Releases from Europe:
 

Q1                                          Forecast    Actual
German GDP                (QoQ)    +0.7%     +1.5%
German GDP                 (YoY)    +1.8%     +2.6%
French GDP (F)             (QoQ)    +0.5%     +0.6%
French GDP (F)              (YoY)    +1.9%     +2.2%

April
Swiss SECO Consumer Climate       10.0          2.0
German CPI (F)            (MoM)    - 0.2%     - 0.2%
German CPI (F)             (YoY)    +2.4%     +2.4%

France and specifically Germany showed that last year’s calamities hadn’t ruffled any feathers by the end of the first quarter. Both posted above consensus forecast results which provided a solid base for the year. Business investment was still firm though consumer spending was already under a little pressure.

Well, that was Q1 and the monthly figures in Q2 have clearly shown a sharp downturn so the market shouldn’t get carried away with these numbers though the knee jerk reaction was to buy back some short Euro positions. Sustainability of the Euro rally will depend on a break above the 1.5569-93 area.

The following economic releases are due today:

April
U.S. Industrial Production    (MoM)   - 0.3%

May
U.S. Initial Jobless Claims   (10th)     370K
U.S. Continuing Claims        (3rd)    3035K
U.S. Empire Manufacturing                   0.0
U.S. Philadelphia Fed                      - 19.0
U.S. NAHB Housing Market Index      +20.0

Comments I am reading today suggest that the market is feeling more confident that the U.S. economy has found a bottom and this is driving the Dollar higher. However, its now a week since the highs were seen and very clearly the intensity of buying seen until then has lessened considerably.

Certainly recent numbers from the States have become more positive compared to forecasts but there has been little to suggest that a recovery is assured.

On the other side of the coin European data has clearly worsened and this makes the argument for reducing Dollar short positions more valid. However, it doesn’t really suggest going long Dollars just yet.

At turns in the economy the data tends to become more volatile. There hasn’t been sufficient time for the fiscal stimulation to have any significant impact and until then the risk remains for disappointing numbers to inflict nasty surprises.

Today sees the U.S. announce industrial production and the NAHB housing market index while both the Fed Empire State manufacturing report and the Philadelphia report are due to be published.

Given the strong rebound in the Empire number in April there is risk of failure to follow-through and this may be echoed by the Philadelphia report. With housing starts and building permits unlikely to shine like a star tomorrow there is still significant risk for the Dollar to come back under pressure.

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF        GBPUSD
Res:  105.91-36    1.5651-71    1.0599-23    1.9546-72
Res:  105.25-43    1.5569-93    1.0530-50    1.9493-05

Spt:   104.21-46    1.5450-80    1.0446-73    1.9363-89
Spt:   103.65-90    1.5394-30    1.0389-10    1.9300-35

Releases from Japan:
                                                         Forecast             Actual
March Machine Orders               (MoM)    - 5.2%             - 8.3%
March Machine Orders                (YoY)    +1.0%             - 6.2%
April Tokyo Condominium Sales  (YoY)  - 17.8% (prior)  - 29.7%

The Japanese government has been forced to downgrade their assessment on core machinery orders to “somewhat weak” (previously “moving back and forth”) following the March figures highlighted further weakness to bring the YoY numbers to -6.2% when forecasts had been expecting +1.0%.

The value of orders was the lowest since May 2005 and suggests that Q2 will record the biggest quarterly decline in 10 years. Not only are orders down from the U.S. but also from Europe where the downturn has begun to bite. Add to that the stronger Yen and it compounds the problems for Japanese exporters.

The risk will now be for unemployment to rise again and for household spending, already hit by higher energy and food prices, to contract further which could see the economy begin to contract in Q3.

