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Dollar Rebounds as Euro Rally Loses Steam

The greenback rebounds across the board as short-term traders took profit on euro and sterling long positions after recent sharp rally. The euro drifted from a high at 1.3650 versus the dollar to around 1.36. After breaking the 2 handle, the sterling accelerated its decline to test 1.99 level.

Today's economic calendar is light with only US weekly jobless claims. The number dropped from 339k to 321k, better than the consensus of 330k. The dollar pull back seen today was not driven by fundamentals and is more likely to be temporary than a real correction. Overall sentiment over the US economy and the Fed rate outlook remains negative.

The market will look to a bunch of US data due tomorrow morning. US PCE is expected to rose 3.3% in the first quarter, compared with a 1.0% decline in the previous quarter. Core PCE is seen at 2.1%, up from 1.8%. The employment cost index is estimated to rise 0.9%, up from 0.8%. Advanced GDP is forecasted to rise 1.8% in the first quarter, versus a previous reading of 2.5%. Besides, the university of Michigan consumer sentiment is likely to drop from 88.4 to 85.2 in April





EURUSD will face interim resistance at 1.3620, followed by 1.3650 and 1.3670. Additional ceilings will emerge at 1.37, backed by 1.3730. Support starts at 1.36, backed by 1.3580, 1.3550 and 1.3520. Subsequent floors are eyed at 1.35.





GBPUSD encounters interim resistance at 1.9930, backed by 1.9950, and 1.9980. Subsequent ceilings will emerge at 2.0000, followed by 2.0020 and 2.0050. On the downside, support begins at 1.99, followed by 1.9890 and 1.9850. Additional floors are eyed at 1.9830, backed by 1.98 and 1.9750.



Yen Slumped Ahead of BOJ Report

The yen slumped across the board before the Bank of Japan issue its semi-annual report tonight. Japan CPI is estimated to fall at an annual rate of 0.2% in March, compared with a 0.1% decline a month earlier. The market will also focus on the economic and inflation projections made by the BOJ in the report. The dollar rose sharply from 118.50 to 119.65 versus the yen.



The Reserve Bank of New Zealand raised rates by 25 basis point to 7.75% as expected, but did not show any bias to tighten further, which disappointed the market and induced some
carry trades unwinding



USDJPY encounters interim resistance at 119.70, backed by 120 and 120.30. Subsequent ceilings will emerge at 120.50, followed by 120.80 and 121. On the downside, support begins at 119.20 and 119, followed by 118.70. Additional floors are eyed at 118.50, backed by 118.20 and 118.



MG Financial Group

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EUR/JPY Testing Resistance at Record High

The greenback rose against major currencies on Thursday ahead of tomorrow's US GDP release. The EUR/USD retreated from the all-time high resistance, sterling fell back below $2.00 and the yen was broadly weaker on renewed interest in carry trades. Japanese investors last week bought foreign bonds at the fastest pace in five months for a net ¥653.4 billion ($5.5 billion), the Ministry of Finance said.

The EUR/JPY, testing resistance, touched a record high on speculation European central banks will raise interest rates and the Bank of Japan will refrain from increasing rates anytime soon. The pair is overbought, but Japanese retail investors' appetite for higher yields is strong; thus, it is risky to bet on an immediate fall in the pair. This is also the beginning of Japan's Golden Week holiday, which traditionally is a weak period for the yen. For the last six years, the yen has fallen during this week. If resistance at 162.50 is broken, the pair will likely rally.









Financial and Economic News and Comments

US & Canada

US Initial jobless claims fell by 20K to 321K in the week ended April 21, the US Labor Department said. The 4-week moving average of claims rose to 332K from 329K.

