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Market Review - 02/05/2007 21:16 GMT

Dollar rises against Japanese yen on strong U.S. factory orders data

The greenback rose to a two-month high of 120.28 against Japanese yen after a report showed that U.S. factory orders in March increased by 3.1%, more than the forecast of a 2.1% rise and the upwardly-revised 1.4% increase in February, reducing the likelihood of a cut in U.S. interest rates by the Federal Reserve.

U.S. durable goods orders for March were upwardly revised to 3.7% versus the previous 3.4%, however, the U.S. ADP employment report disappointed the market and showed that U.S. companies added only 64,000 jobs in April (forecast was 100,000), the fewest in almost four years, compared with a downwardly-revised 98,000 in the previous month. Traders are now focusing on the important non-farm payrolls data to be released on Friday. Economists expect 100,000 jobs were added to the market in April, compared with 180,000 jobs created in March.

The single currency rebounded from 1.3560 to 1.3613 against the dollar on Wednesday as trading volume was fairly light. The British pound tumbled from 1.9991 to 1.9870 due to cross unwinding in sterling and then rebounded briefly to 1.9928 in tandem with euro. The greenback retreated versus Swiss franc from 1.2190 to 1.2117. Australian dollar fell against the U.S. currency to 0.8220 after the Reserve Bank of Australia kept interest rates unchanged at 6.25% as expected.

U.S. Treasury Secretary Henry Paulson reiterated that China's yuan is gaining 'very slowly' against the dollar and that it's a 'bit of an unnatural act' for an economy of this size to function without a flexible exchange rate.

Bank of England Governor King said in his speech to mark the 10th anniversary of the central bank's independence that money and credit growth may signal the need for rate changes faster than other indicators. The Monetary Policy Committee must always be on the look-out for warning signals of money supply shocks.

Thursday will see the release of eurozone PPI, U.S. jobless claims, productivity, labour cost and ISM non-manufacturing index

Pro FX Commentary: USDCAD
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ELLIOTT WAVE COMMENTS

Resistance: 1.1098 1.1122 1.1141 1.1165



Support: 1.1061 1.1030 1.1004 1.0960


Bias:
We still see risk for losses to 1.1030-37 (max 1.1004) before a larger pullback

Daily Bullish: While the 1.1130-34 resistance was broken by a few points we feel it was not sufficient to confirm a reversal higher. Indeed, the losses from there have been deep and there is risk of additional losses. Thus to revert to a bullish stance we will require a break back above 1.1100-22 and if see it would cause a retest of yesterday's 1.1141 high and probably more towards 1.1191.


MT Bullish: The test of 1.1047 may well have satisfied the downside target at 1.1037. However, only a break back above 1.1135 would imply a longer correction higher that could eventually reach 1.1436. (May 2nd)

Daily Bearish: Although the 1.1135 resistance was breached this was only by 6 points and the decline has been firm. While resistance at 1.1093-00 caps we still see potential for a test of the original 1.1037 target with minor risk of seeing this extend towards1.1004. However, we are expecting a reversal higher at any time.


MT Bearish: We still note the 1.1037-47 area as support but also the 1.1004 level as a target from the shorter term projections. Only below 1.1000 would threaten a retest of the 1.0927 low. (May 3rd)

2nd May

In the shorter term structure in the decline from 1.1226 we feel there may be a risk that we have seen only a 3-wave decline and thus while the 58.6% retracement at the 1.1130-34 pivot resistance caps we could see losses to the 261.8% projection in Wave [iii] at 1.1037. We also note potential Wave v targets around 1.0993-1.1019.

Any earlier break above 1.1135 would suggest that 1.1047 provided the Wave [iii] low and thus we would then anticipate a longer correction in Wave [iv] towards the 50% retracement at 1.1436.

3rd May

We also note a small 61.8% projection in a minor Wave v at 1.1004. However, the Wave [iii] low should soon be in place.

FX Technical Analysis

EURUSD

Comment: April's strongest ever monthly close hints at a move to new highs this month. Immediate upside pressure is maintained while above 1.3300 and the Euro is not quite as overbought as one might have thought. For this morning expect it to hover around the 9-day average at 1.3611 and gentle upside pressure is maintained while above 1.3583.

