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US Open Market Points: Australian Dollar Hurt By RBA, Greenback Looks To NFPs

Talking Points

• Australian Dollar: Trade deficit widens RBA sits still
• Euro: Services softer, Retail in line
• Canadian Dollar: Ivey PMI on tap
• US Dollar: NFP to set tone

Australian Dollar Hurt By RBA, Greenback Looks to NFPs

The Aussie was the biggest loser in overnight trade as muted RBA May commentary along with much worse than expected trade deficit, weighed on the unit throughout Asia and early European trade. The trade deficit widened to -1.6 Billion AUD vs. -1 Billion AUD projected but the steep increase was caused primarily by cyclone activity in the northwest that disrupted iron exports. The bad news in trade may have been a one off event, especially in light of the fact that when adjusted for seasonal variation, the deficit for Q1 of 2007 probably shrunk to 3.31 Billion AUD vs. 3.55 Billion the quarter prior.

The real driver behind Aussie's plunge may have been the less than hawkish May statement from the RBA. The weak inflation results last month prompted RBA to downgrade its inflation forecast from 2.75% to 2.5%. Furthermore, the central bank projected no serious inflationary impact from the persistent drought affecting the whole continent which has resulted in higher crop prices. The central bank signaled that for now its was content to simply observe the economy without initiating any additional rate hikes. For traders who had banked on another RBA rate hike in June, the tepid tone of the statement served as a disappointment. With Aussie trading at 17 year highs fueled in large part by some of the highest interest rates in the industrialized world, the RBA appears to be cautious about stoking more carry trade demand by hiking rates further. In short, the Australian central bank let the market know that it is unwilling to raise rates higher unless it is absolutely compelled to do so by spiraling price data and as a result, Aussie longs were liquidated throughout the night.

In Europe today, the economic news was essentially in line, although the services PMI data did print a bit soft. The index registered a reading of 57 vs. 57.6 as Italian and French data slipped. All of the components with the exception of employment were higher, but the pullback in employment suggests that the higher euro may be exerting some drag on future growth. At the very least, tonight's data indicates that expansion in the 13 member region may have hit a short term peak as the index dropped to it lowest level in 6 months. The pair hardly reacted to the news however, as the EURUSD continued to trade in a very narrow 1.3545-1.3560 range ahead of the key event this week - US Non-Farm Payrolls. With market sentiment towards the US report already sour the risks for the dollar lie to the upside, unless the number prints extraordinarily weak at less that 60K jobs. Furthermore, as always the prior month revisions will be as important as the headline itself and the prices may well whipsaw in the first few minutes post release so caution and patience are advised.

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Dollar Falls after Weak Non Farm Payroll, But Still in Range

The job report released today is generally weak. Non-farm payroll growth in Apr slowed to 88k, missing expectation of 100k and being the lowest since Nov 04. Prior month's data were revised lower with Mar down from 180k to 177k. More importantly, Feb's job growth was also revised down from 113k to 90k. With the downward revision, we now have 2 months of sub-100k NFP this year which is clearly a sign of weakness in the job markets. Unemployment rate rose back from 4.4% to 4.5%. Average earnings slow to 0.2% mom, 3.7% increase. After yesterday's data that showed moderation in wage growth, today's data suggest that wage pressure could continue to reduce in the upcoming months .

Technically speaking, market actions are pretty like what happened recently. There are some pressures on dollar after weak data, but the fall in dollar is not disaster panic selloff type and majors are still mostly kept in range so far. While further downside will likely be seen today in the greenback, some near term support levels are needed to be closely monitored to confirm that dollar's recent rebound has completed. Otherwise, short covering of greenback in the larger trend could still be in force

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Forex Weekly Review and Outlook

Central Banks to Dominate

It looked like dollar could finally stage a strong rebound last week but yet, the rally was capped by downside surprise in Non-Farm Payroll. The greenback ended up staying in previous week's range against Euro and Sterling. Japanese yen remained weak in the Golden Week in Japan with another record low scored against Euro. Commodity currencies were mixed as Aussie and Kiwi continued to be pressured by rate expectations while Canadian dollar's impressive rally extended further on solid GDP. Central bank meetings will dominate the calendar this week with FOMC, ECB and BoE on the card.

