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Forex Market Summary

U.S. Dollar Trading (USD) was mixed against all majors on Thursday. Although initial jobless claims came in better than expected with the figure of 339k higher than the expected 323k. In other data the Philly Fed survey which shows business activity in the US Mid-Atlantic region was unchanged at 0.2, as markets shrugged of both pieces of data. In US share markets, the NASDAQ fell by 5.15 points (-0.2%) whilst the Dow Jones rose by 4.79 points (0.04%). Crude oil fell by US$1.38 a barrel to US$61.75 a barrel.

The Euro (EUR) slipped away from near two year highs against the USD. Overall the Euro traded with a range of a low 1.3561 and a high of 1.3620 before closing the day at 1.3601 in the New York session. .

The Japanese Yen (JPY) was the biggest mover on Thursday as investors sought to unwind carry trades with a decline in risk appetite caused by expectations that accelerating growth in China could spur Beijing to raise interest rates. Any future slowdown in China as a result of increased interest rates, is seen to hinder demand for emerging market and other risky assets that have supported the carry trade in recent times. In other news, officials stated that Japan's economy was on the road to recovery and the yen had already begun to reflect that. Overall, the JPY traded with a range of a low 117.61 and a high of 118.69 before closing the day at 118.37 in the New York session.

The Sterling (GBP) eased from 26 year high levels reached the previous day as investors unwound carry trades on the high yielding British-currency. Overall the GBP, traded with a low of 1.9987 and a high of 2.0094 before closing the day at 2.0017 in the New York session. Looking ahead, although markets have fully priced in a BoE rate hike by 25 basis points in the next MPC meeting, markets will eagerly await the release of Retail Sales with expectations of 0.5% less than the previous at 1.4%.

The Australian Dollar (AUD) slid on Thursday as the high yielding currency suffered on the back of further Yen unwinding. Overall the AUD traded with a low of 0.8284 and a high of 0.8392 before closing the day at 0.8346 in the New York session

The Polish Zloty (PLN) was stable on Thursday with investors looking at global markets sentiment for fresh direction ahead of Fridays producer prices and industrial output data in Poland. The Warsaw bourse large cap index WIG20 jumped to a record high yesterday after Poland and Ukraine were chosen to co-host the 2012 European Championship soccer tournament.

Gold (XAU) fell yesterday after hitting an 11 month high on the back of a broadly stronger dollar, and risk aversion following the Chinese markets volatility. Gold fell by US$5.00 an ounce to US$688.30.

British Pound May Reject 26-Year Highs If Retail Sales Weaken

Retail Sales (MoM) (MAR) (08:30 GMT)
Expected: 0.5%
Previous: 1.4%

Retail Sales (YoY) (MAR) (08:30 GMT
Expected: 4.7%
Previous: 4.9%


How Will The Markets React

Looking back over the week, the star performer in the currency was without a doubt the British pound. Before this week's fundamentals took effect, futures linked to short-term interest rates were pricing in around an 80 percent chance of a rate hike from the Bank of England next month. Since then, a couple of market-worthy indicators have raised the bar and helped fully price in a 25 basis point hike by May 10th. Yesterday's labor data certainly had a hand in boosting expectations of a shift in the overnight cash rate. Jobless claims fell for a sixth consecutive month in March while earnings growth accelerated to a heady 4.6 percent annual pace - both lending to projections of inflation above the central bank's tolerance band through the months ahead. This is a very tangible risk considering the level of the March price gauges released just the day before. The annual measurement of the Consumer Price Index ramped up to a ten-year high 3.1 percent and breached the BoE's self-imposed three percent cap on inflation. This in turn necessitated a letter from BoE Governor Mervyn King to Chancellor of the Exchequer Gordon Brown that listed the conditions that contributed to the problem and what the Monetary Policy Committee would do or not do to bring price growth under control. Despite the markets nears certainty of a 5.50 percent benchmark lending rate though, the markets have had an uneven reaction to the sentiment. The national currency has stalled its advance after testing 26-year highs against its US counterpart. More interesting, gilts have actually rallied in the wake of the data. This may suggest that markets are waiting for the next big report on the docket - March retail sales. According to economists' estimates, sales decelerated to a 4.7 percent pace from the same month a year ago. If this is confirmed, then Governor King and the rest of the MPC may shock the market and stay its hand, since it may be a sign that inflation will abate as spending slows.