The following economic releases are due today:

Q1
German GDP                    (QoQ)    +0.7%
German GDP                     (YoY)    +1.8%
French GDP                      (QoQ)    +0.5%
French GDP                       (YoY)    +1.9%

April
Swiss SECO Consumer Climate          10.0
German CPI (F)                (MoM)    - 0.2%
German CPI (F)                 (YoY)    +2.4%
U.S. Industrial Production   (MoM)   - 0.3%

May
U.S. Initial Jobless Claims  (10th)      370K
U.S. Continuing Claims        (3rd)    3035K
U.S. Empire Manufacturing                   0.0
U.S. Philadelphia Fed                      - 19.0
U.S. NAHB Housing Market Index      +20.0

The Dollar proved firm again and while it is in line with my preferred direction the decline in the Euro in particular can only be described as underwhelming. Quite possibly the judgment day may be soon due for any stronger Dollar bullishness but for the moment there are still one or two patterns still to be completed.

Cable is just about doing as it should - having dipped to 1.9363 yesterday. It wasn’t quite a perfect Fibonacci extension but will do for the moment and still should mean that we get a test of the 1.9300-35 area later. Certainly, while the hourly chart is showing a bullish divergence of sorts the 4hour chart is not and it does tend to sway odds in favor of one last dip…

Dollar-Yen also did well to climb firmly higher though has still not managed to overcome the 105.68 high. A move to 106.82 is still my preference but I am mindful of the fact that Cable’s target is much closer than Dollar-Yen’s. I am also watching Euro-Yen carefully as ideally yesterday’s high at 162.88 would be a preferred stalling point. There may be marginal risk for extension to 163.40-45 but the problem I have here is that while my 106.82 target is achievable it will mean that the Euro must decline further. So there’s a little conflict here that needs to be watched.

A limited Euro downside would also probably put a lower cap on the Swissie too. The 1.0770-00 area is the ideal target but unless the Euro drops a lot more we may have to accept a shortfall in target.

All in all there are growing signs that we should soon see the Dollar suffer a period of weakness and it is a matter of being aware of the reversal levels vis-à-vis the different targets, specifically in Cable, Euro-Yen and Dollar-Yen.

I will add one caveat. I give it pretty low chance but it’s worth being aware of this, specifically in the Euro. The rally from 1.4437 to 1.6018 came within 3 months. It does have the potential to provoke a spike top so if we start seeing some more aggressive losses the implication will be for a move back down to the 1.4400-520 area again within a month or so. I tend to reject the idea because of the Cable and Dollar-Yen patterns which I feel are more strongly showing signs of a Dollar peak. Again, it’s one to be kept in the back of your mind.

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF        GBPUSD
Res:  105.91-36    1.5569-93    1.0658-88    1.9546-72
Res:  105.25-43    1.5492-22    1.0572-00    1.9474-93

Spt:   104.46-70    1.5394-30    1.0473-00    1.9363-89
Spt:   103.65-90    1.5350-65    1.0389-10    1.9300-35

 Price:                            1.9442

Resistance:	1.9474	1.9493	1.9546	1.9572
Support:	1.9428	1.9389	1.9363	1.9335

Bias:

While the 1.9474-93 caps there is still room for one more decline to the ideal 1.9300-35 target

Daily Bullish:	Once again the downside developed well although did overshoot slightly the 1.9382 intermediate target. It does confuse slightly but I still feel the downside has legs for one more decline. Thus only look for a stronger move higher if the 1.9493-05 area gives way. If seen then we should see stronger gains to 1.9546 and probably 1.9572 at least. Take care here as this could cause a correction. Breach extends gains to 1.9631-66 again.
MT Bullish:	15th May: With losses having come within a whisker of the ideal 1.9300-35 downside target we must be aware of the risk of reversal higher. Back above 1.9505 and 1.9572 would see 1.9631-66 and probably higher.
Daily Bearish:	Further downside progress seen but we are close to a potential low. To see this last leg lower I’d prefer to see the 1.9474 resistance hold but should allow for 1.9494-05. This resistance should allow a move back below 1.9428 to 1.9389 at least – take care here in case a sideways consolidation develops. More likely we shall see a direct test of the 1.9301-35 target from where a larger recovery is anticipated. Only breach would trigger stronger losses to 1.9223, 1.9175 and 1.9097.
MT Bearish:	14th May: The downside has developed and should make its way down to the 1.9300-35 area. However, bullish divergences are forming in the daily chart and I suspect this will hold for a stronger recovery.