Dollar's attempt for a reversal was dampened by conflicting data last week. Friday's Non Farm Payroll showed only 88k job growth in Apr, missing missing expectation of 100k and being the lowest since Nov 04. Prior month's data were revised lower with Mar down from 180k to 177k. More importantly, Feb's job growth was also revised down from 113k to 90k. With the downward revision, we now have 2 months of sub-100k NFP this year which is clearly a sign of weakness in the job markets. Unemployment rate rose back from 4.4% to 4.5%. Average earnings slow to 0.2% mom, 3.7% increase, echoing the sharp fall in Q1 Unit Labor Costs growth from 6.2% to 0.6%, suggest moderating wage pressure.

Regarding inflation, Mar Core PCE was flat mom and dragged the yoy rate further down from 2.4% to 2.1%, much closer to Fed's comfort zone of 1-2% now. Though, top line inflations high with PCE accelerating to 2.4% yoy. After all, the inflation part of the report is inline with the CPI report earlier which showed further moderation in inflation and should ease some of the concerns of Fed's members. Meanwhile, the unexpected slowing of personal spending from 0.7% to 0.3% casts some doubts on the underlying strength of US consumer.

However, the ISM indices were telling another story and indeed, boosted the dollar higher briefly during the week. The headline ISM Manufacturing Index rose strongly from 50.9 to 54.7 in Apr, beating consensus of 50.9, and is the highest reading since Sep 05. Employment index rose strongly from 48.7 to 53.1, highest since Sep 06. Price Paid Index continued its upside momentum and surged to 73.0, highest since Jul 06. ISM Services rose more than expected to 56 in Apr, well above consensus of 53 and is the strongest reading since Jan this year. The price paid component edged further higher to 63.5, which is highest level since last Aug. The Employment component also came in slightly higher at 51.9. Both indices suggest that manufacturing and services industries are probably regaining momentum for expansion which were also supported by strength in the employment components. Meanwhile, pipeline inflation were continuing to increase based on persistent uptrend in the Price Paid Indices.


Data from the Eurozone were generally solid. Apr Eurozone CPI estimate moderated slightly from 1.9% to 1.8% in. Manufacturing PMI stayed at 55.4 in Apr, vs expectation of 55.7 while Services PMI dropped slightly to 57.0, versus consensus of 57.6. Eurozone PPI rose 0.3% mom, 2.7% yoy in Mar. Retail sales rose 0.5% mom, 2.6% yoy, prior 0.4% mom, 1.2% yoy. Though Germany retail sales were disappointing in Mar by dropping -0.8% versus consensus of 0.8%.

From UK, Manufacturing PMI dropped slight from 54.4 to 53.9 in Apr, which Services PMI dropped slightly from 57.6 to 57.2. CBI distributive trade index beat expectation by rising from 32 to 44, highest in two years. The report suggests that retail spending continued to grow solidly and is supportive to further tightening from BoE.


Swiss CPI rose by 1.1% mom, 0.5% yoy in Apr, much higher than prior 0.1% mom, 0.2% yoy and consensus expectation of 0.9% mom, 0.2% yoy. The acceleration was mainly driven by clothing and oil. With robust KoF and ZEW, the mild strength in CPI should underpin the need for further rate hike fromSNB in Q2 during the Jun meeting. However, the boost to Swissy was briefly as it continued to weaken towards the end of the week together with the Japanese yen.

Aussie remained pressured last week after RBA kept rate unchanged at 6.25% as widely expected. There were further sell off after RBA lowered its inflation forecasts in the Monetary Policy Statement . Consumer inflation forecasts is lowered from 2.75% to 2.5% in 2007 and is expected to remain in the top half of RBA's target range of 2-3% in 2007. More importantly, RBA commented that "an appreciable tightening of policy had already been implemented during 2006" suggesting that they may wait to see the impact on the economy which will come with a lag before building the case for further policy movements.