Bonds -10-Year Long Gilt Futures

While the pound and equities have reacted to rate expectations as investors would expect, gilts have done away with formality and actually rebounded on the additional fundamental help offered to the hawkish policy outlook over the past few sessions. In fact, the active futures contract on the benchmark 10-year gilt turned off of a month-long downtrend exactly on the day that inflation data encouraged the central bank to write an open letter to the Exchequer. Looking ahead to tomorrow's economic calendar, retail sales will have another chance at clarifying the market's intentions. A bullish surprise would add another layer to the hawkish outlook, and gilts would be expected to respond in kind. On the other hand, traders may be waiting for next week's GDP before going with the flow.





FX - GBP/USD

Now that the British Pound has hit its 26 year highs at the 2.0100 level, it remains to be seen whether the currency can breach the all-important resistance level or if it will fall back and break below 2.000. The release of UK retail sales may help give the GBPUSD directionality. While the release is anticipated to slow to 0.5 percent from 1.4 percent during the quarter prior, consumption growth still remains relatively steady. As a result, expectations will remain high for a hawkish Bank of England policy decision in May. The one release that may be able to steer interest rate estimates will be first quarter GDP figures due out next week. Expansion is forecasted to slow slightly, which may lead the central bank to question whether it is necessary to hike rates at the risk of cooling growth even further. However, given the strength of price pressures in the economy, the Bank of England may be more concerned with whether they should raise interest rates 25 or 50 basis points. Regardless, 2.000 and 2.0100 remain critical levels, and a solid break below the former or a steady rise above the latter could mark the start of more solid trends



Equities - FTSE 100 Index

Equities in the UK ended the day down 0.14 percent at 6,440.6, weighed by concerns that hot Chinese expansion would lead to rapid monetary policy tightening by the People's Bank of China. China is a large importer of commodities, so the prospects of slower growth and cooling consumption led the UK mining sector lower, with Antofagasta down 2.1 percent to 510.25 pence while Xstrata fell 1.5 percent to 2,700 pence.

Now that UK equities have turned from their record highs, the question remains: will the declines continue? If UK retail sales accelerate once again in March, subsequently sealing in rate hike expectations for the Bank of England, shares may return towards their March lows near 6,000. On the other hand, a marked slowdown in spending could bring the central bank to reconsider plowing on with monetary policy tightening, as they could risk damaging consumption growth. Nevertheless, the risks are on the upside for the retail sales figure, and now that the FTSE 100 has broken its steep supporting trendline, more declines may be underway.

Forex Daily Technical Report

Sterling Higher ahead of Retail Sales, Yen Weakens as Stock Stabilizes

Sterling recovers mildly into European as markets await retail sales data from UK. Sterling is supported by rumors of a super strong retail sales report as well as comments from BoE Governor King that MPC is "absolutely" determined to bring inflation back to 2%. The Japanese yen weakens again today as global stock market stabilizes that eased concern of a collapse. Meanwhile, Euro was released from the pressure in EUR/JPY cross and surges again against dollar to new two year high of 1.3636 into European session, which is just 30 pts below 04 high of 1.3668.

Growth in retail sales in UK is expected to slow from 1.4% mom, 4.9% yoy to 0.5% mom, 4.7% yoy in Mar. However, rumors are flying around in early European that the retail sales could be super strong in Mar which pushes yoy rate to above 5.0%. If that's the case, Sterling will definitely be buoyed to retest 26 years high of 2.0132 again. However, Sterling will likely continue to consolidate below 2.0132 if the retail sales data doesn't offer much upside surprise.

Speaking of retail sales, data from Canada will also catch some attentions today. Canadian retail sales is expected to improve slightly from -0.2%mom fall in Jan to -0.1% to Feb but ex-auto sales is expected to slow from 0.3% to 0.2%. Even though edging higher against dollar yesterday on slightly stronger than expected inflation data, Canadian dollar's rise was limited by loss of downside momentum in USD/CAD. The data today will likely have little impact on the pair with USD/CAD continuing to consolidate.