The Bank of Canada today released its April monetary policy report. The BOC said growth of the Canadian economy has been in line with the bank's expectations but inflation has been higher than expected. According to the BOC, the Canadian economy was operating just above its production capacity in Q1 2007. Core inflation should remain slightly above 2% over the coming months, given pressures on capacity. As the economy returns to its production capacity in the second half of this year, upward pressure on core inflation is expected to moderate, bringing core inflation back to 2% the end of 2007. The bank continues to judge that the risks to its inflation projection are roughly balanced despite a slight tilt to the upside.

Europe

Germany's GfK confidence index for May rose a stronger-than-expected 5.5 from 4.4 in April, the GfK said. Economists expected a reading of 4.7.

House prices in the UK rose at the quickest pace in four months in April, Nationwide Building Society said. The average cost of a home rose 0.9% m/m in April, following a 0.5% m/m rise in March.

Asia-Pacific

The Reserve Bank of New Zealand raised the benchmark interest rate to a record 7.75%. “The resurgence in economic activity has continued, with domestic demand continuing to expand strongly,” Reserve Bank Governor Alan Bollard said. For the first time in six statements, Bollard omitted reference to more rate hikes, increasing speculation he is done raising rates for now. The New Zealand dollar fell after the announcement as the bank also warned that the currency was “unjustified” at exceptionally high levels.

Hans Nilsson
Capital Market Services, L.L.C

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Asia Market Update

Fed's Yellen says best course for policy is 'watchful waiting

Fed's Yellen says that she is puzzled by weak economic growth amid a strong labor market: She said the disconnect between slowing economic growth and falling unemployment has 'significantly increased' risks to the U.S. economic outlook. She said that a possible reason for the disconnect is that unemployment lags growth and that the disconnect will disappear 'with a little more patience.' Yellen said that the best course for policy is 'watchful waiting', adding that the Fed needs to be flexible in responding to new data. Yellen said she sees heightened risks to both growth and inflation. Yellen's comments sounded decidedly less upbeat than her comments on the U.S. economy in February.

Japanese inflation comes in softer than expected: (JP MARCH CORE CPI YOY: -0.3% V -0.2% expected, -0.1% prior; National headline CPI YoY: -0.1% v -0.1% expected) Japanese inflation was weak largely because of falls in oil product prices and electronics products. There are press reports that the BoJ will come out and forecast 0.2% to 0.3% inflation, but there's going to be a real question of how to get there, and markets may remain skeptical about such a projection after today's soft data. As many companies in Japan's service sector tend to revise their prices at the start of a business year in April, figures for Tokyo's April core CPI were closely watched. Core CPI in the Tokyo area, announced a month ahead of the nationwide figures, was flat in April on a y/y basis, in line with estimates. The Japanese Ministry of Finance said that the soft inflation data does not alter their view that the end of deflation is in sight.

Japanese industrial production data comes in soft, but Japanese government does not change production outlook: (JP MARCH PRELIMINARY INDUSTRIAL PRODUCTION MOM: -0.6% V 0.9% expected; YOY: 1.6% V 3.3% expected) Analysts point out that the Japanese stats office projections for April is not so bad, so industrial production for the next quarter could rebound strongly. Several officials from the Ministry of Finance said that the data does not change their views on the Japanese economy.

Japanese household spending expands at a slower-than-expected pace, and jobless rate hold steady at an 8.5yr low: (JP MARCH OVERALL HOUSEHOLD SPENDING YOY: 0.1% V 0.7% expected, 3rd consecutive y/y gain) Japanese spending seems to be holding up despite the slowdown in industrial production and retail sales. Separate jobs data showed that the ratio of jobs to applicants, fell to 1.03 in March, the lowest level in a year. The data series has been steadily declining since reaching a 14-year high of 1.09 in July. A few analysts are puzzled by this development, since many companies are saying they have labor shortages and expansionary hiring plans.

