Japan’s Tertiary Industry Index came in smack on forecasts in July, falling by -0.5% MoM. There was an expectation that the Niigata earthquake on July 16th would impact the demand for utilities and this indeed showed a -4.1% decline. However, the service activity in the wholesale and retail sectors turned in poor figures also dipping by -1.4% over the month. This is another sign that consumer demand is still soft on the back of higher taxes, higher pension and health insurance and a general desire to save since no one trusts the national pension scheme any more. The Finance Minister Nukaga was quick to make a statement saying that Japan’s recovery is still on track with the underlying fundamentals being solid. He claims there has been no change to the global economy but this seems a little unusual given what happened last month. The Yen has strengthened a touch but frankly the underlying direction is still higher for Dollar-Yen. On the U.K. Northern Rock situation the U.K. Chancellor Darling has actually made a statement that the guarantee all Northern Rock deposits. Clearly the persistent run on cash deposits is causing a great deal of strain and with the underlying company fundamentals otherwise solid they are obviously wishing to avoid runs on other building societies where share values have been plunging by over 30%. The Pound is coming to support at 1.9865 and this announcement should give temporary respite though the underlying direction for the Pound is lower. The following economic releases are due today: Q2
Swiss Industrial Production (QoQ) +5.2%
Swiss Industrial Production (YoY) +8.3% August
U.K. CPI (MoM) +0.4%
U.K. CPI (YoY) +1.9%
U.K. CPI Core (YoY) +1.8%
U.K. RPI (MoM) +0.5%
U.K. RPI (YoY) +4.0%
U.K. RPI Excl Mortgage (YoY) +2.6%
U.S. PPI (MoM) - 0.3%
U.S. PPI (YoY) +3.2%
U.S. PPI Excl Food & energy (MoM) +2.2%
U.S. PPI Excl Food & energy (YoY) +3.2% September
German ZEW Survey: Economic Sentiment - 17.0
German ZEW Survey: Current Situation 75.0
Euro-zone ZEW Survey: Economic Sentiment - 15.0
U.S. NAHB Housing Market Index +20.0 The FOMC are due to announce their rate decision Yesterday was pretty inconclusive for the Dollar in general, the market somehow managing to huff and puff but stay in tight ranges. It really keeps the outlook on the whole the same as yesterday, with the exception of the Pound. I still tend to favor a dip to 1.3780-1.3505 in the Euro while I wouldn’t be surprised if the Swissie went back up to 1.1932. However, while these areas stop any further gains for the Dollar the expectation will be for one more bout of Dollar weakness to 1.4039 Euro and 1.1720 Swissie. However, do keep in the back of your minds that the main direction for the Dollar to the end of the year is higher and any break of the 1.3780 or 1.1932 Dollar resistances will turn the tide in favor of this rally developing. The Pound well and truly broke down, quickly dipping below the 2.0035 support and continued to slip over the day. It has potential to 1.9865 today but should find support for a period of consolidation that should find it tough going above 2.0000 – the ideal retracement being at 2.0046. The underlying direction is still lower towards the 1.9649 low. Dollar-Yen didn’t manage a break out higher yesterday but certainly looks very close today and this should manage to get to the 117.00-12 area before pulling back. Dollar-Canada did well to reach just 5 points below the 1.0244 target and that too should correct now. However, the Aussie failed at the 0.8458 resistance but looks to have completed the correction already. Risk is for a more complex sideways consolidation but I don’t expect any more weakness here. Note important support and resistance areas: USDJPY EURUSD USDCHF GBPUSD
Res: 116.24-60 1.3967-85 1.1960-92 2.0046-70
Res: 115.27-48 1.3895-26 1.1922-32 1.9915-60 Spt: 114.50-80 1.3780-05 1.1800-38 1.9865-70
Spt: 113.69-03 1.3700-20 1.1720-41 1.9767-18
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