EUR/USD

Daily Pivots: (S1) 1.3575; (P) 1.3597; (R1) 1.3633;

EUR/USD's rise resumes by breaking above 1.3618 and edges higher to 1.3636 so far. At this point, further rise is in favor to follow towards 1.3668 (04) high. However, we'd maintain that as bearish divergence conditions remain in 4 hours MACD and RSI, a short term top should be around the corner. Break of 1.3558 will suggest that the short term top is already formed and bring pull back to 4 hours 55 EMA (now at 1.3524). But downside should be contained above 1.3406/10 support and bring rally resumption .However, break of 1.3406/10 will suggest that deeper decline is underway and put 1.3252 support into focus.

In the bigger picture, outlook remains unchanged. EUR/USD is still trading comfortably within medium term rising channel (1.1639, 1.2483, 1.2978) and medium term up trend from 1.1639 is still in progress. Such up trend 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 has made a top at 1.3364 but subsequent correction has completed with three waves down to 1.2865 already. The current rise from 1.2865 should represent resumption of this whole up trend and further rise is still in favor to retest 1.3668 (04 high).

Having said that, on the upside, risk of medium term reversal will increase as EUR/USD approaches 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822 and focus will be then on reversal signals. On the downside, break of the 1.3253 support will suggest that the rise from 1.2865 has completed. More importantly, this will be the first warning that the rise from 1.2483 has ended and thus the whole up trend from 1.1639 too. Focus will then be back to medium term rising channel (now at 1.2954).

GBP/USD

Daily Pivots: (S1) 1.9980; (P) 2.0037; (R1) 2.0089;

Cable's retreat from 2.0132 was contained at 1.9883 and recovers mildly in early European session. As discussed before, with 4 hours MACD staying below signal line, a short term top is likely formed at 2.0132 already. Hence, further retreat is still in favor as long as cable stays below 2.0095 minor resistance. Below 1.9883 again will encourage further fall towards 1.9877 support. Break will put short term rising channel support (now at 1.9764) in focus. On the upside, above 2.0095 minor resistance will indicate correction from 2.0132 has completed and bring retest of this high.

In the bigger picture, rise from 1.8090 is interpreted as having first wave finished at 1.9142, subsequent second wave correction completed at 1.8517. Third wave rally has completed at 1.9913 while the fourth wave correction has already ended with three subwaves down to 1.9183. Current rise from 1.9183 will likely be the final advance of this rise from 1.8090. The channeling property of the terminal points of 1.9142, 1.8517, 1.9913 and 1.9183 is supporting this case.

Having said that, resistance should significantly increase as cable meets 2.0106 (92 high). With bearish divergence condition still being displayed in weekly RSI as well as daily MACD, risk of medium term reversal will significantly increase. Hence, focus will be on reversal signal as cable approaches this zone. Break of 1.9723/26 support will warn that the rise from 1.9183 has completed and put rising channel support (now at 1.9394) back into focus. However, a strong break of mentioned 2.0106 resistance will path the way towards 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677.

USD/CHF

Daily Pivots: (S1) 1.2009; (P) 1.2036; (R1) 1.2071;

USD/CHF's consolidation from 1.2001 continues as it has yet to take out mentioned 1.2029 cluster support (78.6% retracement of 1..1878 to 1.2571 at 1.2026) decisively. An intraday low is formed at 1.2001 with 4 hours MACD recovered to above signal line and further recovery could still follow. But still, a s long as upside of the current recovery is limited by 1.2150 resistance.

On the downside, sustained break of 1.2029 cluster support will confirm that whole fall from 1.2571 has resumed for 1.1878 low. However, strong rebound from here and a break of 1.2150 resistance suggest that USD/CHF is still bounded in consolidative trading that started at 1.2029 and would bring rebound towards 1.2282 again.