 

ELLIOTT WAVE COMMENTS

15^th May

Progress is being made in Wave (c) which has a wave equality target at 1.9301 while the old daily low was at 1.9335. Within the daily flat correction I am looking at we should see this support hold and generate a stronger move higher.

Within the decline I count yesterday’s low at 1.9363 as Wave iii and thus while Wave iv remains below the 50%-58.6% retracement at 1.9474-93 the way is open for the last decline.

A break above 1.9505 would cause an earlier reversal higher.

Below 1.9269 would maintain stronger losses for the 161.8% projection in Wave (c) at 1.9097.

Ian Copsey

GFT Daily Market Commentary

The dollar ended little changed on Wednesday after giving up early gains and after being told we have limited inflation to worry about.  There is a series of US reports today, so expect choppy trading. The US currency has upside bias.
 

Euro/dollar

Euro/dollar recouped early losses to close flat on Wednesday, but remained in an inside range. My model remains short, but only a close below 1.5394 would encourage the bearish outlook.     

Immediate support is still seen at 1.5432. Strong support then comes at 1.5394. Below 1.5365, distant support follows 1.5287. 

Initial resistance is at 1.5505.  Above 1.5600, euro/dollar retains additional resistance at 1.5685.   

Oscillators are bearish.

NEAR-TERM: Mixed to slightly bearish 
MEDIUM-TERM: Mixed to slightly bearish
LONG-TERM: Bullish

Dollar/yen

Dollar/yen rallied on Wednesday to a one-week high on Wednesday and my model remains long. Well, the upside still looks limited, but I’d sell dollars only on a stop.
 
Strong resistance remains at 105.60 from a 50-point pivot, which targets 105.10 and 106.10.

Initial support is now at 104.50 from a 50-point pivot, which targets 104.00 and 105.00. Distant support moved up to 103.40 from a 50-point pivot, which targets 102.90 and 103.90. 
 
Oscillators are mixed.

NEAR-TERM: Mixed with upside bias   
MEDIUM-TERM: Bullish
LONG-TERM: Bearish

Sterling/dollar

Sterling/dollar recovered from a new low for the downtrend to close unchanged on Wednesday. My system remains short, and the short-term outlook is slightly bearish.  The pound suffers amide fears of stagflation in the UK.
 
Immediate support is at 1.9455. Below 1.9363, support remains at 1.9273.  Distant support looms at 1.9220 and 1.9185.  

Initial resistance now comes at 1.9515.  The next levels are 1.9580 and 1.9635.  Above 1.9690, there is distant resistance at 1.9840.

Oscillators are bearish.

NEAR-TERM: Mixed to slightly lower
MEDIUM-TERM: Bearish
LONG-TERM: Mixed

Dollar/Swiss franc

Dollar/Swiss gave up most of its gains on Wednesday, but my model remains long. I still need more proof that this upmove is here to stay.
 
Initial resistance remains at 1.0570. If this close level gives way, expect a test of 1.0622. Distant resistance is at 1.0745.

Immediate support is still seen at 1.0480.  This is followed by 1.0445, 1.0410 and 1.0300. Distant support is then pegged at 1.0255.    
 
Oscillators are rising.

