports plunged by a record as the Japanese yen held strong and the economies of Japan’s biggest trade partners slowed or fell deeper into recession. All told, there’s little in the way of positive news reflected in this report, but in the FX markets, everything is relative. The bigger factor here was that the Japanese yen didn’t necessarily respond to risk trends, and as a result, leaves Japanese fundamental reports as a key thing to watch going forward.

Euro, British Pound Rocket Through Key Resistance Levels, BOE Minutes Reveal Few Surprises
The euro and British pound rocketed higher on Wednesday, as EUR/USD broke above the March and May highs of 1.3723/40 while GBP/USD pushed above a rising channel formation that had contained price since April to six-month highs near 1.5800. Meanwhile, EUR/GBP fell below its short-lived range of 0.8800-0.9025, though the next levels of support loom close by at 0.8726 (the 2/24 low) and 0.8662 (the 200 SMA). Looking at event risk from the Euro-zone and UK, it was clear that none of them had much of an impact on the FX markets. German producer prices plunged 1.4 percent in April, pushing the annual rate down to -2.7 percent, suggesting that if there are any inflation risks for the Euro-zone, they are more heavily weighted to the downside.

From the UK, the minutes from the Bank of England’s May 7 meeting weren’t as market-moving as they’ve been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC).  We already knew that the BOE decided to expand their quantitative easing (QE) program by 50 billion pounds to 125 billion pounds (which happened to be by a unanimous vote), that the drop in Q1 GDP of -1.9 percent was worse than expected, and that CPI will likely will be below the BOE’s 2 percent inflation target in the medium term. While the minutes did reveal that some members thought that “a case could be made for a larger stimulus,” the high uncertainty of QE led them to believe that there was “no pressing need for the larger extension” at that point.

Canadian Dollar Breaks to 7-Month Highs vs. the US Dollar Despite Drop in Canadian CPI to 14-Year Low
The Canadian dollar surged against the greenback, pushing USD/CAD below key support at 1.1500, despite the fact that headline Canadian inflation fell to a more than 14-year low. On a monthly basis, CPI surprisingly fell 0.1 percent in April while the annual rate dropped to 0.4 percent, the lowest since December 1994. However, the decline was due primarily to weaker energy prices as core CPI – which excludes volatile items – rose 0.1 percent, leaving the annual rate at 1.8 percent, down from 2.0 percent.

According to the Bank of Canada’s last Monetary Policy Report in April, the Bank is open to quantitative easing (QE) and credit easing if nominal interest rates start to fall below zero. The Bank stated that while they could cut rates to zero in theory, it would ultimately “eliminate the incentive for lenders and borrowers to transact in markets, especially in the repo market.” As a result, inflation reports will be key to gauging whether the Bank of Canada will go the route of QE in the future, but with core levels of inflation holding at fairly robust levels, the risks remain pretty low.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com

japanese yen

US Dollar Down as US Housing Starts, Building Permits Plunge to Record Lows

- Japanese Yen Down as FX Carry Trades Gain – Watch for Japanese GDP Overnight
- Euro, British Pound Pause Below Key Resistance – GBP/USD Faces BOE Meeting Minutes on Wednesday
- Canadian Dollar Gains Ahead of Upcoming Canadian CPI Report

US Dollar Down as US Housing Starts, Building Permits Plunge to Record Lows
The US dollar was the biggest loser on Tuesday as US housing data proved to be very disappointing. The Commerce Department reported that housing starts plunged by 12.8 percent during the month of April, and a whopping 54.2 percent from a year earlier, to a record low annual pace of 458,000. Likewise, new building permits slumped 3.3 percent in April, and 50.2 percent from a year earlier, to 494,000.

The main event risk for the US dollar on Wednesday will be the release of the minutes from the Federal Reserve’s last meeting on April 29. Following that meeting, the markets saw no surprises from the Federal Open Market Committee (FOMC), as they left the fed funds target range at 0.0 percent – 0.25 percent and said that “conditions are likely to warrant exceptionally low levels…for an extended period.” Furthermore, the FOMC reiterated measures first announced in March, when they said they would still purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, as well as $300 billion of Treasury securities by autumn. However, there were tinges of optimism within the policy statement as the FOMC qualified their initial, repeated remark that data indicates that the economic contraction has continued by adding that “the pace of contraction appears to be somewhat slower.”

