European Morning Update 21st May 2008

Latest news on European Morning Update 21st May 2008

Dollar little moved in Asian trading

News from Australia:

                                                        Prior             Current
April Motor Vehicle Sales        (MoM)    +1.0% (prior)   - 0.8%
April Motor Vehicle Sales         (YoY)    +3.7% (prior)   +3.5%
May Westpac Consumer Confidence     - 1.3%            +2.7%

Australians are more confident but appear to be cutting back on larger purchases such as cars. The rise in confidence as measured by Westpac was the first in 5 months and came on the back of the income tax cuts announced in last week’s budget. April’s figure was the lowest in 15 years.

While the recovery was welcomed it still represents a 27.6% drop over the past 12 months with the underlying index wallowing below the 100 equilibrium level which separates optimism from pessimism.

The fear will be that the biggest negative factor in high gasoline prices is likely to continue to outlive the benefits provided by the budget and therefore confidence is expected to remain on a downward path over the coming months.

The following economic releases are due today:

April
U.K. PSNCR                      GBP      -2.5bn
U.K. PNSB                        GBP       1.5bn
U.K. M4 Sterling Lending   GBP       16.0bn
M4 Money Supply           (MoM)      +0.6%
M4 Money Supply            (YoY)      11.1%

May
German IFO: Business Climate        102.0
German IFO: Current Assessment    108.0
German IFO: Expectations                96.4
Swiss ZEW Survey: Expectations

The Bank of England is due to publish the minutes of the last monetary policy meeting
The FOMC minutes of the 29th- 30th April are due to be released

The Dollar remained under pressure yesterday as expected but the range trading I had envisioned failed to materialize and this provoked extension of losses towards the next larger targets. There looks to be room for more losses today but I don’t think we’re too far away from another upward correction.

In the slightly larger picture we are in a correction of the gains seen so far in the Dollar. Considering the Euro specifically where the structure appears slightly clearer we should be completing the second of three corrective patterns today and thus, as I mentioned the next reaction should be an intermediate upward correction. Once this is complete it would imply that we just have one more corrective pattern to go and this should last into next week and on the assumption that this analysis is correct the implication is for the Dollar to resume its gains next week.

Identifying the eventual stalling point is a bit difficult at present. I could churn out the normal Fibonacci ratios but these tend to be approximate in this type of correction because they’re too easy for everyone to spot. More I’ll be looking at the internal relationships in the moves to try and establish a more accurate stalling point.

One currency pair we should look at for this is Cable. I have been working on the assumption that we are seeing a larger flat correction from the original 1.9335 low and thus we should move back to the intervening 2.0192 high. It seems a little bit of a tough target to achieve and with Cable we should watch for the risk of a shortfall in target. However, hopefully from a timing basis it should help out. Even there though, we are likely to get a pullback before the next rally.

On Dollar-Yen the 102.18-56 area looks like the critical support and while it holds there still is risk of gains but given the time frame of the larger weekly cycle low around July there doesn’t appear to be much wriggle room for this correction…

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF       GBPUSD
Res: 104.34-68    1.5810-45    1.0430-77    1.9778-10
Res: 103.45-95    1.5710-38    1.0380-15    1.9690-17

Spt: 102.81-98 1.5611-43 1.0310-39 1.9610-27
Spt: 102.18-56 1.5560-90 1.0220-43 1.9500-40

See Also

Menu