NEAR-TERM: Mixed to slightly bullish 
MEDIUM-TERM: Bullish
LONG-TERM: Bearish

European overnight releases:

April                                                   Forecast     Actual
Italian CPI                               (MoM)   +0.1%     +0.2%
Italian CPI                               (YoY)    +3.3%     +3.3%
Euro-zone Industrial Production  (MoM)   - 0.3%     - 0.2%
Euro-zone Industrial Production   (YoY)   +2.3%      +2.0%
U.K. Jobless Claims Change                     0.0K      +7.2K
U.K. Claimant Count Rate                       2.5%        2.5%

States overnight releases:

April                                                  Forecast     Actual
U.S. CPI                                 (MoM)   +0.3%       +0.2%
U.S. CPI                                  (YoY)   +3.9%       +3.9%
U.S. CPI ex food & energy        (MoM)   +0.2%       +0.1%
U.S. CPI ex food & energy         (YoY)   +2.4%       +2.3%

May
Bloomberg Global Confidence                14.54 (prior)  22.73  

Inflation day has passed but without any shocking rises from either side of the Atlantic Pond. Still, no one is taking this as meaning that things are getting better and that is being emphasized by the increasing number of comments from officials.

It’s fine for ECB and finance ministers to say that they can’t allow inflation to get higher but frankly it’s clearly out of their hands and maintaining interest rates at current levels only has impact when the inflation is internally driven.

Indeed, maintaining high interest rates when consumers are stressed out trying to meet their costs within their household budget will more likely provoke a more excessive push to lower growth. We can’t even rule out recession if other price shocks occur along the way.

The situation was probably clearly highlighted by the BOE governor King during his quarterly assessment.

The outlook for UK inflation has “deteriorated markedly” he said and warned that it hasn’t reached a peak nor would fall below the 2% target rate for at least two years. At the same time house prices are likely to continue their downward trend which the government has revealed could be as much as 10%.

The clear sign that he understood the Catch 22 the country (and probably the world) faces was his explanation that if the Bank kept rates where they were, then the outlook for growth was dismal and the UK could be tipped into recession. “The nice decade is behind us” he concluded.

From this point forward there is a worrying risk of the slowdown squeezing real incomes and as such “the balance of risks to the outlook for growth is to the downside in the medium term.”

The key here is interest rates. The Fed has taken an expansive view and tackled the problem of the turndown in the U.S. economy rather than protect against inflation. However, it is very unlikely that inflation would be any lower if they had retained firmer monetary conditions.

It can be argued that the crisis in the States was much stronger. However, the global economy was at a high when the bubble burst and as the rest of the world catches up the level of activity has weakened considerably and this will act as a stronger dampener to growth as inflation deepens its grasp.

While inflation is high consumers are being forced to cut back on spending. In other words the traditional demand driven source of inflation is not present. High interest rates will not work in this environment.

Indeed, the opposite may well be true. High interest rates will dampen demand further and drive economies into stagflation. Lower interest rates will help retain a modicum of normal demand.

The only fly in the ointment would be a more aggressive reaction to the financial stress in which households find themselves – and that would raise the chance of industrial action for higher wages. The U.K.’s winter of discontent as inflation scaled heights above 12% should be a study requirement…

The Dollar firmed up on the back of the lower inflation reading as the market sensed that interest rates were not about to be lowered again by the Fed. It hasn’t been a strong rally with recent highs still intact.

Clearly the Dollar’s upward momentum is waning and unless there is some new catalyst the risk is turning for a correction to the recovery from its lows…

More later once the daily analysis has been done…

The following releases are due from Asia due today:

Australia
May Consumer Inflation Expectations 

Japan
March Machine Orders               (MoM)    - 5.2%
March Machine Orders                (YoY)    +1.0%
April Tokyo Condominium Sales  (YoY)

Releases from Europe:
 
April                       Forecast   Actual
French CPI   (MoM)    +0.4%    +0.3%
French CPI   (YoY)     +3.0%    +3.0%

The first CPI number is out the way with this morning but brought no new nasty surprises to work with. No prizes for guessing that energy and food prices are still the driving force but with the number basically in line with forecasts the status quo with rates is likely to remain unchanged.

