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Fewer Releases Today Should Mean A Narrow Range

Asian Morning Update

Friday was a particularly quiet day for releases and was restricted to a slightly narrow than expected Italian Non-EU trade balance at EUR-864mn versus forecasts of EUR-1.30bn. It is a marginal positive with recent data from Italy being positive but will have no additional impact on the current strength of the Euro.

The only other release was the U.K. March Retail Sales which at +0.3% MoM and +4.8% YoY has some suggestion of a softening in consumer spending. Forecasts had focused on numbers closer to +0.5% and +4.7% respectively. The market is already hyped up over the U.K. and this slightly softer number will not really alter that but certainly didn't produce any additional positive reaction.

Rather than those numbers a couple of comments from Germany and t he States will provide interesting background even if they don't cause any moves right now. The first was a repeat of a comment from the German Export Association which forecast a 1.3600-1.4000 range for the Euro over the coming months. The upper target around 1.40 is most definitely on the cards. More it is a question of whether the bottom side can see a slightly deeper correction to around 1.3250-00 before the rally by around mid-year. Even the ECB's Juncker is comfortable with the level of the Euro which he feels can withstand a further 10% appreciation. Well, around 1.4000 will do and should provide a cap for the rest of the year.

In the States Fed Governor Mishkin made some general comments that could come home to roost over the next month or two. He described the current slowdown as a reflection of the lagged reaction to the Fed policy changes and the housing market correction. He considered the correction to be a 'desirable macroeconomic rebalancing.' Most notable was the comment on underlying productivity which he estimated to be around 2.5% - and this reflects a GDP of around 3.5%.

Thus while the market has been quick to jump on the back of a bearish Dollar two things are to be noted: Firstly the bearishness has not been excessive and secondly the economic numbers, while displaying a risk of negative growth with high inflation, the numbers are still showing the U.S. economy is still growing, albeit it at a slower pace. At some point if the numbers do not start providing more evidence of the total bear scenario the Dollar is going to start bouncing back. Give it 1-2 months…

As for today, there are fewer releases today compared to Friday and therefore expect another slow day.

More later when the analysis is complete.

Asian economic releases expected today are:

Australian Q1 PPI

Japanese March Supermarket Sales



Ian Copsey
Global Forex Trading

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Daily Forex Market Commentary

The dollar recovered on Friday as expected. The oversold US currency should attempt to climb up today as well. Buy it only if the move is confirmed.


Euro/dollar

Euro/dollar made a marginally new high on Friday, so its medium-term positive outlook remains intact. It's overbought but sell it further only on confirmation.

This confirmation would arise from a break below 1.3575. Good support follows at 1.3525. Below 1.3470 there is support at 1.3440. Distant support is at 1.3390.

Above 1.3636, the pair retains resistance at 1.3645. Above 1.3705, distant resistance is at 1.3805.

Oscillators are rising.

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


Dollar/yen

Dollar/yen moved up on Friday. This recovery should continue today as well.

Above 119.00 strong resistance is still seen at 119.65 from a 50-point pivot that targets 119.15 and 120.15.

Initial support remains at 118.25 from a 50-point pivot that targets 117.75 and 118.75.

Below 117.60, support is seen at 116.85, from a 50-point pivot, which targets 116.35 and 117.35.

Oscillators are edging lower.

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


Sterling/dollar

Sterling/dollar edged higher on Friday but held below the 26-year high of 2.0131. The positive medium-term outlook remains in place, but it's close to declining.

Initial resistance is at 1.2100. Next cap is seen between 2.0140 and 2.0155. If this area breaks, the pound would likely take attack a Gann level at 2.0200.

Immediate support remains at 1.9980. Below 1.9955, strong support follows at 1.9925

Oscillators are rising.

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


Dollar/Swiss franc

Dollar/Swiss franc edged higher on Friday after reaching a new four-month low of 1.2000 on Thursday. Buy only on a confirmation or with a tight stop.

The confirmation should come from a break above the resistance at 1.2100. Further resistance comes at 1.2050. Next level is at 1.2095. Above 1.2145, the next level is 1.2200. Distant resistance is at 1.2255.

Immediate support is at 1.2035. Below 1.2000 there is a key level at 1.1945. Dollar/Swiss franc then has strong support at 1.1885.

Oscillators are declining.