Equites: Very few Asian buyers chose to enter positions ahead of U.S. GDP data, and all indices traded with a downside bias. The Nikkei225 is currently lower by more than 0.35% on declines in shares of banks after weaker than expected core CPI data. Shares of Fast Retailing fell close to 1.0% after earlier reported retail sales and spending data came in softer than expected. Gains in autos, driven by the weaker JPY, limited downside on the Nikkei. The Kospi index is lower by almost 0.60%, and the ASX 200 is lower by more than 0.70%. Aussie losers included BHP as metal prices declined. Chinese equities are lower on declines in shares of Citic Securities. The Hang Seng index is lower by more than 0.30%, tracking declines in Chinese equities.

Forex: Currency pairs continued sideways trading ahead of tomorrow's GDP data. During her talk tonight, the Fed's Yellen said that a Q1 GDP reading of 1.8% would not be surprising (current estimates is 1.8%), adding that the U.S. economy is expected to revert back to trend growth by year-end. The JPY was little changed after the weaker than expected inflation data. Several traders are saying that the market is nervous about holding USD shorts, and that short-term players are bailing out.

Commodities: Shanghai copper is lower by its daily limit of 4%, tracking earlier declines in the LME contract. Spot gold is lower by more than 0.25% on profit-taking in a session largely driven by technical trading. Gold is weaker on earlier gains in the USD during the U.S. session as traders looked to close out some short positions ahead of the upcoming GDP data. Crude oil is slightly higher in Asian trading on bargain hunting, after falling during the US session on reports that Iran could be making progress in its negotiations with European Union officials.

Trade The News Staff
Trade The News, Inc

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FX Overnight Briefing

Financial News - US & Far East

• Equities in New York
• Oil fell after Iran news
• Japanese CPI
• FED's Yellen on U-S economy

Today's Main Events

• Rate decision Bank of Japan
• U.S. GDP
• University of Michigan confidence

American Timezone

Equities in New York

The Standard & Poor's 500 Index ended equal after profits at raw-materials producers declined, while earnings that topped forecasts at 3M Co. helped push the Dow Jones Industrial Average to a second straight record.

Dow Chemical Co. slid, sending commodity producers to the steepest drop in the S&P 500, after the largest U.S. chemical maker cited decreased demand for materials used in homes and cars. Newmont Mining Corp., the secondbiggest gold producer, retreated as slumping output and higher costs erased the benefit of a rally in prices.

Ford added 33 cents to USD 8.21. The automaker reported a narrower firstquarter loss than analysts expected as rising profit in Europe partially offset increased losses in North America. The deficit was the smallest in five quarters, bringing the company closer to its goal of restoring profit in 2009.

Closing levels the 3 indexes

Dow Jones: 13105.5 (0.12 %)
S&P500: 1494.25 (-0.08 %)
NASDAQ: 2554.46 (0.26 %)

Dollar advances

The dollar advanced from the all-time low against the euro after it failed to break through that level, prompting investors to pare their bets on the U.S. currency's decline.

Oil fell after Iran news

Crude oil fell after Iran said it was making progress in talks with the European Union o its nuclear program. U.S. crude oil fell more than a dollar on Iran news and profit taking, after prices rose earlier amid fire on refinery. In very short time the market vent from 65.50 levels to 66.40 on the news of fire, and then back to low at 64.82.

Far East Timezone

Japanese CPI

Japanese core consumer prices fell more than expected in March while industrial production showed a surprising drop, raising doubts about how soon the Bank of Japan could next lift interest rates.

Core CPI fell 0.3 % in March from a year ago, more than an expected 0.2 % drop, while industrial production fell 0.6 % from the previous month, compared with an expected 1.1 % rise.

Japan's seasonally adjusted jobless rate was unchanged at 4.0 % in March, while overall household spending rose 0.1 % from a year earlier. March retail sales fell 0.7 % year-onyear.

Euroyen futures jumped on Friday after soft Japanese data on consumer prices and industrial production stirred doubts about how soon the Bank of Japan could next lift interest rates. EURJPY hit a record high of 162.84 after the soft data.

EURJPY traded between 162.38 and 162.84.

Ota on Japanese economy

Japanese Economics Minister Hiroko Ota said on Friday the overall economic trend remains intact despite weak industrial output data released earlier in the day.