The following economic releases are due today:

April
Italian CPI                        (MoM)   +0.1%
Italian CPI                         (YoY)   +3.3%
U.K. Jobless Claims Change              0.0K
U.K. Claimant Count Rate                2.5%
U.K. BOE Quarterly Inflation Report
U.S. CPI                           (MoM)   +0.3%
U.S. CPI                            (YoY)   +3.9%
U.S. CPI ex food & energy  (MoM)   +0.2%
U.S. CPI ex food & energy   (YoY)   +2.4%

May
Bloomberg Global Confidence 

Today is inflation day with release due from France, Italy and the States. If the U.K.’s experience with the shocking PPI report on Monday followed by yesterday’s rise in CPI to 3% is any role model for what is to come, then we could be seeing some firm CPI numbers also.

So far the market has viewed this from the angle of interest rates, a high inflation number implying that central banks will find it tough to lower rates. Monday’s PPI numbers boosted the Pound but yesterday’s CPI actually had the opposite impact.

That doesn’t really imply that the Euro will mimic this response since it still doesn’t face the large drop in house prices and has not suffered so badly from the credit crisis.

However, taking a step back should we question the normal reaction that higher inflation will mean that interest rates must remain firm? U.S. CPI is expected to be at 3.9%. For sure it is much too high for the Fed’s comfort. However, viewing it from the opposite perspective, would it have been any lower if the Fed had kept rates much higher?

I very much doubt it.

So is there any difference between the U.S. experience and the rest of the world? Well, certainly the housing market and the credit crunch have had a much greater impact on the U.S. economy than Europe.

Certainly the ECB cutting rates by 2% is just not realistic. However, as global demand slows because of externally generated inflation and not domestic demand generated inflation, consumers are implementing household budget cuts. This means that demand will be low and the potential for inflation to be worsened by interest rate cuts is actually moderately low.

Indeed, the route that central banks are currently taking in retaining a modestly high level of interest rates will definitely cause more business and consumer pain. It may be possible that unchanged interest rates will cause more damage than good…

Note important support and resistance areas:

           USDJPY       EURUSD       USDCHF        GBPUSD
Res:  106.34-82    1.5490-20    1.0679-25    1.9500-50
Res:  105.27-61    1.5445-70    1.0623-30    1.9430-50

Spt:   104.00-40    1.5350-90    1.0476-00    1.9382-90
Spt:   103.30-60    1.5289-29    1.0389-04    1.9300-35

Releases from Japan:
                                                       Forecast    Actual
March Trade Balance BOP Basis   JPY    1233bn    1251bn
April Domestic CGPI                (MoM)    +0.5%     +0.6%
April Domestic CGPI                 (YoY)    +3.6%     +3.7%

April’s domestic CGPI saw a higher than anticipated monthly rise, which is no real surprise given the rising instances of businesses applying price hikes, often in the 5%-10% range. The YoY figure fell back from March’s high (in 27 years) to 3.7%. However, this was due to the removal of the gasoline surcharges.

With out a doubt this is the strongest pace of inflation I have seen since I first arrived on these shores 15 years ago. Around the mid to late 90’s subway fares were increased and they have remained the same ever since.

However, after first resisting the need to pass on price increases this year has seen a rash of price hikes in each of the past three months and this is clearly having an impact, as elsewhere in the world, on the ability for consumers to maintain the same level of spending on non-oil or food related goods.

To make things worse the current comparative strength of the Yen is hitting both exports and corporate profit levels, a problem highlighted by the BOJ’s Shirakawa who clearly picked the short straw to get appointed as governor to follow from Fukui. He now faces the same problems as other central banks in seeing dwindling growth, higher inflation and falling property prices.

