Following the Tertiary Index earlier in the week, the Japanese All Industry Activity Index registered a rise of +1.0% in August. This is up from the earthquake battered July revision of -0.2% but just below forecasts of +1.1%. The result is a little interesting. Recall the tertiary index registered a rise solidly above forecasts and which represents around two-thirds of the all industry index but we see the latter fall short of target. It may mean something since the tertiary index represents the services sector while the all industry includes manufacturing and it would seem this provided the drag overall. In fact, industrial production posted a 3.5% rise and final demand components rose 2.0%. However, construction appears to be the black sheep declining by 4.5% which could be a reflection of the decline in condominium developments or possibly the new rules that have been applied to construction sites. Probably nothing in it, but worth watching out for next month’s number… Down under Australian New Motor Vehicle Sales rose by 1.8% MoM and +7.8% YoY in September. It keeps the trend positive and reflects the buoyancy in demand from a high employment country.
The following economic releases are due today:
August
Italian Industrial Orders (MoM) +0.4%
Italian Industrial Orders (YoY) +6.7%
Italian Industrial Sales (MoM) +1.5%
Italian Industrial Sales (YoY) +6.7%
Italian Trade Balance (Total) EUR -600mn
Italian Trade Balance (EU) EUR 375mn September
German Producer Prices (MoM) +0.4%
German Producer Prices (YoY) +1.8% Q3
U.K. GDP (QoQ) +0.7%
U.K. GDP (YoY) +3.1%
The elusive surprise did come along…
However, the direction was Dollar bearish in line with the medium term view and even broke through the 1.4281 Euro high. This means there shouldn’t be a return to 1.4127-43 area and probably any pullback will remain above 1.4206-26. Maybe there is a structure that would allow for 1.4127-43 but I have my doubts. Indeed, the depth of the pullback should highlight the overall wave pattern. For those of you who follow the Elliott Wave counts there are two possibilities – one being a direct rally to the ultimate high around 1.2720-1.4805 and the other which will see a move to around 1.4611 followed by a deeper pullback before the last leg higher to the same target. The expected pullback should help identify which of these counts are more likely to be correct. I do still prefer the view of a move to 1.4611, correction and then target for two reasons. Firstly the Dollar cycles are bearish still for 2 months at least, maybe a week or two more. A direct rally would reach target much earlier. The second reason is the situation in the Swissie. Here we have the likelihood of a dip to just below 1.1600, a correction and then a decline to the 1.1283 low. Again, this structure would tend to provide room for the decline to last to year-end though it will probably mean the correction will be quite long. Dollar-Yen. The breach of the 115.95 level did force follow-through to 115.25 quite perfectly. However, this morning this has been broken. I’m not going to get too bearish at this stage. A daily cycle low is due over the next week and so a recovery is due. If I look at the wave structure I actually find it difficult to see anything lower than 114.62-80. This may cause a sideways correction for 5-8 days but overall the direction remains higher – no change there.
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 116.22-45 1.4383-99 1.1770-00 2.0550-93
Res: 115.30-80 1.4309-21 1.1706-51 2.0476-12 Spt: 114.62-80 1.4226-50 1.1660-72 2.0396-19
Spt: 113.84-98 1.4180-06 1.1584-01 2.0285-07 | 