NEAR-TERM: Mixed
MEDIUM-TERM: Slightly bearish
LONG-TERM: Slightly bearish


Cornelius Luca
Global Forex Trading

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FX Technical Commentary

Euro 1.3605

Initial support at 1.3556 (Apr 18 low) followed by 1.3480 (Apr 13 low). Initial resistance is now located at 1.3631 (Apr 20 trend high) followed by 1.3637 (High Close Dec 30, 2004)

Yen 118.70

Initial support is located at 117.60 (Apr 18 low) followed by 117.52 (50% retracement of the 115.15 to 119.89 advance). Initial resistance is now at 119.04 (Apr 18 high) followed by 120.00 (Psychological round number resistance)


Pound 2.0055

Initial support at 1.9985 (Apr 19 low) followed by 1.9878 (Apr 17 low). Initial resistance is now at 2.0134 (Apr 18 trend high) followed by 2.0200 (Psychological Round Number)


Australian Dollar 0.8375

Initial support a 0.8278 (April 19 low) followed by 0.8233 (Apr 11 low). Initial resistance is now at 0.8396 (Apr 19 trend high) followed by 0.8431 (Dec 1988 former low)

Gold 692.60

Initial support at 679.15 (Apr 19 low) followed by 676.80 (Apr 13 low). Initial resistance is now at 693.99 (Apr 19 high) followed by 700.00 (Psychological round number)

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Weekly Technical Analysis Research

• EUR Continues To Put Pressure On the Upside
• GBP Puts In A Second-Week Of Upside Gains
• AUDUSD Maintains Its Upside Offensive

EURUSD

EUR made a run to the upside hitting a new-year high at 1.3636 on Friday having broken and closed above 1.3483/3501 levels, its Mar'05 high/1.272 Fib Extension the previous week. Although the past week marked the second week of upside gains, the pair however failed to maintain the said gains on daily closing basis heading lower to close at 1.3590 at the end of Friday trading session. Such weakness should not be a surprise as overbought condition is now displayed on the daily time frame and a 4-hourly negative divergence is presently in place suggesting that further downside losses might follow initially towards 1.3561/76 level, its April 16 & 20'07 highs. A clearance of there sets the pair up for a run at 1.3501/1.3483 zone, its 1.272 Fib Ext/Mar'05 high. If this area that provides a solid technical support gives way, a deeper correction targeting its Mar 22'07 high at 1.3410 is expected ahead of its Dec'06 high at 1.3363. The next downside objective is located at 1.3245/59, its Jan 20'06 high/.50 Ret (1.3071-1.3441 rally)/Feb 27'07 high. On the upside, a clear invalidation of 1.3636, its Friday high is required to resume its short/medium term uptrend towards 1.3668, its Dec'04 high followed by 1.4167, its Oct'1995 high. Its weekly and monthly studies remain supportive of this scenario. All in all, EUR's upside bias remains intact but it must break and close above 1.3636 to resume that uptrend.

Directional Bias:

Nearer Term-Mixed
Short Term-Bullish
Medium Term-Bullish

Performance in %:

Yearly (2007 to date) = +2.98%
Monthly (April to date) = +1.74%
Weekly (April 16-20) = +0.46%

Weekly Range:

High-1.3636
Low-1.3525

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GBPUSD

Although a second weekly close was printed on Friday since GBP bounced off 1.9591 low in early April'07,the pair had on Wednesday tested and failed after hitting a 26-year high at 2.0132 , a zone harbouring its 1991/1992 highs. In other for the pair to continue its medium term uptrend and push for further upside gains, a decisive penetration and negation of the said zone is needed to put the next upside target at 2.0219, its 1.272 Fib Ext. (Monthly chart) with a loss of here opening the door for more gains aiming at its .786 Ret (2.4536-1.0463 decline) at 2.1484.The pair is supported by its weekly studies which are pushing higher. On the other hand, with overbought condition now a factor on the daily chart and a failure at important resistance levels (a zone noted for such actions in the past), corrective losses cannot be ruled out towards its psychological support level/April 20'07 low at 2.0000/1.9989 on such weakness.Breaking and maintaining below here shifts focus to its Jan 23'07 high at 1.9915.These levels are expected to reverse roles and provide support for additional upside challenge. A failure of this zone to rescue the bulls,calls for more downside attacks on its April 03'07 high at 1.9824 ahead of 1.9721/26 zone, its Mar 22 & 26'07 highs/.382 Ret (1.9744-1.9824 rally).Additional support levels lie at its Feb 15 & 27'07 highs at 1.9673/77 and 1.9571/52 levels, its Mar 26'07 low/Dec'04 high.Overall,GBP remains poised to challenge its recent high at 2.0132 as long as it continues to maintain above 2.0000.

