Releases from Australia:
                                                      Prior      Actual
May Consumer Inflation Expectation  +4.3%    +5.2%

Releases from Japan:

                                                                     Forecast            Actual
March All Industry Activity Index              (MoM)   - 0.2%            +0.5%
April Merchandise Trade Balance Total       JPY      739bn             485bn
April Adjusted Merchandise Trade Balance  JPY      796bn             609bn
April Supermarket Sales                          (YoY)   +1.4% (prior)   - 0.8%

Australians are looking for higher inflation and they probably won’t be too wrong with this morning’s burst of buying taking crude oil above 5pb. At that price Japan’s trade surplus will continue shrinking too. April’s numbers were a grim warning of what most countries will be seeing to their oil bills over the coming months.

However, quite surprisingly Japan’s All Industry Activity Index was much stronger than expected at +0.5% and belies the recent Tankan reports suggesting a dissolving of activity. The Services sector provided the boost, much of it being fueled by a recovery in spending on real estate and financial and insurance services.

However, rather gloomily industrial output dropped 3.4 percent and spells out a more bearish outlook for Q2 GDP and a continued narrowing of the trade surplus. Nor will the BOJ be happy with the Fed’s reduction in their 2008 GDP forecast to somewhere in the +0.3%-1.2% range which spells extension of the tough times exporters are having, worsened by the strong Yen.

The following economic releases are due today:

Q1
U.K. Business Investment           (QoQ)    +0.3%
U.K. Business Investment            (YoY)    +5.5%
U.S. House Price Index               (QoQ)    - 1.4%

March
Euro-zone Industrial New Orders   (MoM)    - 0.5%
Euro-zone Industrial New Orders    (YoY)    +4.8%
U.S. House Price Index               (MoM) 
Italian Retail Sales                     (MoM)    - 0.2%
Italian Retail Sales                      (YoY)    +0.6%

April
U.K. Retail Sales                        (MoM)    - 0.5%
U.K. Retail Sales                         (YoY)     +4.2%

May
Italian Consumer Confidence Index             99.4
U.K. CBI Monthly Industrial Trends 
U.S. Initial Jobless Claims           (17th)      370K
U.S. Continuing Claims               (10th) 

The Dollar’s downside is certainly showing through and there is probably more to go. However, what we need to assess is whether this develops directly or whether a pullback is in order. Yesterday’s German IFO and the FOMC comments would tend to suggest a more direct push lower but I think we should be on guard. Dollar bullish divergences are developing in most currency pairs, certainly in the hourly charts but not quite so uniformly in the 4 hour charts.

This does smack of the potential of a pullback and the levels we have reached already do look quite critical and Dollar-Yen is currently pushing the 102.81 intermediate target very hard and has already managed a marginal breach. The Swissie too is in the same position.

Thus a more prudent approach would be to watch how far the Dollar can pressure these supports – breach would also probably break the bullish divergences and the result could well be a stronger follow through. However, at this point I’m not convinced that we shall see new Dollar lows and at this point we’re closer to the Euro high rather than elsewhere.

Another pair to watch that has potential to provide us with a decent signal is Cable. While we saw a modest pullback yesterday the move to new highs suggests a more direct rally higher. In many ways this suits the structure better but until the 1.9757 resistance breaks there is still risk of a pullback to 1.9585-1.9612 before the next leg higher. The initial target is probably around 1.9909 but the eventual target is back close to the 2.0191 high. The peak here could be an excellent pointer to an overall Dollar base.

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF        GBPUSD
Res:  103.60-90    1.5845-75    1.0376-05    1.9814-42
Res:  103.15-44    1.5799-10    1.0280-00    1.9734-57

Spt:   102.56-72    1.5707-44    1.0220-33    1.9665-93
Spt:   101.71-18    1.5651-79    1.0134-86    1.9585-12

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