Releases from Asia: Australia Prior Actual
Australian December New Motor Vehicle Sales (YoY) 8.3% 11.6% Australians continue to take advantage of the tight labor conditions and easy jobs to improve their lifestyle with the growth in new car sales remaining buoyant. However, how long this will last is uncertain with the RBA already plotting another rate hike to cool down the robust economy. However, the strength of the economy is forecast to have already peaked. Dun & Bradstreet may have raised 2007 GDP forecasts to +4.1% from +3.9% but it doesn’t expect this to be maintained. They are expecting the rate hikes to take the gloss of the economy with expectations of a reduction in GDP to +3.5% this year and +3.0% next. Given the forecast of the IMF head yesterday that commodity importing Asian developing countries are going to get hit by the global slowdown there is a greater risk that even these (still solid) forecasts will be adjusted lower over the year. The greater task for the Australian government and RBA is to try and ensure that the decline doesn’t develop too quickly since the majority of Australian exporters are small to medium sized businesses which are vulnerable to a slowdown in Asia. The Aussie has returned to the 0.8552 low and while there is a good chance of a pullback towards 0.8700-50 the longer term outlook remains pretty bearish for the currency. It will act as a two-edged sword as importers will need to pay more for goods while exports should become cheaper. Japan Prior Actual
Japanese December Supermarket Sales (YoY) -0.4% -1.8%
No surprises from the Bank of Japan which unanimously voted for unchanged rates for the 12th consecutive month. Clearly the market has been marking forward the next anticipated hike from the BOJ further and further out and now most not expecting a hike until next year. With central banks and finance ministers all admitting that forecasts have dashed by the stronger than expected impact of the subprime induced slowdown the outlook for Japanese exporters remains bleak. The BOJ has been adamant that Japan’s long, but extremely shallow, recovery is still in place. However, without the foundation of a healthy domestic economy the risks are high for Japan to return into a recession. Today’s 24th consecutive month of YoY declines in supermarket sales is another nail in the coffin and is reflective of the cautious Japanese consumer wanting to save for a rainy (retired) day having no confidence the government pension scheme will be anywhere close to providing for retired life. Some are even now suggesting that a rate cut is possible but given that the BOJ are keen to re-establish normalization and a cut will have little impact on businesses, the chance is low.
The following economic releases are due today:
November
Swiss Adjusted Retail Sales (YoY) +4.0% January
U.K. CBI Quarterly Industrial Trends
U.S. Richmond Fed Manufacturing Index Working through the charts this morning did make me raise my eyebrows a few times. The entire picture remains rather strange. The Dollar hasn’t managed to recover so much against the Swissie while the Euro has almost made it down to the November lows. This morning we have seen a modest bounce in Dollar-Yen from an interesting level though hasn’t yet confirmed a reversal and the Pound keeps sinking – and a little beyond where I had expected. The problem I do face with some of these moves is actually tying them down within the underlying structures. Possibly of all of them the Swissie has held best to forecasts and given the correction higher has remained below 1.1135 (and I assume will continue to do so) I suspect the Dollar will come under pressure again. This should form a new low in Dollar-Swissie but I have big doubts that we’ll get close to the highs in the Euro at 1.4921-66. I am working on the impression that this is developing in a large triangle. Now, we should watch this over the next 2-3 weeks. If this pattern proves correct then it should come to completion by around the time the Euro meets its next daily cycle high (and below the November weekly cycle high) which would then imply a stronger Dollar over February… I’d like this to fit in with a new low around 1.0750-1.0810 Swissie and allow a larger correction in the Pound – the only problem with the latter being exactly where the near term base will develop… As for Dollar-Yen I suspect a low may well have been seen today for a correction. However, I’d like to take that one step by step as wave structure has become a bit messy in the latter stages of the decline.
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 107.64-91 1.4560-90 1.1190-25 1.9536-85
Res: 106.50-90 1.4459-90 1.1120-35 1.9440-65 Spt: 105.60-90 1.4385-90 1.1055-77 1.9332-45
Spt: 104.95-21 1.4260-09 1.0974-98 1.9244-63 | 