Canadian dollar's impressive rally continued last week, with USDCAD reaching as low as 1.1031, which was over 800 pts from this year's high of 1.1874 and just 100 points above last year's low of 1.0930. Feb Canadian GDP rose 0.4% yoy, which was much better than expectation of 0.2%. Mar PPI rose 1.3% mom, which was also much higher than expectation of 0.8%

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The Week Ahead

The week ahead will be dominated by central bank meetings. FOMC is widely expected to keep rates unchanged at 5.25% on Wednesday and focus will again be on the language of the accompanying statement. Firstly, moderation of inflation seems back on track as suggested by data since last meeting, including core CPI which dropped back to 2.5% yoy rate which core PCE dropped to 2.1% yoy. Meanwhile, growth data, in particular, Q1 GDP was much weaker than expected. It will be interested to see if inflation remains the 'predominant concerns' of the Fed members, orthe weight is shifting more towards growth. Part of the markets have withdrawn expectation of a June cut last week after successive strength shown in both ISM indices but that could be changed again if the FOMC delivers a more dovish than expected statement. Other data from US include wholesale inventories, trade balance, PPI and retail sales.


ECB is also widely expected to keep rates unchanged at 3.75% on Thurs. Based on current strength in the overall Eurozone economy and persistently strong M3 money supply growth. ECB is widely expected to have another 25bps hike in Q2 in June. Hence, the focus this time will be on the use of the magical word "vigilance" by Trichet to signal a June hike. It will be a surprise if Trichet doesn't do so. Other data include German factory orders, industrial productions and trade balance


BoE will also announce rate decision on Thursday. BoE is widely expected to hike again this time after the surprisingly high inflation of 3.1% yoy in Mar. Opinion is divided on whether BoE will hike by 25bps or 50bps. However, in his open letter to Chancellor Brown, King has played down the significant in one particular month of inflation data and emphasized that the MPC will continue to "look through the short-term volatility in inflation" which resulted from "fluctuations in domestic energy prices". Hence, BoE will more likely hike by 25bps. Also, the MPC members should have discussed the current inflation outlook thoroughly in this meeting and therefore, there should be some valuable information on the member's view on inflation in the MPC statement to be released after the hike. And that will play an important part in shaping up expectations on further monetary policy movements ahead of the Inflation Report on May 16. Other data from UK include industrial and manufacturing production as well as trade balance.


Japan will come back from Golden week holiday and will start with BoJ meeting minutes on Mon, followed by leading indicator and machine tools orders.

Trade balance in Canada will also be closely watched, in particular to see whether it could extend the Loonies' recent strength.

Retails sales and unemployment rate from Australia will also be featured

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EUR/USD

From a short term angle, EUR/USD has made a top at 1.3681 on bearish divergence condition in 4 hours MACD and RSI. However, it's too early to draw a conclusion on whether the rise from 1.2865 has finished at 1.3681 already as subsequent retreat to 1.3535 was supported by mentioned short term rising channel support. Nevertheless, further decline is still mildly in favor as long as EUR/USD stays below 1.3621 resistance.

Below 1.3535 again will indicate fall from 1.3681 has resumed. More importantly, sustained break of the short term channel support (now at 1.3541) will warn that whole rally from 1.2856 has already completed at 1.3681 and bring deeper decline to 1.3406/10 support first. However, on the upside, break of 1.3621 will indicate the fall from 1.3681 is merely a mild correction only and has completed. Further rally should be seen to retest 1.3681 high. Break will confirm recent rally has resumed for a test of short term rising channel resistance (now at 1.3746) first.

In the bigger picture, with 1.3668 target met, risk of medium term reversal is also increasing. As discussed before, medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483 is treated as resumption of the whole up trend from 1.1639. With such interpretation we'd expect risk of medium term reversal to increase significantly as EUR/USD enter into resistance zone between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Hence, is now on reversal signals.