In the bigger picture, medium term outlook remains bearish with USD/CHF staying below both 55 days EMA and 55 weeks EMA. Daily and weekly MACD are both still staying negative, supporting this view too. The preferred interpretation at this point is that 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. Further decline should be seen to 1.1878 low and sustained break will add more credence to this view and bring further medium term weakness towards 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404.

However, note that USD/CHF is still bounded in wide range of 1.1878 to 1.2768. A rebound to above 1.2354 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.

USD/JPY

Daily Pivots: (S1) 117.81; (P) 118.24; (R1) 118.88;

USD/JPY's fall from 119.86 was contained at 117.60 and rebounds since then. Touching of 118.75 resistance with 4 hours MACD recovers to above signal line suggest that an intraday low is formed at 117.60 already intraday bias is turned back to the upside. However, we'd maintain than bearish divergence condition in 4 hours MACD and RSI indicates a short term top is already formed at 119.86 after recent rally was limited by falling trend line (122.05, 121.61) and failed to take out 119.48 fibo resistance (61.8% retracement of 122.17 to 115.13) decisively.

Having said that, even though further recovery cannot be ruled out, it will still take a break above 119.86 high to revive short term bullishness. Otherwise, risk remains on the downside for another fall. Below 118.24 minor support will suggest the recovery from 117.60 has completed and encourage further fall to 117.20 support and then 116.38.

In the bigger picture, break of 116.38 support will revive the original case that the whole up trend from 108.99 has completed at 122.17. In this case, the corrective nature of the rise from 108.99 swings favors back to the case that such medium term rally is merely part of a large scale consolidation that started at 121.38, with first leg completed at 108.99 and second leg completed at 122.17. The fall from 121.17 should then the third leg of such consolidation and deeper decline should at least be seen to below 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02) first with much possibility of further fall to retest 108.99 low.

On the upside, sustained trading above 119.48 fibo resistance (61.8% retracement of 122.17 to 115.13) will dampen our original view and indicate that a stronger rebound is underway. Also, price actions from 122.17 is probably developing into sideway consolidation to rise from 108.99 only, instead of as the third leg of consolidation that started at 121.38. In such case, a rest of 122.17 high could then 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.

EUR/JPY

Daily Pivots: (S1) 160.08; (P) 160.78; (R1) 161.97;

EUR/JPY's fall from 162.42 was contained at 159.60 and rebounds since then. Break of 161.55 resistance with 4 hours MACD recovered back to above signal line indicates an intraday low is already formed. However, firm break above 162.42 and both short term and medium term channel resistance is needed to confirm recent rally has resumed. Otherwise risk for another fall remains. Below 160.88 minor support will put short term rising channel support back into focus (now at 159.48) back into focus. Break will encourage deeper decline to 158.01 cluster support (38.2% retracement of 150.75 to 162.42 at 157.96) first.

In the bigger picture, we're treating the whole year long rise from 130.60 as resumption of the long term up trend with first wave ended at 143.60, subsequent correction ended at 137.167. The third wave up could have ended at 159.63 with a diagonal triangle already. Fourth wave correction has ended at 150.75 and rise from there represents the final advance in this structure. The channeling property of 143.60, 137.16, 159.63 and 150.75 is supporting this case.

Having said that, risk of a medium term reversal is also increasing with EUR/JPY now pressing the medium term channel resistance. Break of the short term channel support indicate that rise from 150.75 has completed and give a serious warning signal that the whole rise rise from 130.60 has ended. Focus will then turn to medium term channel support (now at 152.37). However, sustained break of the mentioned channel resistance will suggest that the underlying outlook is more bullish than we thought and will path the way towards 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64.

Sunrise Market Commentary

Global Overview: China Storm Calms Down Rather Soon

Yesterday, it was mostly global factors and technical considerations that dominated the price action on the markets. On the bond markets, the dismal performance of the European bond markets did catch the eye. On the currency markets, the euro holds close to the all-time highs against the dollar, but apparently is waiting for a trigger to organize the real test of the 1.3660 area. The yen yesterday morning was supported by the sudden (temporary) bout of risk aversion on the equity market initiated by the strong Chinese figures. However, the China storm calmed down rather soon and yen currently trades already back at the same levels that were on the screens this time yesterday morning: Is the Pavlov reflex working?. This also was the pattern on the stock markets. Uncertainty on China caused stocks to open with moderate to strong losses but the long-standing buy-on-dip feeling apparently still hasn't run its course. The Dow even set a new (minor) all-time closing high. Commodities including oil were in a corrective mood, but a lot of industrial metals still trade within striking distance of the recent highs.