'Production is weak, but the broad economic trend hasn't changed,' Ota told a news conference.

Asked about her view on deflation, Ota said: 'The end of deflation is still in sight, but we need to make sure that there is no return to deflation.'

FED's Yellen on U.S economy

San Francisco Federal Reserve Bank President Janet Yellen said on Thursday that while downside risks have increased and there is 'some' risk of recession, the economy should strengthen in the second half of2007.

Yellen also said flexibility in monetary policy was needed now as there were concerns about both growth and inflation. 'The current stance as enunciated in the statement is basically that we are going to watch the economy,' she told reporters after delivering a speech to the Money Markeeters of New York University.



Jyske Markets - FX Research

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Are there times when the market trades technically and others from fundamentals

The easy way out when the market doesn't move as forecast…

This is a comment I often hear or read… "In the absence of economic information the market traded technically".

You should see my face glow red with frustration when it is repeated again… and again. What a lot of absolute bunkum. Whoever says that has NO idea what technical analysis is about.

The market is always technical.

The biggest issue is whether the analyst is reading the signs correctly and that is down to the skill of the individual analyst.

Let's get this straight. Technical analysis is a wide ranging group of techniques which obtain information from price action or derivatives of price action and provide indications to the analyst on the expected direction of price. The basic concept that is often said is that it is based on the assumption that market participants will react in the same way to certain events in the market and since these form patterns, once a pattern is recognized it can be projected forward to predict the next move. In a way this is correct but apart from simple pattern recognition it doesn't really explain the concept sufficiently well enough to make it believable.

Consider one of the market's maxims, "price reflects all known information about the market that is known by the participants and price will move when a new input has been provided."

Basically that is correct. Who are the market participants? Well, it's you, it's me, it's all the bank traders in the world, all the corporate treasurers with Forex exposures to cover, our families who are off on holiday, market traders in good and commodities from which a Forex exposure arises, fund managers, central banks and even politicians who see their policies being affected.

What is common to all of them? They react emotionally to movements in price. Traders, whether private or institutional, fear making losses as do corporate treasurers, market traders and fund managers. Central bankers and politicians react to exchange rate movements since it affects official reserves, interest rate policies, trade balances and possibly the equity indices. They all fear losing money. They react emotionally as price moves.

I view technical analysis as a study of emotion and more importantly the sequence of emotions that all market participants go through. There isn't any moment of time as price is moving that emotions are not in play. I know from what I do every day that the flow of price movement comes in sequences that can often be measured and projected to obtain an idea of the high risk areas for targets.

Let us consider the whole basis of the ridiculous comment that sometimes the market trades technically a little more.

I've just been told by a client that he tried subscribing to two analytical services, mine and another good analyst but he says he gets confused because we often issue opposite forecasts. That's interesting. To be honest it happens all the time. I use a group of techniques that I like, Elliott Wave, time cycles, Fibonacci (in conjunction with Elliott Wave) and also momentum. Another analyst will use different momentum indicators, Bollinger bands and standard patterns. Another analyst may use Gann, Market Profile and momentum. Probably we'll come out with different conclusions.

So when the market is trading technically, which "technical" is being referred to?

Some of us will be right and some wrong. However, we are all trading technically…

I have even attended conferences where economists will make forecasts that are so widely divergent that the same thing is obviously true of fundamentals.

None of us is right 100% of the time. How I wish I was! What is important to traders listening to what we say can be summed up with four factors:

1. How consistently correct are we
2. Are the support and resistance levels we produce consistent
3. Can we provide alternatives for the occasions when we are wrong
4. If we are wrong, how quickly can we adjust our view

The problem technical analysis has is the fact that it is a concept that it difficult to envisage unlike being able to talk about trade balances, GDP and monetary policies. Like any other skill it has its good practitioners and bad ones. Most good traders are bad analysts – and vice versa. The two mind sets are different. But if a good trader attempts to apply technical analysis and fails because he hasn't spent enough time to learn (and more likely doesn't have the basic aptitude) then he will dismiss technical analysis as lacking credibility.