On the downside, break of the short term rising channel support will indicate the rise from 1.2865 has likely completed. Break of 1.3406/10 support will confirm such case and deeper decline should then be seen to 55 days EMA (now at 1.3394). More importantly, with bearish divergence condition in daily MACD and RSI, this will be the first warning that the rise rally from 1.2483 has also completed, and thus, so is the whole up trend from 1.1639. Focus will then be back to medium term rising channel support (now at 1.2977).

However, note that, as long as the short term rising channel remains intact, rise from 1.2865 is still in good shape, and thus, EUR/USD's rise could continue to extend further to medium term rising channel resistance (now at 1.3791) and mentioned 1.3822 projection target.

In the longer term picture, it's still early to conclude whether medium term rally from 1.1639 represents resumption of multi-year up trend from 0.8223 or just part of a large scale consolidation that started at 1.3668. But, the three wave corrective nature of the rise from 1.1639 to 1.2978 suggest that this whole rally from 1.1639 will be corrective in nature, thus, favoring the latter case. And therefore, as discussed above, focus will be on reversal signal when EUR/USD enter into resistance zone of 1.3668 (04 high) and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. But sustained break of this resistance zone will path the way towards 95 high of 1.4523.

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GBP/USD

Cable's correction from 2.0132 continued last week and edged lower to 1.9841 despite attempted for a rebound initially. With the short term rising channel support broken, rally from 1.9183 has likely completed at 2.0132 already. However, Friday's rebound has turned short term outlook neutral with cable now touching 4 hours 55 EMA (now at 1.9940) and 4 hours MACD recovered to above signal line.

On the upside, break of 1.9946 resistance will favor the case that fall from 2.0132 is merely mild sideway consolidation and has completed. Retest of 2.0073 should be seen in this case and break will suggest that whole rally from 1.9183 has resumed for a retest of 2.0132 high first. On the downside, sustained trading below 1.9824 resistance. turned support will confirm that deeper correction is underway towards 55 days EMA (now at 1.9741) first.

In the bigger picture, we'd like maintain that risk of medium term reversal remains high and is increasing. Firstly, the whole up trend from 1.7047 is not clearly impulsive. One interpretation is that rally from 1.7047 ended with three waves up to 1.9024. Subsequent correction ended at 1.8090. Rally from 1.8090 has already met mentioned target of 100% projection of 1.7047 to 1.9024 from 1.8090 at 2.0067. Secondly, regardless of the larger trend, rise from 1.8090 can be interpreted as being a five wave sequence with first wave ended at 1.9142, second at 1.8517, third at 1.9913 and fourth at 1.9183. The channeling property supports this interpretation too. In such case, the fifth wave rally from 1.9183 has also met target of 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046 too. With bearish divergence condition remains in weekly RSI and Daily MACD and key 2.0106 resistance (92 high) not decisively taken out, cable could be forming a top at the current price level.

On the downside, firm break of the medium term rising channel support (now at 1.9500) will indicate that the whole rally from 1.8090 has completed and add much credence to the case that an important medium term top is already formed and put focus to 1.9183 low. However, sustained trading above mentioned 2.0106 resistance will dampen the above interpretation and indicates that underlying bullishness in cable is much stronger then we thought. Further medium term rally should then be seen towards 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677.

In the longer term picture, the break above 1.9554 resistance (04 high) is favoring the case that long term up trend from 1.3680 has resumed after correction from 1.9554 was supported by 55 months EMA. However the structure of the medium term rise from 1.7047 is not clearly supporting this yet. And, we're still skeptical on it. The structure of the fall after finishing the current up trend from 1.7047 should reveal more information. But a strong break of mentioned 2.0106 resistance indicate add much favor to the case that multi year up trend from 1.3680 has resumed and hence should bring rally to next target of 61.8% projection first.

