Releases from Japan:

February                                         Forecast   Actual 
Unemployment Rate                           3.8%       3.9%
Job-to-Applicant Ratio                          0.98        0.97
Overall Household Spending   (YoY)    +2.4%    +0.0%
Nationwide CPI                      (YoY)    +0.9%    +1.0%
Large Retailer’s Sales             (YoY)    +0.1%    +1.3%
Retail Sales                          (YoY)     +2.2%    +3.1%

March
Tokyo CPI                            (YoY)     +0.5%    +0.6%

I’ve mentioned this in the past but today’s figures from Japan have edged the Japanese economy closer towards stagflation. While the long recession following the burst of the 1980’s bubble caused extensive deflation, Japan now faces a different battle.

More and more the consensus outcome of the bursting of the globalization bubble will likely be a very protracted slowing in the U.S. economy with tightening global credit conditions that will eventually cause additional strain to over-leveraged companies which will further deepen the pullback in the global economy in general.

This spells disaster for Japan which has only seen its recovery by clinging onto the coat tails of the globalization boom. A sustained slowing in global demand on top of the domestic economy that really never recovered will remove the only prop that has provided Japan with a positive GDP for the past few years.

Add to these woes the burgeoning retired population and a shrinking retirement fund and the outlook is particularly bleak. Eventually the only way out of this entire mess will be high inflation that will dilute the pension burden by raising pensions by less than the price of inflation.

It is no wonder that the economy minister has voiced her concerns as inflation accelerates due to higher energy prices while overall household spending naturally declines as they plough more into savings. Employment is already beginning to edge higher and next week’s Tankan report is expected to highlight a worsening in corporate outlook.

One may have expected the Yen to weaken on this news but we still have to face the preference for risk aversion which has already seen the Dollar collapse by 23% since the 124.13 high last year. This still appears to be the main driver now, but wait for the elastic band to twang at some point soon and send Dollar-Yen back higher.

The following economic releases are due today:

Q4
U.K. GDP (F)                          (QoQ)    +0.6%
U.K. GDP (F)                           (YoY)    +2.9%

February
German Import Price Index     (MoM)    +0.6%
German Import Price Index      (YoY)    +5.4%
U.S. Personal Income             (MoM)    +0.3%
U.S. Personal Spending           (MoM)    +0.1%
U.S. PCE Core                        (MoM)    +0.1%
U.S. PCE Core                         (YoY)    +2.1%

March
German CPI (P)                      (MoM)   +0.3%
German CPI (P)                      (MoM)   +2.9%
U.K. Nationwide House Prices    (MoM)   - 0.3%
U.K. Nationwide House Prices     (YoY)   +2.0%
French Consumer Confidence                 -35.0
French Bloomberg Retail PMI   
Italian Bloomberg Retail PMI   
German Bloomberg Retail PMI   
Euro-zone Bloomberg Retail PMI 
Swiss KOF Leading Indicator                  +1.60  

Yesterday’s moves didn’t do much to clear the picture. The most interesting event I saw was the bounce in the Euro from the 1.5724 support. If looked at in isolation the implication would still be for a new high and probably back to the 1.5901 area. However, the wave development from there is not, at this point, very reflective of a positive move. If I am to attempt to read anything more positive from the move then it would require the consolidation to continue for a little while longer before rising. Even then I have my doubts as the correction has really lasted for long enough already.

So the other side of the coin is the question whether we shall see a direct reversal lower – signaled by a move below 1.5724. If this occurred it would have the implication that we’re going to see a 1.5380-1.5820 range for a few more weeks.

If we look elsewhere the evidence does seem to be mounting for this latter scenario. Bearish divergences are evident in the Pound and Aussie Dollar while the Swissie has not really seen the depth of losses as compared to the Euro.

So let’s just say that there is growing evidence of some Dollar strength emerging. Let’s watch for today and see what develops but at this point, unless we see 1.5857 and 1.5901-08 in the Euro, we should be aware of the risk of a reversal higher for the Dollar.

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  100.49-75    1.5901-07    1.0064-08    2.0191-40
Res:    99.85-14    1.5835-57    0.9957-87    2.0107-35

Spt:     99.15-33    1.5725-55    0.9846-79    2.0020-40
Spt:     98.37-54    1.5639-60    0.9785-15    1.9908-40

See Also

• Fascinating Forex
  Learn more about the largest global market

0   15   30   45   60   75   90   105   120   135   150   165   180   195   210   225   240   255   270   285   300   315   330   345   360   375   390   405