The other day I had a client write to me:

"I don't believe anybody can predict market moves, but it is often uncanny how accurate your Pro Commentary is with regards to moves in the FX market. With a sound money management strategy, my FX trading has improved considerably. Keep up the excellent work."

The fact is that with the right mind set, the right techniques and the current emotional sequence is recognized an analyst can be very accurate in forecasting and certainly within 5-20 points in forecasting accuracy.

It is for this reason that technical analysis can provide an element of accuracy and anticipate market reversals far better than economic forecasting. I have predicted target ranges 10 months ahead of the actual occurrence. I have identified the timing of every major low in USDJPY this year ahead of time. On every occasion the fundamentals have been bearish.

Keep an open mind. The market does trade technically 100% of the time.


Ian Copsey
Global Forex Trading

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Foreign Exchange Market Daily Update

The U.S. dollar dropped to an all-time low against the Euro on Friday after data showed the U.S. economy grew much less than expected in the first quarter, supporting the view that official interest rates are headed lower this year. Data showed the U.S. economy grew 1.3 percent, the softest pace in four years, hurt by weaker exports and a steady slide in spending on homebuilding. While America's Federal Reserve is expected to cut rates to support growth, higher rates are forecast in major economies such as the euro zone and Britain, which is encouraging investors to sell the dollar.



The British pound rallied above $1.99 against the dollar on Friday, regaining some of the ground lost on Thursday during a broad US dollar rally. Sterling gained support from some central bank selling of dollars and corporate buying of sterling for dividend payments, as well as overall negative sentiment on the greenback.



The Japanese yen strengthened against the dollar on the back of weak US growth numbers. The Asian currency dipped to a record low versus the euro after a larger-than-expected drop in Japan's core consumer prices. Overt yen losses have consistently proved short lived however, as exporters enter yen supportive carry positions ahead of "Golden Week" holidays next week. Comments from Bank of Japan governor Toshihiko Fukui that the BOJ may need to adjust interest rates despite near-term weakness in prices also supported the currency.



The Canadian dollar gained back recent concessions it made to the US dollar this morning, as US growth data drove the dollar lower across the board. In other news, a notice that central bank governor David Dodge will not seek a second term raised questions about who might replace him. Increasing attention was being paid to how Canada's central bank views signs of rising inflation and the strength of the Canadian dollar. Strong commodity prices and higher-than-expected jobs and inflation data have driven the Canadian currency higher over the past two months, as the market has trimmed its past expectations of interest rate cuts.



The Australian dollar drifted off its recent high but firmed against a broadly weaker U.S. dollar on views that the global growth outlook remains strong despite lackluster growth data in the United States. Australia is in its 16th consecutive year of growth, unemployment remains at a three-decade low and the country's minerals are in hot demand to feed China's booming economy.





The Mexican peso weakened and government bond prices dipped on Friday ahead of the central bank's monthly monetary policy decision. Investors broadly expect the central bank will keep the overnight interest rate steady at 7 percent, so market attention will center on the bank's choice of words on inflation and its rate outlook.


Union Bank of California
The Bank of Tokyo-Mitsubishi Group

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USA: GDP Growth Slows in Q1

Overview

The advance estimate for Q1 national accounts showed that GDP growth slowed to 1.3% q/q AR in Q1, down from 2.5% q/q AR in Q4. Hence, annual growth slowed to 2.1% from 3.1%. Core PCE rose 2.2% q/q AR in Q1 up from 1.9% Q/Q AR in Q4 reflecting continued inflationary pressures in the US economy.