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USD/CHF

USD/CHF's rebound from 1.1993 extended further to as high as 1.2188 last week. As discussed before, bullish convergence condition in 4 hours MACD and RSI indicates that the fall from 1.2282 should have completed at 1.1993 and hence from a short term angle, further rally is still in favor. Break of 1.2188 again will bring another rise towards 1.2282 cluster resistance (50% retracement of 1.2571 to 1.1993 at 1.2282). However, below 1.2092 support will indicate lengthier consolidation will come in first before another rise.

In the bigger picture, note that bullish convergence condition is also being displayed at in daily MACD and RSI, suggesting that the whole fall from 1.2571 has possibly completed too, after meeting 78.6% retracement of 1.1878 to 1.2571 at 1.2026. Sustained break of 55 days EMA (now at 1.2177) will add more credence to this case and bring further rally towards 1.2282 cluster resistance. However, note that weekly MACD remains below signal line and USD/CHF is still trading comfortably below 55 weeks EMA (now at 1.2358), medium term risk remains on the downside and the current rebound from 1.1993 could merely be part of a sideway consolidation to the whole fall from 1.2571.

Hence, focus will be on 1.2282 cluster resistance level. The original case is still in favor as long as this cluster resistance holds. That is the whole down trend from 1.3283 is still in progress with the first move from 1.3283 finished with three waves down to 1.1919. Subsequent rebound to 1.2768 was the interim correction and price actions from there represent resumption of such down trend. Break of 1.1993 low will add more credence to this case and bring further decline to 1.1878 low.

However, strong break of 1.2282 cluster resistance will dampen this view and indicate that the fall from 1.2571 has completed after meeting 1.2027 fibo support. Another rise could then be seen to retest this high and then the upper end of the range at 1.2768

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USD/JPY

USD/JPY's rise from 117.68 extended further to as high as 120.45 last week. From a short term angle, touching of 119.97 minor support on Friday's retreats turned intraday outlook consolidative and hence, further retreat could be seen initially this week towards 4 hours 55 EMA (now at 119.63). However downside should be contained by 119.02 cluster support (50% retracement of 117.60 to 120.45 at 119.03) and bring rally resumption. Above 120.45 will indicate rise from 117.60 has resumed for trend line resistance (now at 120.60) and 78.6% retracement of 122.17 to 115.13 at 120.66 first.

In the bigger picture, previous break of medium term rising channel support (108.99, 114.41, 117.87) indicates the whole medium term rally from 108.99 has completed at 122.17. However, firm break of falling trend line resistance (122.05 to 121.61, now at 119.21) and sustained trading above 119.48 fibo resistance (61.8% retracement of 122.17 to 115.13) indicates price actions from 122.17 probably developing into sideway consolidation to rise from 108.99 only, instead of a sharp reversal. Hence, a retest of 122.17 high could be seen. But still, firm break above this resistance is needed to confirm medium term rally from 108.99 has resumed. Otherwise, medium term outlook will be neutral at best and risk of another remains.

On the downside, a firm break below 117.60 support will confirm that rebound from 115.13 has completed and deeper fall should then be seen to retest this low and probably further towards 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02). But firm break of this support zone is needed to confirm the underlying medium term bearishness and shift favors back to the case that fall from 122.17 is the third leg of a wide range consolidation that started at 121.38 (first leg completed at 108.99, second at 122.17). Otherwise, as discussed before, price actions from 122.17 could merely be developing into sideway consolidation only and further medium term rally could still be seen

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EUR/JPY

EUR/JPY extended rally to new record high of 163.59 last week. Even though upside momentum is seen diminishing, further rally is still in favor as long as EUR/JPY stays within the short term rising channel (support at 162.52). Next upside target will be 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64. However, risk of short term reversal is still high as bearish divergence conditions remains in 4 hours MACD and RSI. Sustained break of the short term rising channel support will warn that the whole rise from 150.75 has completed and bring deeper correction 159.60 support first.