Directional Bias:

Nearer Term-Bearish
Short Term-Bullish
Medium Term-Bullish

Performance in %:

Yearly (2007 to date) = +2.29%
Monthly (April to date) = +1.75%
Weekly (April 16-20) = +0.82%

Weekly Range:

High-2.0132
Low-1.9862

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AUDUSD

AUDUSD pushed to a 17- year high at 0.8392 on Thursday, its highest price seen since 1990.The past week also saw the pair registering its sixth straight weeks of upside gains and judging from price action on the weekly and monthly charts, the pair could be heading to its third monthly upside closes. A continued upside pressure should see the pair pushing towards 0.8381/92,its Oct'1990/2007 highs with a break of there triggering more gains targeting its Aug'1990 at 0.8494 ahead of 0.8922,its 1989 high. While its monthly RSI remains bullish, the weekly studies are positive to overbought suggesting a pullback could shaping up.Conversely, with its daily momentum indicators now topping out as a result of its recent rally, a push lower towards 0.8210 followed by its April 09'07 low at 0.8151 is likely. Closing below here exposes its April 04'07/.382 Ret (0.7680-0.8266 rally) at 0.8063/43 before its 2005/2004 highs/horizontal resistance line at 0.7992/0.8008.On the whole, as long as 0.7992/0.8008 zone is maintained its longer term uptrend remains to the upside.

Directional Bias:

Nearer Term-Bullish
Short Term-Bullish
Medium Term-Bullish

Performance in %:

Yearly (2007 to date) = +6.21%
Monthly (April to date) = +3.59%
Weekly (April 16-20) = +0.51%

Weekly Range:

High-0.8392
Low-0.8281

Mohammed Isah FX Instructor LLC

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The Pairs to Range Trade This Week - USD/CHF, EUR/CHF, CAD/JPY

USD/CHF

Trading Tip - A long-term rising trendline is coming into conflict with a medium-term downtrend. While this will necessitate a decision as to direction on the market's part, the width of the range and the rank of the economic indicators scheduled for the period should keep USDCHF congestion bound at least for the first half of the coming week. For the recommended range and strategy criteria, entry on both sides is a sticky issue, but risk/reward and the time frames for exits should keep possible losses down. If the range does hold for most of the week, open positions should be taken off (or new entries should not be taken) on Friday. US growth could stoke volatility regardless of how it prints as policy makers and international investors await evidence of an impending recession or rebound from the world's largest economy.

US - The US faces a mixed economic calendar next week, with the release of Consumer Confidence potentially starting the weak off on a sour note. The sentiment figure is anticipated to fall back in April as gasoline prices remain high. The next day, durable goods are forecasted to rebound as the US consumer proves their resilience. However, US dollar trade may be subdued ahead of first quarter GDP. Growth is estimated to have eased back to 1.8 percent from 2.5 percent, which may only exacerbate concerns that the crunch of the housing sector has spread to the rest of the economy. Starting out the following week will be Personal Income, and although the release is predicted to hold at a solid 0.5 percent, price action may continue to ride the sentiment of the GDP figure.

Switzerland - While there are only three releases scheduled this week, the calendar is relatively full for Switzerland. The trade balance is expected to ease back to 1.11 billion francs, but with Swissie at low levels compared to the Euro, exports to the Euro-zone may see an unexpected boost. The same day, the UBS consumption indicator will likely show resilient consumption, similar to the KOF leading indicator later in the week. KOF is anticipated to hit a six-month high of 2.00, as the sturdy Swiss economy wears on with the help of robust domestic demand and strong export growth. Given the resilience of the Swiss economy, one of the healthiest and most stable in the developed world, traders may start to price in the potential of continuous quarterly rate hikes throughout the rest of the year.