Since this information has already been revealed, the release of the minutes may not be very market-moving. The one thing that may capture the market’s attention, though, is the FOMC’s long-run projections for growth, unemployment, and inflation as revisions that indicate that the outlook appears to be even worse than previously anticipated could hurt risk appetite throughout the financial markets, and thus lift safe-haven currencies like the US dollar. However, if the revisions improve, FX carry trades could surge and punish the greenback.

Japanese Yen Down as FX Carry Trades Gain – Watch for Japanese GDP Overnight
The Japanese yen fell against most of the majors on a day that FX carry trades continued to make headway. The status of the correlation between the JPY crosses and equities could be tested tonight, though, when Japan’s Cabinet Office will release preliminary growth readings. After three consecutive quarters of contraction, the outlook doesn’t look good. There are signs that businesses are suffering considerably at the hands of waning domestic and foreign demand. Consumers have very little to work with these days, as the jobless rate has slowly climbed to a nearly five-year high, and perhaps even worse, cash earnings growth contracted by 3.7 percent in March from a year earlier, the sharpest drop since 2002. Meanwhile, Japanese exporters have had to grapple with not only slowing global growth, but also the appreciation of the Japanese yen, all of which has led foreign-bound shipments to tumble a whopping 46.5 percent in March from a year ago, according to figures published by the Ministry of Finance. As a result, a Bloomberg News poll of economists shows expectations for GDP to fall 4.3 percent in Q1, with the annualized rate forecasted to plummet by a record 16.1 percent.

Euro, British Pound Pause Below Key Resistance – GBP/USD Faces BOE Meeting Minutes on Wednesday
The euro and British pound both gained against the US dollar, but EUR/USD was ultimately unable to break above the May 14 high of 1.3667 and GBP/USD backed down from the upper end of a channel formation at 1.5525 that has contained price since late April. There were a variety of reports from both the Euro-zone and the UK, though none proved to be highly market-moving. German investor sentiment continued to reflect divergent views on current conditions and the economic outlook in May. Indeed, the ZEW survey on investor confidence in the current situation slipped to -91.3, the lowest since July 2003, from -91.6 while the expectations component surged to a nearly 3-year high of 31.1 from 13.0.

UK inflation data was all-around weaker than anticipated, as the headline consumer price index (CPI) rose 0.2 percent during the month of April (0.4 percent expected) while the annualized rate of growth slowed to a 15-month low of 2.3 percent (2.4 percent expected) from 2.9 percent. Meanwhile, the retail price index (RPI), rose a slight 0.1 percent (0.2 percent expected), allowing the annualized rate to plunge to a record low of -1.2 percent (-1.1 percent) from -0.4 percent. In the end, the decline in headline rates of inflation leaves CPI closer to the Bank of England’s 2 percent target, but with RPI falling rapidly, the central bank may become increasingly concerned about deflation risks and thus, there is potential that they will consider expanding their quantitative easing program.

Looking ahead to Wednesday, the minutes from the Bank of England’s May 7 meeting may not be as market-moving as they’ve been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC). Indeed, we already know that the BOE has decided to expand their quantitative easing program by 50 billion pounds to 125 billion pounds, that the drop in Q1 GDP of -1.9 percent was worse than expected, and that CPI will likely will be below the BOE’s 2 percent inflation target in the medium term. However, the growth and inflation outlook published in the BOE’s Quarterly Inflation Report suggests that the central bank may be open to expanding their quantitative easing program later on. If the minutes from the BOE’s most recent meeting reiterate this, the British pound could pull back very sharply.

Canadian Dollar Gains Ahead of Upcoming Canadian CPI Report
USD/CAD fell further on Tuesday thanks to broad US dollar declines, leaving the pair within a range of 1.1500 – 1.1800. FXCM SSI, a contrarian indicator, shows that traders remain net long the pair by 1.87:1, suggesting we could see additional declines in the near term. However, USD/CAD faces high event risk on Wednesday. According to the Bank of Canada’s last Monetary Policy Report in April, the Bank is open to quantitative easing (QE) and credit easing if nominal interest rates start to fall below zero. Indeed, the Bank stated that while they could cut rates to zero in theory, it would ultimately “eliminate the incentive for lenders and borrowers to transact in markets, especially in the repo market.” As a result, inflation reports will be key to gauging whether the Bank of Canada will go the route of QE, but looking ahead to upcoming reports, this shouldn’t be the case and thus, the news shouldn’t be too market-moving. Headline CPI is projected to have risen 0.2 percent in April, leading the annual rate to slump to 0.6 percent, the lowest since November 2001. Meanwhile, core CPI is forecasted to have risen 0.1 percent during the month, leaving the annual rate down at 1.8 percent from 2.0 percent. All told, the Canadian dollar may only respond if CPI rises more than expected (CAD bullish), or if CPI contracts on a monthly bases and drags the annual rates of price growth much low (CAD bearish).