Details

The picture when reviewing the details of the GDP account generally mirrors that of Q4. While personal consumption (accounting for approximately 70% of GDP remaining strong) rose 3.8% q/q AR, other factors were behind the weak figure. Again in this quarter the double inventory correction (in the housing market and the manufacturing sector) was a significant drag on growth. Residential construction spending subtracted 1%-point from growth, while inventories shaved off 0.3%-point. While this was broadly as expected, net exports (contributed -0.5%-point in Q1 vs. +1.5% in Q4) and government consumption (contributed 0.2% in Q1 vs. 0.6% in Q4) were the main reasons for the negative surprise.

However, there was also some positive news embedded in the report. Contrary to the message from the orders and shipments data, business spending picked up from a sluggish Q4. This is somewhat comforting as it suggests that business investment sentiment is not as bad as initially perceived see - Research USA: Bad news from corporate spending as well

Assessment and outlook

With growth slowing to 2.1% y/y the concern is that we will soon see some negative ramifications in the labour market, i.e. there is a risk that we will see slower job creation and upward pressure on the unemployment rate. This risk implicitly entails the possibility that the Fed will be moving its rhetoric towards a neutral stance in the near future. However, given the current situation in the labour market and the elevated core inflation, we still do not see much room for Fed easing. We expect the central bank to remain on hold throughout the year.

Entering Q2, we expect growth to remain in the soft end - although improving somewhat - with a growth rate in the 2.0-2.5 % AR range. On the positive side, the drag from residential investment will abate some-what, business spending will continue to normalise and the industry will see a comeback (i.e. rising ISM). The negative part of the Q2 story concerns the consumer, who will take a hit from higher gasoline prices. This will keep growth down below trend for another quarter. Looking into H2, we expect a more healthy growth rate around trend




Danske Bank

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good report

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US Dollar: Slowest Growth in 4 Years,
But It Is Jobs that Will Matter

by Kathy Lien


US SESSION MAJOR EVENTS

• US Dollar: Slowest Growth in 4 Years, But It Is Jobs that Will Matter

• Euro Hits Fresh Record Highs and Reverses

• USDCAD Flirts with 7 Month Lows on Acquisition News

US Dollar

Even though softer first quarter GDP growth drove the US dollar to a fresh record low against the Euro, the greenback ended up staging a very impressive intraday reversal. There was little to drive the dollar’s rebound aside from option expirations, rumors about a hedge fund cutting US dollar shorts to raise cash and optimism about the arrest of top al Qaida leaders in Iraq. We believe that the reversal is more technical in nature as the EUR/USD refuses to make hitting all time highs a new trend, like we have seen in the Dow. The details of the GDP report indicate that consumers are carrying the economy. Residential, private investment, defense and exports were all negative while the GDP price index grew by the fastest pace in 16 years. Weak growth but high inflation is the definition of stagflation – we just need see whether these conditions last. This puts the Federal Reserve in an exceptionally difficult place as the correction of one problem would worsen the other. Back in the late 70s, early 80s, Volcker defeated stagflation by raising interest rates sharply. When Bernanke took office, he promised to be an inflation fighter. However at this point, it is highly unlikely that he will follow in Volcker’s footsteps since it is unclear whether stagflation is here to stay. Instead, this only further confirms the notion that the Federal Reserve will keep interest rates unchanged for the remainder of the year. Looking ahead, next week will be all about jobs and manufacturing. We are expecting Chicago PMI, manufacturing sector ISM, service sector ISM, factory orders and non-farm payrolls. For the longest time, the argument for economic growth has been that as long as US consumers have jobs and are able to pay their mortgages, they will continue to spend. However the most recent consumer confidence report revealed that consumers are worried about their jobs. If this concern is validated by the non-farm payrolls report on Friday, then the EUR/USD could resume its climb towards 1.40. We argued in yesterday’s Daily Fundamentals that the recent rise in jobless claims, signals that we could see payrolls below 110k, but payrolls can be very erratic and revisions could sharp, therefore we do not rule out the possibility of a stronger release, which would surely take the EUR/USD below 1.35.