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EUR/CHF

Trading Tip - For some time, EURCHF has appreciated on interest rate expectations. Since the SNB schedules its rate decision on a quarterly basis, the ECB policy group was expected to handily outpace the Swiss and widen the rate differential for a rather reliable carry. However, after ECB President Jean-Claude Trichet's failure to revive 'strong vigilance' at the last policy announcement, both central banks are now looking at the same time table for their next rate hike. This alone should sap momentum from the pair. Furthermore, EURCHF ranges are historically small, so if rate differentials are not a volatility driver in the future, the pair may consolidate and better project direction or range conditions



Euro Zone - German sentiment figures will start out next week with the IFO survey anticipated to show all of its components improving, though the business climate index will likely garner the most attention. The next day, GfK consumer confidence is forecasted to reflect broad optimism in Germany, despite prospects of rising interest rates as tight labor markets keep households content. The following Monday, both M3 money supply and the April CPI estimate could show that inflation pressures continue to build in the Euro-zone. As a result, markets will continue to expect that the European Central Bank will raise their benchmark in June. However, if the figures come in softer than expected, Euro may lose its bid as traders consider the potential of steady rates for the next few months.


Switzerland - While there are only three releases scheduled this week, the calendar is relatively full for Switzerland. The trade balance is expected to ease back to 1.11 billion francs, but with Swissie at low levels compared to the Euro, exports to the Euro-zone may see an unexpected boost. The same day, the UBS consumption indicator will likely show resilient consumption, similar to the KOF leading indicator later in the week. KOF is anticipated to hit a six-month high of 2.00, as the sturdy Swiss economy wears on with the help of robust domestic demand and strong export growth. Given the resilience of the Swiss economy, one of the healthiest and most stable in the developed world, traders may start to price in the potential of continuous quarterly rate hikes throughout the rest of the year.

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CAD/JPY

Trading Tip - The CADJPY has re-entered the exact range we saw back in September and October of 2006, with 104.00 and 106.00 holding strong support and resistance. Nevertheless, history does not always serve as a perfect guide, so caution should be used when entering the trade by looking for a test of resistance with a subsequent close below 106.00 thereafter. Stops on a short entry are a little wide, since CADJPY reached about 30 points above the top of the range back in September. Traders should also pay attention to the Japanese inflation data, as a sharp jump higher or lower could create major volatility for the pair.


Canada - The Canadian calendar holds only a few indicators through the coming week, and each is questionable in its ability to put the market in motion. The leading indicators index is the first indicator to cross the wires on Tuesday. Historically, the indicator is largely ignored. This time around, its lack of impact is almost guaranteed since a Bank of Canada interest rate decision is due only half an hour later. As has been the case since May of last year, the Canadian monetary policy authority is expected to leave rates untouched, but a rebound in inflation and strong spending and employment numbers offer a low probability of a surprise. The only other indicator of note will not print until the following Monday. February Gross Domestic Product is expected to rise modestly, an outlook that opens itself to big surprises and projections an improving economy at the same time.


Japan - This are a considerable number of economic releases scheduled to print next week. However, the top movers are all centered on one day. Though there are a few lower class reports looking for attention early in the week, they are all supplementary reads to bigger indicators due later. The real action begins Thursday evening GMT time (which is Friday morning in Tokyo). Employment, spending inflation and factory activity indicators are all due within 20 minutes of each other. The unemployment rate for March will likely draw little attention, since it has held consistently low for months and has yet to recharge growth. Retail sales and household spending on the other hand will be essential to fundamental traders' outlooks. Consumers have yet to accelerate growth and inflation to levels the central bank deems necessary to consider more frequent rate hikes. On the same reasoning, the consumer inflation reads should generate little interest. On the other hand, the BoJ rate decision (which has no official time) still presents sizable event risk


DailyFX

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Compelling Evidence for a EUR/USD Reversal

Current Price: 1.3600

Wave Counts, divergent oscillators, pivot points, and risk reversals all point to a EUR/USD reversal. When is the reversal confirmed? Where is resistance if 1.3666 gives way? What is the bearish potential if the EUR/USD does roll over? Read to find out.


We start with the longer term wave structure. It has been our position that a major correction of the .8443-1.3666 rally began in December 2004. Correction unfold in 3 waves (unless the pattern is a triangle), so the 5 wave decline from 1.3666-1.1638 is likely just the first wave (A) in an A-B-C correction. The rally from 1.1638 has unfolded as a double zigzag pattern. Notice that the slope of the decline from 1.3666 is steeper than the slope of the rally from 1.1638 – this is a corrective attribute (more time but less price distance). An important time relationship also favors a turn from near current price. The 1.3666-1.1638 decline took 47 weeks to unfold. A Fibonacci turn date would occur at 47 x 1.618, which is 76 weeks from the 1.1638 low. Next week is the 76th week. If 1.3666 is exceeded, then measured objectives await from Fibonacci extensions (see S/R table for calculations) at 1.3719 and 1.3823. Coming under the December 2006 (and 2006 for that matter) high at 1.3364 signals that wave C is underway.