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com

japanese yen

US Dollar Slips Despite Increased Homebuilder Confidence, Mixed Comments by Treasury’s Geithner

- Euro Bounces Against Dollar, Yen, But Euro Crosses Remain Confined to Tight Ranges
- British Pound Trading Below 1.5350 Ahead of Key UK CPI Report on Tuesday
- Japanese Yen Down as FX Carry Trades Surge – Watch for Japanese GDP on Tuesday Night

US Dollar Slips Despite Increased Homebuilder Confidence, Mixed Comments by Treasury’s Geithner
The US dollar lost ground on Monday as increased risk appetite fed increased demand for FX carry trades, commodities like oil, and equities, as the S&P 500 ended the day up 3.04 percent at 909.71. While there weren’t any top tier economic indicators on hand, US news was generally optimistic. Indeed, Treasury Secretary Tim Geithner said in comments at the National Press Club that the credit markets are thawing, that the economy has “clearly stabilized” but remains “fragile,” and also said that unemployment may keep rising even if growth rebounds. Geithner went on to say that the government shouldn’t set caps on compensation and should instead focus on pay incentives, which must be tied to “long term factors” rather than encourage an increase in short-term risk. On the government’s massive budget deficit, Geithner noted that it would be the “defining challenge” of the next five years as the nation’s fiscal conditions is “unsustainable.”

Meanwhile, the National Association of Home Builders (NAHB) index rose to 16 in the month of May from 14, the highest since September, indicating that confidence amongst homebuilders is improving. That said, readings below 50 signal that the majority views conditions as remaining poor, suggesting that the US housing sector remains far from recovery. However, upcoming data may show signs of improvement for the month of April after staging a sharp deterioration in March. Indeed, the US Commerce Department’s housing starts index is projected to edge up to 520,000 from 510,000 while applications for building permits may increase to 530,000 from a record low of 516,000. Such moves would bode well for next week’s release of NAR existing home sales and Commerce Department’s new home sales, as the reports tend to correlate from month to month. Better-than-expected readings could offer a boost to risk appetite, which may ultimately benefit FX carry trades and stock market futures, while disappointing readings may lead to US dollar gains amidst flight-to-safety.

Euro Bounces Against Dollar, Yen, But Euro Crosses Remain Confined to Tight Ranges
The euro made headway against the US dollar and Japanese yen, as EUR/USD broke above 1.3540/45 and EUR/JPY bounced from rising trendline support on the daily charts. However, when it came to the rest of the majors, the currency was a laggard, with EUR/CHF backing off from falling trendline resistance at 1.5150 and EUR/GBP holding within a range of 0.8800-0.9025. Euro-zone economic data was better-than-expected, as the region’s trade deficit narrowed to 2.1 billion euros in March from 2.9 billion euros thanks to a 1.4 percent increase in exports. Adding to this, imports rose 0.6 percent, suggesting that both foreign and domestic demand are starting to improve, albeit at a very slow pace.

On Tuesday, the release of the German ZEW survey of investor sentiment for the month of May is anticipated to reflect mixed sentiment on current conditions and the economic outlook. Indeed, the index of sentiment on the current situation is forecasted to remain near 5-year lows at -90.0, up from -91.6 while the outlook is projected to rise to +20 from +13. This report can be market-moving for the euro on a very short-term basis upon release at 5:00 ET, with disappointing results likely to weigh on the currency. On the other hand, better-than-expected data could provide a bit of a boost for the euro.

British Pound Trading Below 1.5350 Ahead of Key UK CPI Report on Tuesday
The British pound tested last week’s highs against the US dollar near 1.5350, but with FXCM SSI showing that traders remain let long GBP/USD by a ratio of over 2:1, the contrarian indicator suggests an intermediate top may be in place (learn more about SSI at the end of last week’s update). Interestingly enough, event risk for GBP/USD will pick up tomorrow as the UK’s consumer price index (CPI) reading for the month of April is expected to rise 0.4 percent, the third straight increase. However, the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to a more than one-year low of 2.4 percent from 2.9 percent, keeping inflation within the central bank’s acceptable range of 1 percent – 3 percent, but above their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further. On the other hand, if CPI holds strong, the currency could rally in response.

