Releases from Japan:
                                                    Forecast           Actual
March Leading Economic Index (F)      20.0%           18.2%
March Coincident Index (F)                33.3%           30.0%
April Convenience Store Sales (YoY)   - 0.6% (prior) - 0.2%

Following the BOJ’s announcement of an unchanged policy it has also left its assessment of the economy unchanged, slowing along with the global economy as higher prices of energy and raw materials are affecting corporate earnings and business confidence.

They still see the economy at a stage where it will “grow at a slower pace for the time being and follow a moderate growth path thereafter.”

Releases from Europe:

April                                                   Forecast     Actual
German Producer Prices             (MoM)    +0.5%     +1.1%
German Producer Prices               (YoY)   +4.7%     +5.2%
Swiss Producer & Import Prices    (MoM)    +0.5%     +0.7%
Swiss Producer & Import Prices     (YoY)    +3.4%     +3.6%

When will central begin to click that inflationary pressures are more likely than not to remain at elevated levels. Both German and Swiss PPI were announced higher than forecasts and will add more problems for European industry. As the Euro declines the combined impact ion inflation will be doubled. It can only be a matter of time before these price rises are passed on to the consumer to maintain the pressure on the consumers’ budgets.

George Soros summed it up perfectly in his interview with the BBC in saying that central banks will maintain high interest rates right up to the point where recession sets in as consumers’ ability to spend dries up…

The following economic releases are due today:

March
Italian Industrial Orders     (MoM)    - 2.2%
Italian Industrial Orders      (YoY)    +1.5%
Italian Industrial Sales       (MoM)   - 0.8%
Italian Industrial Sales        (YoY) 

April
U.S. PPI                            (MoM)   +0.4%
U.S. PPI                             (YoY)   +6.6%
U.S. PPI ex food & energy   (MoM)   +0.2%
U.S. PPI ex food & energy    (YoY)   +2.9%

May
German ZEW: Econ Sentiment          - 37.0
German ZEW: Current Situation        +32.0
Euro-zone ZEW: Econ Sentiment       - 44.2

The market awaits tonight’s ZEW survey and tomorrow’s FOMC minutes. In the meantime trading has remained in tight ranges, wanting to buy Dollar but not having any strength of conviction to do so.

Most commentators are concentrating their views on whether the Fed has come to the end of the easing process and equating this to expectations of a recovery in the economy. However, the two are not necessarily directly linked.

Interest rates were slashed due to the credit crunch and market liquidity. With the recent signs of a greater sense of a more normal functioning in the credit markets the expectation of further rate cuts is a natural conclusion but does not mean that the economy will recover.

The state of the economy has moved onwards from 9 months ago with the greater pressures now being on consumer confidence and spending. With weekly continuing claims on a steady upward path, consumer confidence surveys still soft and inflation biting into consumers pockets the prospect of a quick turn-up in the economy is very low.

In this case the question is whether the Fed will return to a firmer interest rate policy to match the BOE and ECB or whether they’ll remain on hold. Frankly, given Bernanke’s comments last week concerning the continued fragility of the credit markets the prospect of any hint of higher rates is very, very limited.

This tends to place the Dollar under more downward pressure for the time being unless Europe suffers a sudden implosion – which is very unlikely.

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF       GBPUSD
Res:  105.00-43    1.5669-92    1.0599-23    1.9622-51
Res:  104.20-45    1.5597-31    1.0485-05    1.9570-90

Spt:   103.51-80    1.5510-40    1.0413-47    1.9500-30
Spt:   102.56-80    1.5447-85    1.0340-65    1.9436-52

See Also

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