Today, the calendar only contains the UK retail sales. So, aside from the news coming from corporate earnings, there probably is room for some market talk and analysis on the first round of the French presidential election and its potential impact on markets. At this stage, we don't have the impression that the outcome this weekend is a major theme for the markets. Of course, France is still a major player on the political and economic scene in Europe. So, its choice, especially if it were to imply some unconventional options, wouldn't pass unnoticed on the markets. For example, the way the candidates attacked the independence of the Central bank is something to watch out for and French politicians often are also on the first row to make remarks in case of 'excessive' strength of the single currency. This theme even could come somewhat more in the spotlight if the EUR/USD where to reach news all-time highs in the run-up to the second round of the election

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News:

US: Weak Eco Data

US initial jobless claims dropped slightly from 343K to 339K. However, this outcome failed to meet market expectations for a more pronounced decline after last week's sharp upswing that was at leased partially attributed to statistical noise (seasonal adjustment for Easter). Also the continuing claims trended higher again from 2525 K to 2531 K. It is still early day's but if this trend is confirmed in the coming week it might suggest that the weakening in the US economy is gradually having some impact on the labour market which proved rather up until now.

The leading indicators rose by 0.1% M/M in March, in line with expectations, following a downwardly revised 0.6% M/M drop in February, earlier reported as -0.5% M/M and 0.3% M/M drop in January (earlier -0.2% M/M). The Conference Board revised its outlook speaking now of slow growth in the near term, while a month ago slow to moderate growth was projected. In Q1, the leaders fell 0.9% Y/Y, the first negative growth rate since the 2001 recession. Also the widely followed 6-month annualized change slowed, notably to -0.3% from 0.3% in February.

The April Philadelphia Fed survey on manufacturing showed an unaltered weak picture of the situation in the manufacturing sector. Basically, activity is at a standstill already for about seven months. The headline, general business expectations, index stabilized at 0.2, below consensus (2) and the sub-indices showed a similar picture. New orders were up 1 point to a weak 2.8, while shipments dropped 2.5 points to 4.3. Unfilled orders and delivery time firmed, but remain deep in negative territory at - 13.7 and -11.9 respectively. Inventories were little changed at -3.1 and the labour market indices mixed. Employment stabilized at a weak 2.5, but the workweek improved to 5.5 from -4.9 previously. Also the price indices were mixed: prices paid rose to 24.3 from 21.8 in March, but prices received fell to 5.2 from 16.3 in March, the lowest since August 2005. This might be an indication that sluggish growth is taking its toll on pricing power.

EUR/USD

The EUR/USD pair dipped slightly in the morning, reaching the 1.3560 area. Then the same pattern emerged as it did all week, namely euro being bought on dips. This brought the EUR/USD couple back up to the 1.36 zone. There it stabilised.

As euro zone yields rose again yesterday, while the US yields were virtually unchanged, this adds to the attractiveness of the single currency. The Philly Fed survey yesterday evening showed a stabilization at 0.2, which was below the expectations for the index to come out at 2.0. The leading indicators also were nothing spectacular (+0.1% M/M); these data are of no help to the US currency.

This morning, Asia reacted with a stronger opening of the euro to new highs at the 1.3620 zone. It is obvious that the same sentiment seems to prevail: the market is eager to find out the strength of the resistance of the record highs at the 1.3660-70 zone. Whether we can get such a test is another thing and a break even may be more difficult. We cannot imagine that it will be given up without a fight, at the very least.

There is also no news to guide a breakthrough at this stage. At the end of a good week for the euro, w e would not be surprised to see some profit taking, although it should again be rather mild and could come after a test of the highs first!