Strategy: Strategy remains unchanged: possibly attempt small longs at 1.3635/1.3585; stop below 1.3500. Short term target 1.3670/1.3700 and 1.4000 long term

GBPUSD

Comment: A monthly close a smidgen under 2.0000 means you have to go back to June 1981 for something similar. Note that younger traders are talking about Cable at 'all-time highs'. Ah, bless! Surprisingly the pound is not overbought so we should squeeze higher this month. At the moment we favour several large swings between 1.9500 and 2.0500 over the coming month or two.

Strategy: Attempt longs on another dip to 1.9925; stop well below 1.9800. Short term target 2.0050/2.0100.

USDJPY

Comment: Stuck between a rock and a hard place for another month with no significant technical developments. Hopefully things will get a little more interesting this month or at least by the end of this quarter. For today we shall probably get a few more random moves between 118.50 and 120.00 with increasingly thin markets likely to cause brief moves outside this range.

Strategy: Attempt small shorts at 119.60; stop above 120.00. Target 118.85 short term then 118.25

EURJPY

Comment: A difficult combination with the strongest monthly close ever at the top of a 'channel'. It is also equivalent to the highest monthly close since September 1992. Nevertheless while below October 1998's high at 164.00 we shall tread very carefully indeed. The Euro is terribly overbought against the Yen and it continues to struggle at 163.30, the August 1998 high.

Strategy: Possibly attempt tiny shorts at 163.00; stop well above 163.30. Short term target 161.50, then 160.50.




Mizuho Corporate Bank

Daily Currency Report - GBP/USD

GBP/USD

Weekly Trend direction: Bullish

Weekly trend reversal level: 1.9830

Strategy: Whilst above the weekly trend reversal level, Buy dips to support levels after an entry signal.

Medium term: The trend remains bullish whilst above roughly 1.9200, but it is becoming mature and our medium term target is possibly 2.0200. As we approach the BIG figure at 2.0000 and indicators become extremely overbought, great caution is required, as swings both ways may be huge, random and very fast. Big overhead resistance from very long term highs lies above between 1.9800 and 2.100, and general dollar weakness supports from underneath. This means we shall have to allow for more of the same for several more weeks or months, and trading will continue to be tricky.

Today's trade suggestion: The pound should try to recover from 1.9860 in order to move higher this week. Traders should try small longs here, with stops below 1.9850, with an initial target of 2.0000 and then 2.0100. Below 1.9860 means we shall have to allow for another leg lower to 1.9800 and no lower than 1.9700 before new attempts to base and begin a new rally.

Key G7 Support levels: 1.9850, 1.9820

Forex Elliott Wave Analysis - EUR/USD

65% confidence - Medium term uptrend has resumed in wave V and minor wave iii of (iii) has formed a temporary top at 1.3683 and wave iv correction is under way.

Although euro has rebounded after falling to 1.3560 yesterday, a firm break above 1.3622/24 is needed to confirm correction from 1.3683 has ended there and extend gain towards 1.3674, otherwise, one more corrective decline to 1.3540 cannot be ruled out, however, 1.3512 should contain this wave iv and yield upmove in wave v probably after the release of US NFP on Friday.

Our peferred count larger degree wave (V) is now in progress in wave (5) which should head towards 1.3750/55 eventually, however, reckon 1.3850 would hold from here.

Only break of 1.3674/79 would indicate uptrend has resumed (not likely to happen today) and extend rise to 1.3695/00


WD Analytics

Daily Forex Market Commentary

The dollar rallied versus the majors on Wednesday, and particularly versus the yen. The US data showed another bit of positive information, and this supported the currency. Factory goods orders rose a more-than-expected 3.1 percent in March from February's revised 1.4 percent gain, pointing that the US economy is dragging along. The dollar should struggle higher today.


Euro/dollar

The overbought euro/dollar challenged the support at 1.3585 on its way to an over one-week low but reduced losses into the close. It should encounter more weakness today but it must close below this sticky 1.3585 level to signal that the big correction has started.