Japanese Yen Down as FX Carry Trades Surge – Watch for Japanese GDP on Tuesday Night
The Japanese yen was the weakest of the majors on a day that risk appetite lifted FX carry trades, making it all the more clear that fundamentals are not driving price action for currencies like the yen and the US dollar. This point could be highlighted tomorrow night, when Japan’s Cabinet Office will release preliminary growth readings. After three consecutive quarters of contraction, the outlook doesn’t look good. There are signs that businesses are suffering considerably at the hands of waning domestic and foreign demand. Consumers have very little to work with these days, as the jobless rate has slowly climbed to a nearly five-year high, and perhaps even worse, cash earnings growth contracted by 3.7 percent in March from a year earlier, the sharpest drop since 2002.  Meanwhile, Japanese exporters have had to grapple with not only slowing global growth, but also the appreciation of the Japanese yen, all of which has led foreign-bound shipments to tumble a whopping 46.5 percent in March from a year ago, according to figures published by the Ministry of Finance. As a result, a Bloomberg News poll of economists shows expectations for GDP to fall 4.3 percent in Q1, with the annualized rate forecasted to plummet by a record 16.1 percent.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com

japanese yen

Euro Correction May Be Complete; Bullish above 1.3250

Euro / US Dollar

A push above 1.3742 is still required to satisfy the minimum requirement for wave Y, at which time I will expect a top and reversal (objectives are at points from 1.3800 to 1.4200).  Near term, a correction of the advance from 1.3250 to 1.3720 may be complete.

British Pound / US Dollar

The short term GBPUSD pattern is at odds with the other USD crosses, thus confidence is low in direction.  Bigger picture, wave 4 within the 5 wave decline from the 2007 high (2.1160) is probably still underway.  1.5735, the confluence of the 38.2% of the decline from 2.0162 / December 2008 high, seems a likely target.  This level intersects with a resistance line at the end of May.

Australian Dollar / US Dollar

The rally from .6953 is wave v of C and the objective at .7630 has already been reached (which is where wave v of C would equal wave i of C).  The 50% retracement of the decline from .9822 at .7693 is giving bulls fits for now but one more high seems likely this week.  Higher RSI on the 240 minute chart suggests that the top is not yet in place (tops almost always occur with momentum divergence).  Watch the top of the short term Elliott channel for resistance after the AUDUSD breaks to a new high.  A small 4th wave may be complete.  Structure is bullish above .7245.

New Zealand Dollar / US Dollar

Wave structure along with the RSI condition explained in the AUDUSD analysis favors a new high in the NZDUSD as well.  Wave structure is bullish above .5782.

US Dollar / Japanese Yen

The USDJPY has broken beneath its 2+ month head and shoulders neckline.  This development is bearish and even more so in the context of long term wave structure, which suggests a new all time low (below 80).  However, I want to urge caution as the pair approaches 93.50.  The circled area could still be a triangle in the X wave position.  With this in mind, bears may want to lighten up.

US Dollar / Canadian Dollar

I wrote the last few days that “5 waves down from 1.2510 are probably complete so a correction, back to at least 1.1768 (former 4th wave price extreme) is expected.  As the correction plays out this week, I’ll look to identify the top.”  A top may be in place now as the rally from 1.1475 is corrective and the USDCAD reversed from the former 4th wave extreme (an Elliott guideline).  A cautious bearish bias is warranted against 1.1791.

US Dollar / Swiss Franc

Whereas the EURUSD has yet to exceed its March high of 1.3742, the USDCHF has already dropped below its March low of 1.1157.  In other words, minimum expectations have been met for wave Y.  So, it is possible (but not probable given the patterns the other USD crosses) that a low is in place.  A drop below 1.0976 would expose Fibonacci support at 1.0925.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.

Please send comments about this report to jsaettele@dailyfx.com

japanese yen

US Dollar, Japanese Yen Slip as US Continuing Jobless Claims Reach New Highs, Ahead of US CPI

- Swiss Franc Down After SNB Verbal Intervention – EUR/CHF Shows Potential for Break
- Euro, British Pound Consolidate Below Weekly Highs – Outlook May Hinge Upon Euro-zone Q1 GDP Release

US Dollar, Japanese Yen Slip as US Continuing Jobless Claims Reach New Highs, Ahead of US CPI
The US dollar and Japanese yen lagged behind the rest of the majors as increased risk appetite led US equities and FX carry trades higher. US economic data was mixed, as jobless claims surged beyond forecasts while the producer price index (PPI) rose in line with expectations. Initial jobless claims jumped by 32,000 during the week ending May 9 to 637,000 while continuing claims rocketed by 202,000 during the week ending May 2 to yet another record high of 6,560,000, suggesting that the slowing job losses we saw reflected in last Friday’s non-farm payrolls report may have only been temporary. Meanwhile, PPI rose 0.3 percent for the month of April as food costs jumped 1.5 percent. Excluding food and energy costs, PPI only rose a slight 0.1 percent, but despite these increases the annual rates of growth for both indices fell back. Indeed, headline PPI tumbled 3.7 percent from a year ago, marking the sharpest drop since January 1950, while core PPI slowed to a 9-month low of 3.4 percent. These numbers suggest that Friday’s US event risk should hit the wires in line with forecasts.