In the longer term, a solid euro view is maintained; nobody is scared of a strong euro. The view behind this is that there is some decoupling between the US and EMU eco cycle and the euro zone can digest the currency strength. Whether this view, dominating FX thinking currently, will prove to be true remains to be seen. It is the guiding theory for now, so in the mean time a buy-euro-on-dips sentiment should be maintained.

A very light calendar today, with only caution for US Treasury Secretary Paulson and Fed speakers such as Fisher and Mishkin.
The pair is overbought, as new recent highs are set almost on a daily basis, keeping the euro positive picture alive and kicking.

Support comes in at 1.3585/.80 (STMA / daily envelope), at 1.3555 (ST low) and at 1.3.520 (current week low).

Resistance is seen at 1.3629 (new year high), at 1.3639 (daily Bollinger top) and at 1.3667 (€ historic high).

USD/JPY

USD/JPY made a very solid rebound yesterday. We cannot see this as a dollar positive reaction as there is little proof of this in other crosses. The US data also could not have been a help to the US currency as the leading indicators and the Philly Fed stressed the problems the US economy is facing, underscoring the growth figure.

The yen is the key factor here we feel. As outlined yesterday, we have great difficulty believing in a sustained yen comeback. There is simply no momentum from eco data or from the BoJ, while at the same time the risk aversion in Asian stocks ebbed. This week we also heard some speculation on a rate hike in Japan in Spring, but these rumours lack fundamentals.

Much to the contrary, the BoJ seems more likely to downgrade its inflation outlook in its Outlook for Economic Activity and Prices, to be released 27 Apr. Therefore we fear that this is another signal that nothing has to be expected from them. The Japanese are not keen to hike, while at the same time the US is (maybe) cutting rates, so this very gradual Japanese tightening campaign (two hikes in almost a year) may hit the pause button for now.

This sort of sentiment has to translate in a distrust of bouts of yen strength. We feel this pair is captured in a range trading environment (116-122?), as also the USD is in no place to go for a sharp rise, as long as the US data proof otherwise.
The pair is seen pulling back, as it fell below the 118.50 neckline of a double bottom and below 118.20, a recent low. This indicates a ST downward bias.

Support is seen at 118.23 (ST low), at 118.05 (LTMA) and at 117.61 (yesterday low).

Resistance is seen at 118.76/86 (today high / STMA), at 119.02 (MTMA) and at 119.87 (recovery high off 115.16).

EUR/GBP

The EUR/GBP pair moved up from the 0.6780 area in the morning to the 0.6790 zone in the evening. This was built out this morning, with the pair reaching the 0.68 mark at the moment of writing.

We have some issues with the sterling. Its performance is disappointing. More could have been expected, but the sterling did not deliver we feel. The market has gone toward factoring in a rate hike in May and speculation of more after that. Still, the sterling revival didn't last long, as the pair stands again at the 0.68 zone.

It is obvious that the fight against the 'hot' euro is a difficult battle to say the least. As long as the single currency has got this kind of momentum, the timing may be wrong to go for a sterling comeback.

We turn more neutral on this pair. We first want some signals that things are cooling down in the EMU/euro momentum, at the same time keeping one eye on the EUR/USD test at the 1.3660 zone, should it occur, as it should be guiding for euro sentiment on a broader scale
The pair is neutral.

Support is seen at 0.6789 (ST low), at 0.6771 (yesterday low) and at 0.6754 (current week low).

Resistance is seen at 0.6809 (daily envelope + previous reaction high), at 0.6829 (current week high) and at 0.6856 (LT daily downtrendline off 2003 high).

Wakeup Call: Massive Reversal In Carry Trades

But risk-reward not convincing for longs unless we see a close above 100 in AUDJPY. Stocks to edge higher.