The following economic releases are due today:

April
French CPI                        (MoM)   +0.4%
French CPI                         (YoY)   +3.0%
French Survey of Industrial Investment
Italian CPI                        (MoM)   +0.1%
Italian CPI                         (YoY)   +3.3%
U.K. Jobless Claims Change              0.0K
U.K. Claimant Count Rate                 2.5%
U.K. BOE Quarterly Inflation Report
U.S. CPI                           (MoM)    +0.3%
U.S. CPI                            (YoY)    +3.9%
U.S. CPI ex food & energy  (MoM)    +0.2%
U.S. CPI ex food & energy   (YoY)    +2.4%

May
Bloomberg Global Confidence 

Once again yesterday was provided a mixed bag of tricks. The Dollar did firm up in line with my preferred bias but I can’t say that it looks particularly convincing except perhaps against the Pound and Yen. Looking around a little further there does seem to be more room for additional price wiggles.

For example, the Aussie appears to still be in a tight sideways range and that doesn’t look like ending today, and probably not tomorrow either. Dollar-Canada failed to make its preferred target but in not doing so still looks like it has a few more kinks to iron out on the downside before it can rally. And finally Euro-Yen actually pushed above the 161.63 area and although it wasn’t expected, the larger picture here is still quite bearish so the upside still remains limited at best.

So what can we make out of the majors? Well, the two pointers I have been following - Dollar-Yen and Cable - appear to be going in the right directions. Even so there still risk of some earlier corrective patterns emerging but I retain the 1.9300-30 area in Cable as the likely base while Dollar-Yen still has potential through to 106.82.

If this generates the same directional moves in the Euro and Swissie then we could still be talking about new Dollar highs. I still can’t say I like the wave structure that much, but in the absence of any obvious Dollar losses I’ll maintain my main Dollar bullish stance but under the awareness that we should begin to see losses fairly soon. For this I’ll be looking at Cable for the first signal of a top and probably then Dollar-Yen.

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF        GBPUSD
Res:  106.34-82    1.5593-14    1.0679-25    1.9550-85
Res:  105.27-61    1.5485-90    1.0575-23    1.9480-00

Spt:   104.00-40    1.5392-28    1.0476-00    1.9382-18
Spt:   103.30-60    1.5289-29    1.0389-04    1.9300-35

 Price:                            104.68

Resistance:	104.90	105.27	105.68	106.06
Support:	104.45	104.28	104.00	103.65

Bias:

105.27 is likely to cap but while 104.40-50 supports we should see additional gains to 105.68

Daily Bullish:	Gains have developed in line with expectations but haven’t quite met the 105.27 first target, stalling just below the 104.95 level. I still feel we should see this progress to 105.27 but this should cause a pullback. While this remains above 104.40-50 we should then see the next leg higher to around the 105.68 peak but look for a slightly larger correction from there. Only a direct break above would take price more directly towards the eventual 106.82 target.
MT Bullish:	12th May: Losses have moved down to 102.56 around where there is quite a strong pivot support area. I suspect this may well provide the basis for a final move to 105.57-68 and followed by 106.82 before a larger reversal.
Daily Bearish:	The upside is progressing well and until otherwise proven we should treat any declines as corrective only. Indeed, the 105.27 level should provide such a pullback but any losses from here shouldn’t move below the 104.40-50 area – at most the larger pivot support at 104.00. Only consider the possibility of stronger losses on a break of this pivot support. If seen then next support will be around 103.25-35 followed by 102.18-56.
MT Bearish:	7th May: I have to remain cautious here as I still feel the 106.82 target is achievable. We seem to be seeing a deeper correction with supports at 102.84 and maximum 102.18. Only below 102.00 would signal direct losses.

 

ELLIOTT WAVE COMMENTS

14^th May

The recovery from 102.56 is encouraging with a minor Wave iii target at 105.27. While any Wave iv remains above 104.40-50 we should see Wave v develop towards the 105.68 high to complete Wave –a-.

Clearly this should be followed by a Wave –b- and finally a Wave –c- towards the 50% retracement in daily Wave (iv) at 106.82.

This would complete a triple three and should ideally be accompanied by a bearish divergence in the daily chart as well and in shorter time frame chart also.

Ian Copsey