A break below this level of this consolidation would signal an initial slide to 1.3540 and 1.3525. Further support is pegged at 1.3470 and 1.3420.

If 1.3585 holds, then the pair would challenge the resistance at 1.3683. A break above this level means the euro/dollar will march higher, but I really don't know why would that happen. Above 1.3735, resistance comes at 1.3805.

Oscillators are mixed.

NEAR-TERM: Mixed to slightly bearish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish



Dollar/yen

Dollar/yen rallied to its highest level since February 27 and should attempt to advance further on the day.

Initial resistance is at 120.60. Distant resistance now comes at 121.05 from another 50-point pivot, which targets 120.55 and 121.55.

Immediate support remains at 119.65 from another 50-point pivot that targets 119.15 and 120.15. Below 118.85, strong support is still seen at 118.25 from a 50-point pivot that targets 117.75 and 118.75.

Oscillators are rising.

NEAR-TERM: Mixed to slightly higher
MEDIUM-TERM: Bullish
LONG-TERM: Bullish



Sterling/dollar

Sterling/dollar remained below the $2 mark and broke the support of a rising trendline. Lower trading is expected - provided that a nearby support level gives way.

Immediate support is at 1.9865. A close below this level would signal a further decline to 1.9800. It would then challenge the 1.9720 area.

Initial resistance is at 1.9915. A break above 1.9950 would suggest a recovery to 2.0005. Above 2.0070, resistance remains between 2.0131 and 2.0151, but except for a very weak non-farm payrolls report on Friday, these numbers won't be seen for a long time.

Oscillators are falling.

NEAR-TERM: Mixed to slightly bearish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Dollar/Swiss franc

Dollar/Swiss franc rallied further on Wednesday, briefly breaking above the declining trendline. It then closed virtually unchanged. The medium-term selling pressure r is in jeopardy.

Initial resistance is at 1.2180. A break above this level would signal a more sustained recovery. The next level is 1.2200. Strong resistance is at 1.2275.

Immediate support is at 1.2110. The next levels are at 1.2035 and 1.2015. Below 1.1996 there is a key level at 1.1945

Oscillators are mixed.

NEAR-TERM: Mixed to slightly higher
MEDIUM-TERM: Slightly bearish
LONG-TERM: Slightly bearish

Cornelius Luca
Global Forex Trading

Technical Analysis for Major Currencies

EURO

The Euro yesterday moved down to hit the major support level at 1.3560s and since the mentioned level is a major one the euro then rebounded back to the up side to close near to the opening price, therefore; the expected move for the euro today might be to the upside, however; the euro has very strong resistance level at 1.3620s.

The trading range for today will be between the key resistance at 1.3660s and the key support at 1.3550s.

The general trend is up as far as 1.3250 remains intact targets now at 1.3750 and 1.3870 target then at 1.4000.

Support: 1.3590, 1.3577, 1.3556, 1.3537, 1.3512
Resistance: 1.3620, 1.3645, 1.3660, 1.3680, 1.3702

Recommendation: We expect buying euro above 1.3590 with a target at 1.3645, stop loss below 1.3560



GBP

The pound rallied to the downside yesterday since it couldn't brake a way the major resistance level at 2.0000, moreover the pound needed to drop down in terms of correction to gather bullish momentum to prepare itself to upside move today, hence the expected move for the pound today could be to the upside until 1.9980s resistance level.

The trading range for today will be between the key resistance at 2.0020s and the key support at 1.9880s.

The general trend is up as far as 1.9450 and 1.9270 remains intact, targets will be at 2.0200 and 2.0400.

Support: 1.9890, 1.9872, 1.9857, 1.9828, 1.9802
Resistance: 1.9918, 1.9936, 1.9965, 1.9983, 2.0005

Recommendation: We expect buying sterling above 1.9907 with a target at 1.9980, stop loss below 1.9860


JPY

The dollar against the Japanese yen drove in the upside way since it found an opened way to do so to reach to the upper channel at the major resistance as well at 120.20s, this level may limit the Yen move today and probably force it to go back down in a slight move. Keep in mind that the 119.90s support level may let the yen to reverse back again to the upside unless the yen brakes it.