This daily chart shows RSI on the bottom and the risk reversal rate (with a 10 day moving average) on the top. RSI is in overbought territory and exhibits bearish divergence. The RR rate has come under its 10 day average, indicating that bullish sentiment may have already peaked. Also, notice the divergence in price action and the risk reversal rate at the 1.1638 low in November 2005. The current situation presents the exact same setup (in the opposite direction of course).

The red, green, and blue lines on this chart are calculated monthly pivot levels. The blue lines often hold as support and the red lines often hold as resistance. The EURUSD has softened at R2 (red line). MACD is also plotted here to show yet another divergence. The indicator remains bullish as long as the MACD line (black) remains above the signal line (blue) but the divergence is a warning that a top is near.

A look at the hourly shows a 5 wave rally from 1.3338. The 5th wave of this rally is choppy and consists of overlapping waves (this is called an ending diagonal). A break of the very short term support line seen on the chart should give way to 1.3524. Remember from the first chart that it takes a decline below 1.3364 to signal that a larger bear trend is in progress.

DailyFX

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Forex TV GLOBAL NEWS
FOREX NEWS & ANALYSIS

Australia Q1 producer price index steady on Q4 versus consensus 0.6 pct rise


04/23/ 07(GMT 02:57 am)
SYDNEY (XFN-ASIA) - The final producer price index (PPI) for commodities, excluding exports, was unchanged in the Marcht quarter from the December quarter, with a 0.1 pct increase in the domestic index but a 1.1 pct fall in the imports component, the Australian Bureau of Statistics (ABS) said.

The March quarter PPI was up 2.8 pct year-on-year.

The consensus of analyst forecasts was for a rise of 0.6 pct in the March quarter from the December quarter, making a year-on-year rise of 3.5 pct.

In the December quarter, the final producer price index rose 0.2 pct from the September quarter and was up was up 3.5 pct year-on-year.

The ABS said the rise in the domestic component was mainly due to price increases in building construction and other manufacturing. Partially offsetting these were decreases in other agriculture items such as bananas and motor vehicles and parts.

It said the imports component fell by 1.1 pct due to price decreases for electronic equipment, industrial machinery, photographic and scientific equipment and tobacco products

Australia Q1 producer price index steady on Q4 UPDATE
04/23/07 03:07 am (GMT) SYDNEY (XFN-ASIA) - The final producer price index (PPI) for commodities, excluding exports, was unchanged in the March quarter from the December quarter, with a 0.1 pct increase in the domestic index but a 1.1 pct fall in the imports component, the Australian Bureau of Statistics (ABS) said.

The March quarter PPI was up 2.8 pct year-on-year.

The consensus of analyst forecasts was for a rise of 0.6 pct in the March quarter from the December quarter, making a year-on-year rise of 3.5 pct.

In the December quarter, the final producer price index rose 0.2 pct from the September quarter and was up was up 3.5 pct year-on-year.

The ABS said the rise in the domestic component was mainly due to price increases in building construction and other manufacturing. Partially offsetting these were decreases in other agriculture items such as bananas and motor vehicles and parts.

It said the imports component fell by 1.1 pct due to price decreases for electronic equipment, industrial machinery, photographic and scientific equipment and tobacco products

The ABS gave the following table for fourth quarter PPI:

qtr-on-qtr yr-on-yr

Stage of Production (pct) (pct)

Final commodities (excl exports) 0.0 2.8

Domestic 0.1 3.8

Imports -1.1 -2.8

Intermediate commodities 0.3 4.6

Domestic 0.7 4.6

Imports -1.8 -1.3

Preliminary commodities 0.1 4.5

Domestic 0.5 5.4

Imports -2.3 -1.8

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Daily Currency Report - USD/JPY

USD/JPY

Weekly Trend direction: Bearish

Weekly trend reversal level: 120.00

Strategy: Whilst below the weekly trend reversal level, sell rallies to resistance levels after an entry signal.

Medium term: As our view for long term dollar weakness remains intact, we feel that 122.20 will cap rallies and initiate a drop back towards 105.00. Above 122.20 means that the dollar could rally much higher before a medium term top is formed.

Today's trade suggestion: Once again, 119.00 has provided resistance, with good signs of reversal taking place there on hourly charts over the past two days. We will continue to sell into rallies up to this level, with an eventual decline to 116.50 on the cards. Above 119.00, whilst not our preferred scenario, will probably lead to another test of 120.00.