In the bigger picture, EUR/JPY's sustained trading above medium term rising channel resistance (now at 162.46) suggests that strength of the rally from 150.75 could be much stronger than we thought. But still, interpretation of rally from 130.60 remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure, targeting 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 and could terminate there.

On the downside, break of the short term channel support will indicate that rise from 150.75 has completed and deeper correction should then be seen towards 55 days EMA (now at 159.29). Also, this will give a serious warning signal that the whole rise rise from 130.60 has ended. EUR/JPY should set to channel the medium channel support (now at 153.28) in case this EMA is taken out decisively

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Daily Currency Report - EUR/USD

EUR/USD

Weekly Trend direction: Bearish

Weekly trend reversal level: 1.3700

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

Medium term: The euro has broken above the large flag formation which has dominated the technical picture in 2006. Now, whilst above 1.2900 (1.2800 max), the euro remains in an uptrend which is heading back towards 1.3667, the multi-year high, and possibly higher still, towards 1.4100.

Today's trade suggestion: Although we have not managed to break below 1.3550/30, last week's candle was marginally bearish and upwards momentum has slowed down considerably. First resistance now lies at 1.3600, with further barriers at 1.3650 and 1.3680. These are the levels we will look to sell into after a G7 entry signal is formed, with targets of 1.3550 and then, eventually, 1.3400. Above 1.3700 means that our long term target of 1.4100 may be within reach this month or early next.

Key G7 Resistance levels: 1.3600, 1.3650, 1.3680.

Counter-trend opportunities: None

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Forex Daily Technical Report

Dollar Cautiously Lower in Quiet Trading

Dollar continues to edge lower against majors today but movements are so far limited. Markets will likely remain cautious with a light economic calendar today and ahead of meetings of three major central bank later this week including Fed, ECB and BoE. Minutes of the Mar BoJ meeting offered nothing new to the markets. The Policy Board noted that it intended to maintain low interest rates for some time and that any adjustments would be gradual and based on the economic and price data. Also, there is no preset schedule for further rate adjustments.


Germany factory orders is featured later today and is expected to drop -0.5% mom, rise 9.6% in Mar. Some ECB officials are scheduled to speak too. Since it's widely expected that Trichet will signal a June hike in the upcoming ECB press conference, reactions to today's data and speeches will likely be muted unless there is significant deviation from this expectation. There is little reaction to Nicolas Sarkozy's victory in France's presidential election on Sunday.

Swiss Franc is mildly firm against dollar and euro with unemployment rate dropping slightly from 3.0% to 2.9% in Apr

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Forex Mid-Day Technical Report

Canadian Dollar Surges on Strong Housing and M&A News

Canadian dollar surges sharply in early US session on strong housing data and M&A news, with USD/CAD pressing 1.1 level. Building permits rebounded strongly in Mar, rising 27.4% to CAD 6.1b. This rise was much sharper than market expectation of 5%. The Loonie is also supported by Aloca's $33b cash and stock bid for Alcan of Canada. Technically speaking, USD/CAD is now over 850 pts from this year's high of 1.1874 and remains weak despite being oversold. Current weakness will likely continue until a test of low of 1.0930.


Elsewhere, dollar continues to trade with an undertone in tight range today. Euro is mildly firmer after much stronger than expected German factory orders which rose 2.4% mom, 0.9% yoy in Mar comparing to consensus of -0.5% and 9.6%. The European Commission said that unexpected first-quarter expansion in Germany on increasing corporate investment and consumer spending bolster the euro-area economy. And, as a result, forecasts for growth and inflation are both raised from Feb's forecasts. Growth is expected to be at 2.6% in 2007, up from 2.4%. Consumer inflation is expected to be 1.9% this year, higher than Feb's forecasts of 1.8%. Some ECB officials are scheduled to speak too. Since it's widely expected that Trichet will signal a June hike in the upcoming ECB press conference, reactions to today's data and speeches will likely be muted unless there is significant deviation from this expectation.