The trading range for today will be between the key resistance at 120.60 and the key support at 119.30.

The general trend is down as far as 122.20 and 123.00 remains intact, targets will be at 117.00 and 115.00.

Support: 120.03, 119.45, 119.21, 119.02, 118.75
Resistance: 120.25, 120.40, 120.58, 120.90, 121.33

Recommendation: We expect selling USD/JPY below 120.30 with a target at 119.85, stop loss above 120.30



CHF

The dollar against the SWISS Frank reversed yesterday from the major support level at 1.2117 to the upside to pass easily the key resistance level at 1.2160s to reach to the top at 1.2189 levels but the sell of forced the Frank to back to the down side to close near to the opening price. Today the Frank started the downside move and we still expect the down side for today until 1.2070s support level.

The trading range for today will be between the key resistance at 1.2160s and the key support at 1.2050.

The general trend is down as far as 1.2680 remains intact, targets at 1.1875 and 1.1665.

Support: 1.2117, 1.2092, 1.2070, 1.2029, 1.2006
Resistance: 1.2158, 1.2173, 1.2195, 1.2224, 1.2247

Recommendation: We expect selling USD/CHF below 1.2119 with a target at 1.2070, stop loss above 1.2150



CAD

As for the dollar against the Canadian Dollar dropped down to extend the way towards the downside and hence we expect the downside move also for today until the key support level at 1.1040s and breaching this level may lead the USD/CAD to the next support level at 1.1005.

The trading range for today will be between the key resistance at 1.1110 and the key support at 1.1000.

The general trend is down as far as 1.1485 remains intact, targets will be at 1.1175 and 1.1030.

Support: 1.1052, 1.1025, 1.1000, 1.0985, 1.0972
Resistance: 1.1077, 1.1105, 1.1128, 1.1137, 1.1157

Recommendation: We expect selling USD/CAD below 1.1080 with a target at 1.1020, stop loss above 1.1130

Crown Forex

Currency Pair Daily Forecasts

Headlines: Dollar edges up with eyes fixed on US payrolls


Main news

• Gold, silver pare losses after one-month lows
• Crude oil, mogas end down, no surprise in EIA data

Forex Outlook

The dollar edged up in thin trade on Wednesday, briefly brushing a two-month high against the yen, as dealers scaled back bets the greenback would slide ahead of an upcoming report on U.S. job growth in April. The advance added to dollar gains booked a day ago after data showed manufacturing activity in April grew at its quickest pace in nearly a year. Market participants, though, still expect U.S. interest rates to fall later this year to stimulate a slowing economy, making Wednesday's gains look more like a brief speed bump in the dollar's steady grind lower against its major rivals. Traders said the U.S. government's April jobs report due Friday was also prompting investors to reduce risk. 'The euro buying has become a little tired in the $1.36 to $1.3650 zone and we are going to see a consolidation into non-farm payrolls on Friday,' said Tim O'Sullivan, trading manager at Forex.com in Bedminster, New Jersey.

Data on Wednesday showed the euro zone Purchasing Managers' Index held at 55.4 in April, matching March's 13-month low. That was slightly below forecasts but above 50, the point that indicates growth. The U.S. April manufacturing index from the Institute for Supply Management, released on Tuesday, hit its highest level in almost a year. But Wednesday's ADP employment report, which measures private sector job growth, suggested the government's data on Friday may undershoot economists' median forecast for a 100,000 rise in payrolls.

U.S. economic data this week has been mixed, with separate reports on Wednesday showing lower-than-expected private sector job growth in April but higher-than-forecast growth in factory orders in March. Meanwhile, the market continues to debate how much the U.S. economy is slowing relative to other major economies.