Key G7 Resistance levels: 119.90, 119.00

Set and forget' entry:
SELL : 118.90,
stop: 119.30,
target : 116.50

Counter-trend opportunities:
Buy : 116.50,
stop: 116.00,
target :117.50







Forex618

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New Zealand Weekly

Bigger Nut, Bigger Hammer

We expect the Reserve Bank to keep the OCR on hold at 7.50% on Thursday. However, inflation pressure is building, so we expect a hike in June and another later in the year.

New Zealand's economic upturn is gaining momentum fast, boosted by stratospheric commodity prices and expansionary fiscal policy. Data has shown that house price inflation has returned to double digits, retail sales are booming, and inflation pressure is mounting. Last week's CPI data was the biggest shock. Although headline inflation was a moderate 2.5%, nontradables inflation accelerated to 4.1%. This suggests that the low growth last year did nothing to alleviate inflationary pressure in New Zealand. As our recent work suggests, the potential growth rate of New Zealand has slowed, meaning it takes ever-lower growth rates to alleviate inflation. The inflation nut is much bigger than previously thought, and will be much harder to crack.
But it has not been all bad news for the RBNZ - they have been delivered a much bigger hammer to crack the inflation nut with. Markets have pushed longterm interest rates up by more than the OCR, fixed mortgage rates have risen even more, and the NZD has hit a new post-float high.

The challenge for the Reserve Bank, and for us, is to weigh up the opposing forces of a stronger economy on one hand, and tighter monetary conditions on the other. We have come down on the side of the strong economy. We now expect not one, but two hikes in the OCR this year. The key to our view is the persistence of the current upturn, with drivers such as commodity prices and fiscal policy that are not about to moderate any time soon. Households are confident with the labour market at virtually full employment. Now that the economy has gained momentum, it will take a lot to cool it down. When a truck starts rolling a small rock under the tyre will be enough to stop it, but once it gathers momentum it needs a big boulder in its path.
Of course, stopping a runaway truck with a boulder makes a big mess. The RBNZ has let things get away again, and that just makes the inevitable economic downturn sharper. New Zealand is in a vulnerable and unsustainable position due to the excessive current account deficit and high debt levels. At some point the final 25 basis points of monetary tightening is going to send the housing market over a tipping point. When house prices stop rising, the correction for the rest of the economy will be sharp.
Dr Bollard has always been conscious of the risk of sending the economy over a tipping point. That is why he will take a measured, slow and steady approach to the renewed monetary tightening cycle he embarked on last month. The RBNZ will approach the peak of the interest rate cycle slowly and carefully, verifying the effect of each hike before delivering the next. This slow and steady approach implies that the OCR will remain on hold in April, with the next hike being delivered June.
No matter what the decision on rates, the accompanying press release will be extremely hawkish. If there is no hike, we would expect the statement to label further hikes as “likely”. If the decision is for an April hike, then the statement will be slightly more moderate, with language such as “a further incremental adjustment to rates may be necessary.” The market is positioned for a hike, but whether that hike comes in April or June is immaterial. Therefore an on-hold decision on Thursday would not see the currency fall much, so long as the statement is hawkish.
In other data this week, we expect business confidence to wane a little on the back of the interest rate hike in March. The merchandise trade balance is likely to reflect strong consumption, with very strong imports pushing the balance out to -$170m.
Fixed vs. floating: Buoyant economic indicators in early 2007, especially those related to housing and domestic spending, means that the RBNZ is likely to lift interest rates again - maybe twice. Even if rates are lifted once, they look like staying high for some time. Fixing for 2 years seems appropriate given this outlook. But with the possibility of interest rate cuts later in 2008, an 18-month term is seen as a better alternative to a longer term.
NZ Interest Rates*

Key Data Previews

NZ RBNZ OCR review

• The RBNZ is expected to pause in April, preferring to assess the impact of a sharp increase in mortgage rates and a post-float high in the NZD/USD.
• Inflation pressures have intensified.
• We expect two hikes by the end of the year.

NZ Official Cash Rate

NZ Mar merchandise trade NZDmn

• The consumer resurgence will drive imports higher.
• Exports are also going well.
• The trade balance is expected to widen to -$170m.