Euro

The Euro hit a new record high today, but the currency was unable to hold onto its gains amidst a wave of profit taking. In contrast to the usual unambiguously strong Eurozone data that we have become accustomed to, this morning’s economic releases were mixed. Eurozone retail PMI accelerated, German consumer prices increased more than expected and French consumer confidence improved, but the current account balance worsened significantly. Originally expected to print at 1.1 billion, the surplus turned into a deficit. The strength of the Euro most likely contributed to the deterioration and we expect the balance to only worsen in the months ahead. Meanwhile comments from Sarkozy are keeping traders hesitant about buying more Euros. Even though he has yet to become the President of France, his persistent criticism about the exchange rate suggests that if he does become President, his immediate actions will be Euro bearish. Furthermore, he added that Junker has threatened to resign as head of the Eurogroup if Trichet fails to halt the gains in the Euro. With the Euro at such elevated levels, traders have looking for any hint that policy makers may be uncomfortable with the currency’s rise. We are beginning to see a whiff of that, but not from the ECB, who are only the ones that can truly induce Euro weakness. In the meantime, the central bank is still on track to raise rates in June and that is the only thing that matters. Over in Switzerland, KoF leading indicators surprised to the downside, sending EUR/CHF back towards its 8 year highs. It appears that SNB President Roth is incredibly uncomfortable with the recent weakness in the Swiss Franc. He said that the markets are completely ignoring the “very favorable” economic outlook, which suggests that the central bank head will be looking to raise interest rates in the near term.

British Pound

The British pound is stronger across the board today despite the lack of economic data. The price action is more a reflection of dollar weakness and Euro underperformance than pound strength. The British pound has had trouble staying above the 2.0 mark and next week’s UK data is not likely to help much. We are expecting mortgage approvals, house prices, consumer confidence, consumer lending, money supply, manufacturing, construction and service sector PMI. All of the housing market data should be positive and the market expects. Consumer confidence should hold steady while we could see mild improvements in service PMI. There should not be much of a surprise in terms of UK data and most of the releases will support the need for another rate hike. Whether or not the GBP/USD will be able to break and remain solidly above 2.0 will be determined by US data.

Japanese Yen

The Japanese Yen is weaker across the board after mostly disappointing Japanese economic data. Household spending, the job-to-applicant ratio, industrial production, retail trade, and construction orders all fell short of expectations. The only improvement that we saw was in housing starts. Tokyo reported slightly faster CPI growth, but not enough to indicate that deflation has been beaten. As expected, the Bank of Japan left interest rates unchanged at 0.50 percent. The semi-annual report indicated that the central bank also revised their CPI forecast lower. This confirms that the BoJ will remain on hold for some time and explains today’s sharp rally in carry trades. Next week is Golden Week in Japan, which means that most Japanese are on holiday so no significant data is due release




Commodity Dollars - AUD, NZD, CAD





After yesterday’s sharp slide, the commodity currencies rebounded today with the most meaningful reversal seen in the Canadian dollar. Despite the best levels in business confidence since the fourth quarter of 2004, USD/CAD is flirting with its 7 month lows. The demand for the CAD has been primarily driven by M&A flows. Norway’s Statoil agreed to purchase Canadian based North American Oil Sands for $2 billion cash. Looking ahead, the only events on the calendar are the RBA rate decision, monetary policy statement, Canadian GDP, industrial product prices, IVEY PMI and New Zealand building permits, money supply and commodity prices. The RBA is not expected to raise rates, while most Canadian data should print positively.

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New dollar record low level – Forecast for EURUSD

Fri, 27 Apr 2007 20:57:41 GMT
by George Marshal
World-Signals®



After worse than expected US GDP-Adv data for Q1 the dollar break the key resistance at 1.3668 against the euro touching 1.3681. This is the ever-high level of euro against the dollar. The situation in the US economy really concerns the investors and the Fed has to cut the interest rates soon. For short time the dollar recovery against the euro as one of the key region the Michigan Sentiment-Rev show positive results. Finally at the end of the day trading the dollar also remain under pressure. If the US economy continues to generate negative news the trading will break 1.37 and far at the range of 1.38/1.40 is expecting the end of the current strong upward movements.