Gold: Gold and silver prices hit one-month lows on Wednesday as softer oil prices and a rise in the dollar against the euro triggered profit-taking, analysts said. The metals pared losses in late business but remained vulnerable to technical selling, they said. 'The dollar has been a bit strong and oil prices have been weak. A combination of these factors is prompting some profit-taking,' said John Reade, head of metals strategy at UBS Investment Bank. 'Further short-term declines in gold cannot be ruled out. The gold market is long and I don't think investors are very keen to get short the market here,' said David Holmes, director of precious metals sales at Dresdner Kleinwort. He said the current weakness was another downward phase and
prices might decline a little bit further, but ultimately institutional investors would come in to pick up the metal. Metals markets watched a strike in Peru, which is among the world's top two silver producers, and is No. 3 in copper and zinc and No. 5 in gold.

Crude Oil: U.S. crude oil futures ended lower for the third day in a row on Wednesday after government data showed supplies last week rose within market forecasts. Crude stocks rose 1.1 million barrels to 335.6 million barrels, up for the second week in a row. Analysts polled by Reuters expected a 1.0-million-barrel build. OPEC power Saudi Arabia is on track to raise capacity to 12.5 million bpd by 2009, but does not envisage having to go beyond that level due to increased energy conservation, its oil minister said on Wednesday. 'Our feeling now, with this thrust and push for conservation, efficiency and the use of alternatives, is that we probably need not go beyond 12.5 million barrels per day,' Ali al-Naimi told reporters in Riyadh. OPEC Secretary General Abdullah al-Badri said on Wednesday there was no need for OPEC to increase its production this year as the market was stable

USD Nonfarm Productivity q/q p

Measures the annualized quarterly growth in labor efficiency for producing goods and services outside the farming sector. A rising trend indicates future inflationary pressures as manufacturers raise prices in response to an at-capacity factory environment.

US Q1 Non-Farm Productivity Preview

Q1 Productivity takes the spotlight the day before the biggest market mover of the month in Non-Farm Payrolls. However, in light of the Fed's "predominant policy concern" over inflation, a shortfall in productivity could have a rather deleterious impact on the recent dollar recovery, and its significance should not be overshadowed by the jobs data. In the minutes of the March meeting released last month, FOMC members suggest that the recent productivity growth demands continued hawkishness on interest rates:

"Most participants continued to expect that core inflation would slow gradually, but the recent readings on inflation and productivity growth, along with higher energy prices, had increased the odds that inflation would fail to moderate as expected; that risk remained the Committee’s predominant concern."

Much to the delight of the Fed officials, core inflation as measured by the most recent PPI, CPI, and PCE figures finally appear to be subsiding just as the economy slows to below average growth. 2006 quarterly productivity growth levels were as follows:

Q1: 3.7%
Q2: 1.6%
Q3: 3.0%
Q4: 1.6%

The preliminary estimate for Q1 is projected to come in at 1.0% and would justify an increase in likelihood of a Fed rate cut as early as the late June meeting. However, a figure above 1.5% combined with considerable job growth and low unemployment rate would give the Fed sufficient ammunition to hold off on reducing lending rates further.

Non-farm Productivity measures the output produced per hour of labor and is widely considered to be one of the most accurate assessments of business health. High productivity suggests an efficient use of employees and capital and is particularly crucial in minimizing a pass-through rate of rising prices to the consumer given the recent appreciation of raw materials

Analysis by Fx Money Trends

EUR/USD Daily Technical Reports

Spot Price: 1.3595

Technical Analysis:

For the first time since Mar 9, we had a session with prices fully below the 10-day MA, now at 1.3615. Dailies are already bearish and ADX has dropped to trend-ready low readings but a full-on breakdown was averted today when prices rebounded ahead of the multiple supports at 1.3540. Hourlies top-heavy now. Sell failed rallies, w 1.3615 1st

USD/JPY Daily Technical Reports

Spot Price: 120.10

Technical Analysis

119.85 and 120.00 hurdles removed o/n and a countertrend short was taken in Asia. New highs were scored but o/b hourlies weighed on prices and our stop just held. Hourlies near midrange now. Cover bounces out of 119.85, the Apr 16 and 17 highs, and 119.60, the o/n low, on the way to the 119.20 target because the daily charts remain bullish, albeit o/b