At 8:30 ET, the release of the April reading of the US consumer price index (CPI) is likely to highlight the ultra-slow pace of price growth in the US economy. Indeed, CPI is anticipated to have stagnated during the month, bringing the annualized pace to -0.6 percent – the lowest since January 1955 – from -0.4 percent. On the other hand, the core measure – which excludes volatile food and energy costs – is anticipated to rise 0.1 percent, leaving the annualized rate at 1.8 percent. Overall, the news is likely to add to concerns that the US is on a one-way track to deflation, a concern that has been cited by “a few” Federal Open Market Committee (FOMC) members, according to the latest FOMC meeting minutes. However, the markets may only respond to the news if core CPI starts to fall dramatically.

Related Article: Crowds Buy into US Dollar Weakness, Signaling Losses Likely

Swiss Franc Down After SNB Verbal Intervention – EUR/CHF Shows Potential for Break
The Swiss franc may have made headway versus the US dollar and Japanese yen, but the currency ended the day down against the commodity dollars, euro, and British pound after Swiss data pointed toward deflation and the Swiss National Bank verbally intervened in the market. At 3:15 ET, the Swiss producer and import price index unexpectedly slipped 0.2 percent for the month of April, dragging the annual rate down to a more than 22-year low of -3.6 percent from -2.8 percent. A breakdown of the report shows that the drop was due primarily to falling import costs, which is partially the result of the persistent appreciation of the Swiss franc, despite the SNB’s first intervention announcement on March 12. In fact, the SNB specifically said they would purchase foreign currency to limit the appreciation of the Swiss franc against the euro as the Euro-zone is Switzerland’s biggest trader partner.

Since then, though, EUR/CHF has retraced approximately 50 percent of the pair’s rally between March 10 and March 17, and perhaps in an effort to stop the decline, SNB Governing Board member Thomas Jordan said that the central bank was “implementing franc policy” and that the SNB wanted to prevent further franc appreciation.” Jordan also said that while it was hard to forecast, he saw a turning point for the Swiss economy in 2010 and noted that Swiss credit market conditions were still very good. That said, EUR/CHF has spent a lengthy amount of time consolidating within a very tight range. Indeed, the Bollinger Bands width is now at the lowest level since November 2007, which was followed by a rapid 300 point break lower, suggesting that EUR/CHF could be facing a break in the near-term as well, though the move has the potential to be bullish or bearish.

Euro, British Pound Consolidate Below Weekly Highs – Outlook May Hinge Upon Euro-zone Q1 GDP Release
The EUR/USD and GBP/USD pairs both spent much of Thursday consolidating below their weekly highs, but breakouts could occur in the near-term. Indeed, GBP/USD may be forming a short-term head and shoulders pattern, as the pair’s rally stalled at the 61.8 percent fib of 1.5353-1.5066 and the May 10 highs near 1.5242/50 (shoulders). Meanwhile, EUR/USD may be forming its own head and shoulders pattern, with the shoulders sitting at 1.3665 and the neckline looming below at 1.3555.

In 2008, the release of Euro-zone CPI drew significant attention and sparked major volatility for the euro. However, indicators of growth have become more important, as the European Central Bank has shifted its focus away from inflation and on to the global and regional economic slowdown. As a result, traders should keep an eye on the advanced reading of Q1 GDP, which is forecasted to contract for the fourth straight quarter, this time at a rate of -2.0 percent, compared to -1.6 percent in Q4 2008, while the year-over-year rate could fall by a whopping 4.1 percent. Such data would indicate that the Euro-zone’s recession deepened into the start of 2009, and would only raise the odds that the ECB will consider cutting rates further or will need to take more drastic steps than their current plan to buy 60 billion euros worth of covered bonds, and the news could trigger steep losses for the euro. On the other hand, better-than-expected results could lead EUR/USD to continue its rally toward 1.4000.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com