Overnight News Bullets

• SZ ZEW Survey (Apr) out at -3.5 vs. -20.5 expected.
• CA CPI MoM/YoY (Mar) out at 0.8%/2.3% vs. 0.6%/2.1% expected. Core CPI MoM/YoY (Mar) out at 0.3%/2.3% vs. 0.2%/2.3% expected.
• US Initial/Jobless Claims out at 339K/2531K vs. 320K/2510K expected.
• US Leading Indicators (Mar) out at 0.1% as expected.
• US EIA Natural Gas Storage at -46 vs. -48 expected.
• US Philly Fed (Apr) out at 0.2% vs. 2.0 expected.
• NZ Visitor Arrivals (Mar) at -1.0% vs. 6.6% prior.
• JN All Industry Activity Index (Feb) out at 0.9% vs. -0.3% expected.
• AU Conference Boeard Leading Index (Feb) out at 1.4% vs. -0.2% prior.
• AU Import/Export Price Index QoQ (1Q) out at -1.7%/0.0% vs. -1.0%/-0.3% expected.

Markets

• FX: EURJPY heading for it's seventh weekly gain as carry trade resurfaces.
• Fixed Income: Bunds and 10yrs not able to keep upside momentum, both fell y'day. JGB lower o/n.
• Stocks: EU grinding lower, US leaning bearish. Nikkei up 0.5% today.
• Commodities: Preciousmetals lower, on back of drop in copper. Oil lower, June contract around $63.

• Carry Trades making a massive rejection of new lows. We could be headed much higher. But the risk-reward for new longs is too bad. We need a confirmation from a close above 100 in AUDJPY and 88.45 in NZDJPY.
• As long as S&P500 stays above 1462, we continue to look for higher levels. Likewise with DAX in 7040.
• Sector view: Health Care and Pharmaceuticals strongest, but massively overbought. Look for a reversal lower.
• Silver looks weak, but should reverse higher if the JPY continues lower.

FX Trading Strategies

Pair Supp. Resis. Comments GBPCHF 2.4050 2.4270 Carry is back and we will respect it, despite the recovery not being technically confirmed. Today's UK retail sales will likely help the trend. Buy dips as long as spot is above 2.4110 target resistance.

Equities

Awaiting a Big Move in Nasdaq 100
Nasdaq 100: hasn't closed above Feb highs like DAX, S&P 500. A break outside the triangle needed for direction. Key support at 1787. Resistance at 1851.


We expect Oil to hold on support at 62.20/40

Daily Market Commentary - Fundamental Outlook

€

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3585 level and was capped around the $1.3635 level. The common currency established a fresh multi-year high today and came within 30 pips of making a new lifetime high before moving lower. European Central Bank member Weber reported the ECB's monetary tightening cycle has not ended and Eurogroup chairman Juncker characterized the common currency's appreciation as "gradual" and said there is "no reason to panic." ECB's Constancio confused the market when he indicated the ECB is watching the euro with vigilance but later said the ECB is not targeting the exchange rate. ECB's Gonzalez-Paramo reiterated recent rises in oil prices and second-round wage increase effects are resulting in upward price pressures. Data released in the eurozone today saw French household consumption of manufacturing goods gain 0.7% m/m. In U.S. news, traders expect a quiet North American session absent any U.S. economic data. Next week's housing data will be closely monitored by traders. Yesterday's Philadelphia Fed survey of manufacturing activity was unchanged in April from late March, defying expectations of an improvement. Euro bids are cited around the US$ 1.3565/ 25 levels.


jpy

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥118.95 level and was supported around the ¥118.25 level. Technically, today's intraday low was right around the 50% retracement of the move from ¥114.45 to ¥122.15. Data released in Japan overnight saw the all-industry index climb 0.9%, beating forecasts, while March convenience store sales were off 1.4% y/y. The Nikkei 225 stock index climbed 0.46% to close at ¥17,452.62. Dollar bids are cited around the ¥118.45 level. The euro moved higherThe British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥238.30 and ¥98.65 levels, respectively. The Chinese yuan depreciated
vis-à-vis the yen as the single currency tested offers around the ¥161.90 level and was supported around the ¥161.10 level. vis-à-vis the U.S. dollar as the greenback closed at CNY 7.7179 in the over-the-counter market, up from CNY 7.7165. Traders are closely monitoring a speech expected today from U.S. Treasury Secretary Paulson about China today. Chinese equity markets rebounded overnight following yesterday's blistering Q1 GDP data. Data released in China today saw March wholesale prices up 4.2% y/y while Q1 industrial output was up 18.3% y/y

