Latest news on European Morning Update 4th April 2008
| A holiday in Hong Kong keeps Asia quiet Releases from Australia: The global pattern of consumers revising their spending habits has also hit Australia with February’s retails sales coming in quite a way below forecasts at -0.1%. January’s rise of +0.1% was also revised lower to a flat reading which adds to the overall pullback in spending. It comes as no surprise when higher oil prices and higher interest rates were cited as the cause of the decline. The numbers were clearly acknowledged by the RBA governor Stevens who noted that domestic demand is expected to slow which should also help inflation moderate over time. He commented, “What I can say is, I think the current level of rates, we've made quite clear is on the high side and at some point in time they can come lower. When they've done the job they can come down.” But also added, “I can't tell you at what point rates can start to come down. I can't even promise that they might not rise again.” However, he did forecast that Australian inflation will likely peak at 4.0% in Q1 2008 and should moderate over the course of the year. He pointed out the substantial lag in reaction following interest rate hikes and that the central bank will assess figures as they come through. So, all things being equal it should mean that the current level of interest rates is probably the highest we shall see but when they begin to decline will depend on future data. With Hong Kong away for Ching Ming holidays Asia has seen a quiet start to the end of the week. The only other information of note are comments from Ota and Nukaga in Japan who began the pre-G7 rhetoric by bemoaning the strength of the Yen which is grinding away at corporate profits and exports. Nukaga wants to have frank discussion over the instability of exchange rates but would not get drawn on the question of concerted central bank intervention. Should the Dollar weaken following tonight’s non-farm payroll numbers it is quite possible that talk of intervention will be raised and this should keep the Dollar from being sold to aggressively.
February March
Frankly there are arguments for both Dollar bullish and bearish scenarios. It may be useful to step back a little from the immediate pattern and look at the larger picture and then look at what this means in the shorter term. In this way we can get a better perspective of the implications of breaks. Looking at the daily and weekly charts for the Europeans in general the Euro and Swissie both show Dollar bullish divergences. In the dailies the Swissie has managed a small bullish divergence while there appears to be one developing now in the Euro but will need one further high. The Pound has been bearish for some while and this hasn’t changed. Here the question is whether the downside resumes directly or whether it will see a second recovery before declining. Looking a little closer into the 4 & 8 hour charts the Euro is either making that last rally now or it can move back to 1.5340 before higher. The Swissie hasn’t really convinced either way in the same charts. Whether any direct losses will make new lows is rather vague – more we should watch the Euro and Pound to get an idea of when Dollar losses should stall. Thus, while I normally don’t take fundamental events into consideration that much, quite obviously tonight’s non-farm payroll numbers do seem to be the probable catalyst for the next move. Thus watch these for the direction implied. I still have a marginal preference for Dollar bullish but I don’t think there’s that much more to go at this stage. If it turns out to be the downside it probably won’t reach final lows today but anywhere above 1.5901 Euro should be treated with care. I’m not totally convinced it will make normal Fibonacci projections and a double top is not out of the question… As for Dollar-Yen, well it’s creaking a bit on the topside right now. There is a strong bearish divergence in the hourly chart but not 4-hour and this could mean one more attempt higher before it reverses lower – Euro-Yen looks in the same boat so I do expect this cross to come lower.
USDJPY EURUSD USDCHF GBPUSD Spt: 101.70-06 1.5612-23 1.0044-69 1.9912-21 See Also
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