NZ merchandise trade balance

NZ Apr NBNZ business confidence

• Business confidence fell in March following the RBNZ hike and is expected to fall further in the April read as monetary conditions have tightened significantly.
• Firms' own activity has been buoyant in the first three months of 2007 with strong momentum in domestic demand. Watch for any downward impact from the tighter monetary conditions, although it is too soon for this to show up.
• Attention will also be on inflation expectations, still a concern for the RBNZ. We expect another mild easing, extending seven consecutive months of declines.

NBNZ Business Confidence

Aus Q1 PPI

• The Q4 PPI rose 0.2%qtr and 3.5%yr. Non-core items saw a mild rise in food prices more than offset by a sharp fall in oil. The core PPI was constrained to a 0.8%qtr rise by falling core import prices, but domestic core prices ex-construction rose 1.1%qtr and 4.2%yr.
• In Q1 we expect a further fall in core imports (-1.0%) with a higher A$, lower petroleum (-5.1%) and a similar rise (0.9%) in building construction prices to Q4. But food prices accelerated (1.2%). The domestic core ex-construction pace is expected to ease slightly (f/c 1.0% vs 1.1% prev) helped by an easing exutilities pace after two strong quarters. This gives a total PPI of 0.6%qtr and 3.4%yr (vs 3.5%yr prev).

PPI: domestic core rising, imports falling

Aus Q1 CPI

• Our Q1 headline CPI forecast is 0.7%qtr & 3.1%yr (vs 3.3% prev). Higher petrol adds 0.4ppts, a +0.6ppt swing from Q4's drag. Main pluses are in health (PBS effect), housing (rents), education, alcohol & tobacco (excise), transport, recreation (domestic hols), finance & insurance services (Nov rate hike), food (drought). Minuses include clothing & household goods (discount sales).
• The average RBA core CPI is also expected at 0.7%qtr, up from Q4's 'low' 0.5% result, taking the annual rate to 2.9% from 3.0%. This forecast is particularly sensitive to the house purchase item (which Monday's PPI gives guidance on). We assume another 'low' rise here (0.6%), leaving upside risk to our 0.7% RBA core forecast.

CPI inflation: headline and RBA core

Aus Feb Westpac-MI Leading Index

• The annualised growth rate of the Westpac-MI Leading Index of economic activity, which indicates the likely pace of economic activity three to nine months into the future, was 4.8% in January, above its long term trend of 3.9%.
• For February, the monthly components of the index were positive. The share market added 1.0% during what was a volatile month. The money supply accelerated to increase by 1.5%. Dwelling approvals surged by 10.5%, boosted by a cluster of apartment approvals. On the international front, US industrial production rebounded to increase by 0.8%.

Westpac-MI Leading Index

US Mar existing and new home sales

• Existing home sales posted solid gains in Jan and Feb, and indeed have not recorded a significant fall since September last year. However because sales are measured at closure, the colder weather from late Jan has not yet impacted the data. Pending home sales have been softer, so March existing home sales should post a steep - but weather-related - fall.
• In contrast, new sales, measured at signing, plunged nearly 20% in Jan-Feb due to the snow and the lack of sub-prime buyers. Stronger construction jobs and hours and higher starts in Mar suggest a decent sales bounce - and an upward revision would not surprise either.

US housing sales

US Apr consumer confidence/sentiment

• The sentiment indicators we have seen thus far for April (including the prelim UoM report) all posted moderate falls, with the main driver being increased concern about the economy - hardly surprising given all the chatter about “recession”, since the sub-prime mortgage market woes hit the mainstream media.
• But as April progressed the economic news, led by the labour market, looked a little less dire, and the stock market hit a new record high. That means that the April CB confidence decline should not be steep, and we expect the final UoM read to be revised higher.

US consumer confidence

US Mar durable goods orders

• Notwithstanding big swings in the civilian aircraft component, orders were very weak in Jan and failed to recover in Feb. Of particular concern, core capital goods orders (ex defence and aircraft) posted back to back declines in the first two months of this year, calling into question the sustainability of business investment spending as a driver of economic growth.
• The Mar orders headline will once again be boosted by aircraft with Boeing orders up sharply. Also, with business equipment output up 0.8% in Mar, and orders still growing in the ISM survey, we are optimistic that core capital goods orders will stage a recovery of sorts.

US durable goods orders

US Q1 GDP growth to hold above 2%

• US GDP growth printed with a 2 handle in the last three quarters of 2006. Sharply weaker housing investment, and more recently softer business investment, have been major factors at play.
• We expect GDP growth of 2.2% in Q1. At the time of writing, that was a little above the consensus of below 2% annualised. That may be because we tweaked our forecast a little higher this week following solid retail and less weak housing data. We also expect business investment in structures to surprise to the upside.
• The core PCE deflator is forecast to accelerate from 1.8% annualised in Q4 to back above 2% in Q1.