₤

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9990 level and was capped around the $2.0070 level. Technically, today's intraday low was just below the 23.6% retracement of the move from $1.9590 to $2.0130. Bank of England Governor King was quoted as saying "The Monetary Policy Committee still expects inflation to be closer to our target figure of 2 per cent once this short term volatility, brought about by a number of factors such as energy price increases, has disappeared. We are absolutely determined to bring inflation back to 2 per cent." Traders will closely monitor comments from Bank of England Monetary Policy Committee members next week to assess when interest rates may rise again and how much further interest rates may need to rise. Data released in the U.K. today saw March retail sales climb 0.3% m/m and 4.8% y/y while IRS pay awards appreciated at an eight-year high in the first quarter, up 3.5%. Cable bids are cited around the US$ 1.9925 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.6785 level and was capped around the ₤0.6805 level.


CHF

The Swiss franc lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2090 level and was supported around the CHF 1.2035 level. Technically, today's intraday high was right around the 23.6% retracement of the move from CHF 1.2570 to CHF 1.2025. Data released in Switzerland today saw March producer and import prices climb 0.3% m/m and 2.4% y/y. Dollar offers are cited around the CHF 1.2195 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6435 and CHF 2.4195 levels, respectively


A$



The Australian dollar came off marginally vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.8335 level and was capped around the $0.8370 level. Technically, today's intraday low was right around the 23.6% retracement of the move from $0.8150 to $0.8390. Australian dollar bids are cited around the US$ 0.8300 figure.


C$

The Canadian dollar appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1215 level and was capped around the C$ 1.1300 figure. Stops were reached below the C$ 1.1225 level, representing the 76.4% retracement of the move from C$ 1.1030 to C$ 1.1875. Data released in Canada today saw February retail sales gain 0.1% m/m while the ex-autos component was up 1.0%. U.S. dollar bids are cited around the C$ 1.1150 level.

Crude Oil

Crude oil moved higher vis-à-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for June delivery tested offers around the US$ 63.79 level and was supported around the $62.63 level. Traders are closely monitoring presidential elections in Nigeria this weekend. Also, a report was issued this week by a private consulting firm that estimated Iraq has about 116 billion barrels of oil reserves while the U.S. Geological Survey believes there is an additional reserve base of 45 billion barrels.

Dollar at Critical Support

The dollar pared overnight losses against the euro and gained against the yen on Friday. Most other major currencies are testing important technical levels against the dollar. The yen fell across the board as yen-funded carry trades picked up on strong global stock markets.

The EUR/USD is supported by improving interest-rate and growth differentials for the euro. The absence of visible policy-maker opposition to a strong euro has also contributed to the euro's gains. The EUR/USD touched a 27-month high overnight as European Central Bank policy makers signaled higher interest rates are needed to contain inflation. A test of the all-time high at 1.3665 is likely. We think this level will probably be a double-top. We raised our stop to 1.3725.
he dollar index broke important support at the 82.5 level. A test of support at 2005's low is now in progress. We think this support will hold

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Financial and Economic News and Comments

US & Canada

• No major economic releases today.

Europe

• UK retail sales rose a less-than-expected 0.3% in March after rising 1.6% in February, the most in two years, the Office for National Statistics said. The Bank of England is expected to raise interest rates next month.
• Luxembourg's finance minister Jean-Claude Juncker said the euro's appreciation will be discussed at the informal meetings European Union finance ministers today and tomorrow. "The euro's foreign exchange rate hasn't moved upward brutally, but gradually....I see no reason to panic," Juncker said.
• Bundesbank President and European Central Bank Governing Council member Axel Weber said "extremely positive" economic outlook meant the ECB can't signal it's finished raising rates. "There are price risks in the medium-term and we have to counter them," Weber said.

Asia-Pacific

• Chinese retail sales rose 14.9% y/y in Q1 2007, the National Bureau of Statistics reported.

Hans Nilsson
Capital Market Services, L.L.C