Mar retail sales in Australia will be released in the coming session and will be closely watched. Sales is expected to slow slightly from 0.9% to 0.5%. Aussie attempts a rebound today and will need a strong figure to sustain the momentum

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FX Sideways, USD Softer

At 6:00 AM Germany March Industrial Production (exp 0.0%, prev 0.9%)
At 8:15 AM Canada April Housing Starts (exp 215k units, prev 210.9k units)
At 10:00 AM US March Wholesale Inventories (exp 0.4%, prev 0.5%)

The major currency pairs continue to consolidate amid a dearth of fresh news and traders taking to the sidelines ahead of several key central banks monetary policy decisions this week. We expect the dollar to remain pressured, particularly versus the euro and sterling given this week's likely divergence in policy outlooks.

The FOMC is largely expected to stand pat while the ECB is forecasted to signal a rate hike in June and the BoE is seen tightening policy by 50-bp to 5.75%. The primary focus continues to be the state of the US economy, with recent data revealing further deterioration in fundamentals.

Economic reports from North America in the coming session will see Canada April housing starts and US March wholesale inventories. Canada's housing starts

Aussie Firms on Data

The Aussie dollar crept higher versus the greenback, edging up to 0.8286 after a mixed set of economic reports. The March retail sales increased by 1.1%, beating calls for a 0.5% increase. Meanwhile, the building approvals for March plunged by 11.4%.

AUDUSD pushed back toward the 0.83-level, with interim resistance seen at 0.8340, followed by 0.8375 and 0.84. Support starts at 0.8260, followed by 0.8220 and 0.82.

Euro Buoyed Above 1.36

The euro remains supported above the 1.36-level, consolidating in a narrow range near all-time highs. Germany's March industrial production is due out at 6:00 AM New York time, and is forecasted to fall to a flat reading versus a 0.9% increase previously.

We expect the euro to remain supported throughout the week on the prospects of ECB President Trichet signaling a June hike.

EURUSD targets resistance at 1.3630, followed by 1.3680 and 1.37. Support begins at 1.3580, followed by 1.3530 and 1.35



MG Financial Group

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Pro FX Commentary: USDCHF

We are firming up the revised wave count to label the 1.2188 high as Wave a of Wave iii. The pullback to 1.2089 stalled between the 50% and 58.6% retracement in Wave b and thus we can generate targets for Wave iii.

We note that a 176.4% projection rests at 1.2223 and this should be noted. More convincingly is the 223.6% projection at 1.2275 which is also where Wave c will be equal to Wave a.

Any earlier break below 1.2070 would imply that the 1.2188 high was Wave [b] of Wave [v] and thus we revert to the Wave [v] targets between 1.1944 (61.8%), 1.1917 (66.7%) and 1.1864 (76.4%).


Ian Copsey
Global Forex Trading

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FX Pole Position: Silence Before The Storm

Today's Comment

German Manufacturing for March came out strong with February also revised up. This confirms a positive outlook for the economy though reactions to rates were limited.

Following a light Scandi agenda on Monday the first scandi figures this week are out today starting of with manufacturing output from Norway. Output for March is expected to stabilize after falling in January and February. Looking further ahead this week we have Swedish Industrial production and Orders as well as CPI figures. This data could be important in connection with coming rate decisions from Riksbank so we could see a reaction in the Swedish FRA's.

After last weeks USD strengthening, we are seeing Eur/Usd, on a new trip towards the promised land of 137.00. After the market failed to take out 135.30 and the worse-than expected job data, this looks like we are going for stops above 136.30 and then for the next resistance at 136.75. We still se this going higher and are keeping our target at 138.00 with stop below mid april's lows of 134.40.

But markets seems to be waiting for FOMC meeting tomorrow and ECB meeting on Thursday, before they make any new moves out of range. So today could be silent before the storm.

Today's key events

• 10:00 Manufacturing output , NOK
• 12:00 Industrial production, DEM
• 16:00 Whole sales, USD
• ECB's Tumpel-Gugerell speaks

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