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Economic Growth Slowing To Stall Speed

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Directional Channels

The FX-market will normally oscillate between range bound and trending conditions a few times throughout the year. We may see the market spend a relatively low or high amount of time in either market condition, depending on the fundamental picture and economic climate of each currency within the pair. However it is safe to say that the FX-market has the tendency to remain in a range bound condition the majority of the time due to a number of reasons including the extremely high amount of volume that passes through the market every trading day. With that said, although boring, these trading ranges can offer a number of clues as to the future possible move of the market. The following (daily) chart shows the EURUSD pass through a number of trading ranges or trading channels, broken up only by an occasional trend, which tends to occur and terminate quite quickly. Note how the subsequent breakout was forecasted by the direction of the preceding channel. In other words, each trading channel developed a bias either to the upside or downside, which eventually broke out to a new trend in that same direction. What is the lesson? We should make every attempt to trade in the same direction as the overall trend. By placing our trades in the same direction as the overall trend, we stand a good chance to participate in the subsequent breakout if it happens to occur while we hold a position open


Adam Rosen, FX PowerCourse Instructor

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Bullish and Bearish Divergence Signals

Using price/momentum divergence to identify trend completion

Momentum indicators are normally used more as overbought/oversold indicators with levels above an upper level between 70 and 80 suggesting potential for a reversal lower and a lower level between 20 and 30 suggesting potential for a reversal higher.

When used carefully with strong reference to price these signals can be quite accurate. However, it is also possible to utilize momentum indicators to warn of a deceleration of a trend and subsequent risk of and end to the trend.

The latter signals are normally highlighted by what are known as "divergences." These can be defined as:

Bullish divergence: Rising price highs in an uptrend while corresponding highs in the momentum indicator are declining

Bearish divergence: Declining price lows in a downtrend while corresponding lows in the momentum indicator are rising


When price and momentum direction begin to diverge in this manner it is basically identifying that the speed of the trend is beginning to lose momentum and as such there is greater risk for the trend to reverse.

Note how in this diagram that price has been rising in a sequence of higher highs and lower lows (an uptrend) but over the last three price peaks the corresponding RSI has marked lower peaks in the indicator.


The chart above shows three examples of divergences. The first towards the left of the chart is a bullish divergence where price has been declining with lower highs and lower lows but over the final two lows the RSI (Rapid RSI) has seen a higher low.

This signals a reversal higher in price which then sees an strong uptrend develop until towards the right center of the chart at the top of the trend we note that while the two last price highs are still rising, the Rapid RSI below has seen a lower high on the second price peak. The break of the trend support line confirms reversal.

Finally, from the peak at the right center of the chart we see a downward correction develop within which the price lows move lower but the Rapid RSI lows fail to confirm the downward momentum and this bullish divergence signals a reversal higher once again.

Does this mean that every time we note a divergence forming in this way that we should enter a trade? Most definitely not. It is always vital that such signals are confirmed by price. Remember the definition of an uptrend is a series of higher highs and higher lows, and vice versa for a downtrend. Until the prior low (in an uptrend) is broken, there is no reversal of the uptrend. The opposite is true for the downtrend.

Look at the chart below:

You can see here that price is rising very consistently in an uptrend while an apparent bearish divergence develops in this weekly chart over a period of nearly one year. However, no downward reversal occurs. There are two features to note here. The first is that at no time does the prior low point in the uptrend ever get broken and the second is that towards the right of the chart the break above the divergence line (effectively a trend resistance in Rapid RSI) price then accelerates higher once again.

However, divergences when used in conjunction with signals generated from price are an exceptionally strong indicator of a reversal and can provide you with excellent trading opportunities.


Ian Copsey
Global Forex Trading

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