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 | 