US GDP growth

US Q1 employment cost index

• The ECI showed signs of stirring in Q2 and Q3 last year, as the tightening labour market finally began to see wages and benefits bid higher. But in Q4 it rose a more modest 0.8%, due to slower wages and salaries growth.
• We expect a much stronger Q1 growth rate of 1.1%, which would be the fastest pace the ECI has seen early 2004. Recent payrolls data show decent earnings growth, suggesting a bounce in the wages and salaries component, while higher medical care costs (often front loaded into firms' dental/medical program costs at the start of the year) will boost the benefits component too.

US Employment Cost Index

Westpac Institutional Bank

[شريف دعبس]

Daily Technical Strategist

Today's Focus: EURUSD & GBPUSD

• EUR Looks Vulnerable Nearer Term
• GBP Leans To The Downside Side

EURUSD

Having pushed to an intra day high of 1.3636 on Friday, the highest price in 27 months,EUR failed to hold on to those gains and subsequently collapsed to a low of 1.3585 at the end of Friday trading session. It however managed to put in a second week of higher closes. The pair is now battling with overbought condition on the daily chart and a negative divergence on the 4-hourly chart suggesting further nearer term downside weakness. The above scenario might have ignited its decline to as low as 1.3555 in early morning trading today which may likely push it lower on convincingly violating 1.3561 level, its April 19'07 low. A decisive penetration of this area sets the stage for more downside pressure targeting 1.3501/1.3483 zone, its 1.272 Fib Ext/Mar'05 high. This zone should cap further downside weakness and send the EUR higher but an inability of that zone to provide such support will open the door for a challenge on its Mar 22'07 high at 1.3410 ahead of its Dec'06 high at 1.3363.Below here lies 1.3245/59 levels, its Jan 20'06 high/.50 Ret (1.3071-1.3441 rally)/Feb 27'07 high.Additionally,its weekly studies are now topping out supporting its nearer term outlook. On the other hand, the first upside risk is seen at 1.3636, its April 20'07 high before 1.3668, its Dec'04 high followed by 1.4167, its Oct'1995 high. All in all, EUR requires a test and break of 1.3636 high to resume its medium/short term uptrend.



Support - Comments
1.3561: April 16'07
1.3501/1.3483 :1.272 Fib Ext./Mar'05 high
1.3410 :Mar 22'07 high
1.3363: Dec'06 high

Resistance -- Comment
1.3636: April 19'07 high
1.3668 :Dec'04 high
1.4160: 1995 high
1.4197 :1.272 Fib Ext.-Monthly Chart



Mohammed Isah
Market Analyst

[شريف دعبس]

GBPUSD

GBP like its EUR counterpart also made a run to the downside in early morning trading today having failed at its 26-year high at 2.0132 last week. The said intra day fall has pushed the pair below its 4-hourly trendline originating from 1.9591 low but it continues to hold above its psycho level at 2.0000.Maintaining above here calls for a retest of 2.0132 high where a clearance is required to resume its medium term uptrend on hold since that level held the past week. Beyond this area puts the next upside objective at 2.0219, its 1.272 Fib Ext. (Monthly chart).Weekly momentum indicators remain supportive of this scenario. On the contrary, with overbought condition on the daily chart now weighing on the on the pair, its current downside pressure might persist and bring losses towards its Jan 23'07 high at 1.9915 ahead of its April 03'07 high at 1.9824.Breaking and closing below will pave the way further downside losses aiming at 1.9721/26 zone, its Mar 22 & 26'07 highs/.382 Ret (1.9744-1.9824 rally) and then its Feb 15 & 27'07 highs at 1.9673/77 with a loss of there pushing the pair towards 1.9571/52 levels, its Mar 26'07 low/Dec'04 high. On the whole,GBP is expected to resume its primary uptrend after overcoming its present weakness.

Support -- Comments
2.0000 : psychologically important level
1.9915 : Jan'07/14-year highs
1.9824: April 03'07 high
1.9721/26: Mar 22 & 26'07 high


Resistance -- Comment
2.0045/2.0110 : 1991/1992highs
2.0219 : 1.272 Fib Ext.
2.1484: 0.786 Re2.4536-1.0463 decline


Mohammed Isah
Market Analyst