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197222 Resource 128466 128654 128654 1202794878845 1202794878845 Controlled European Morning Update 12th February 2008

Market turns bearish on Japan Inc

Releases from Australia:                                                                     Prior   Current Australian January NAB Business Confidence    5.0     - 4.0 Australian January NAB Business Conditions   17.0      13.0 While recent numbers have shown that Australian consumers are still buoyed by record employment levels the same is not true of Australian businesses. The latest NAB business survey has seen quite a tumble in the level of business confidence by 9 points from December to dip below zero to -4.0. This is the lowest level since September 2001. Current business conditions softened but without the dramatic drop, dropping by 4 points to +13.0. The NAB suggest that the impact could well be a cutback in CAPEX over the coming months which by H2 will result in lower levels of business and a softening in the excruciatingly tight labor market. It will not cause the RBA to put off the expected rate hike at the next MPC which the CB see as necessary to combat the race-way inflationary levels. Indeed, the NAB don’t see any rate cuts until early next year. That puts another economy under the strain of lower growth and excessive inflation…Japan has also been in the news overnight as the U.K.’s Daily Telegraph newspaper speculates that a large chunk of subprime debt is being hidden by Japanese banks. The article points to an “unaccounted for bad debts” of around US$300bn suggesting that Japan could be hiding it. Well, it’s still speculation and there is no real evidence right now that it is accurate. However, the article also points out the plight of the Japanese economy. Even that is not strictly supported by recent numbers but even the Economy Minister Ota has finally acknowledged that Japan’s economy is likely to weaken as the U.S. economy slows down at an accelerated pace. Crunch time will be the Q4 GDP release for Japan which is due for release on Thursday. It is forecast to still be positive at a slow pace of +0.4% for the quarter. All this is swelling suggestion that the BOJ could actually cut rates. Fukui has consistently turned down the idea but his term as Governor expires next month and his deputy, Muto is expected to be appointed, possibly named as early as this week.Whether interest rate cuts are likely is still a risky call but this will not stop market players beginning to speculate. As I have mentioned before the zero rate policy may have been reversed after the economy recorded positive growth but it is very questionable that it was the source of the revival.As is very clear the real reason for Japan’s resurgence was globalization as the country’s exporters clung on to the coat tails of surging global trade. With that now finally under decline and Japan’s domestic economy still languishing there is little to stop the economy going straight back into recession.The only difference this time will be that inflation is rising and this will take further toll on the Japanese consumer. The following economic releases are due today:January U.K. CPI                                  (MoM)   - 0.6% U.K. CPI                                   (YoY)   +2.3% U.K. CPI Core                           (YoY)    +1.5% U.K. RPI                                  (MoM)   - 0.5% U.K. RPI                                   (YoY)   +4.1% U.K. RPI Excl Mortgage Pay         (YoY)   +3.3%February German ZEW Survey: Econ Sentiment       - 45.0 German ZEW Survey: Current Situation       50.0 Euro-zone ZEW Survey: Econ Sentiment    - 43.0 U.S. ABC Consumer Sentiment   (10th)  My thoughts of one further high for the Dollar before a correction appeared to have fallen by the wayside. I could actually generate a scenario that would still do that now, but if I look across the currency pairs the most likely concerted impression I get is that the chance of us being in that slightly deeper correction before the Dollar runs higher.Possibly the one exception to this is Dollar-Yen. I do have to say that the pattern that has developed since the original 107.88 high is exceptionally complicated but with it having stalled yesterday at 106.33 and the modestly deep pullback, it does seem to suit the chance we have seen a rather scrappy triangle in the correction and thus the next move should be higher. I have to couch that with come caution as the picture in Euro-Yen seems to be more bearish. I have been anticipating that it will be weakness in EURUSD that would be the main driver – and as I mentioned above I feel the chances are that we see earlier strength in the Euro. It will be wise to watch these in conjunction with each other. Possibly we are just seeing a sideways consolidation in Euro-Yen and that would then continue while the constituent parts continue their respective ways. So there are still some rather conflicting issues still and it will be prudent to watch the overall movements over the course of today. Remember the Euro daily cycles have peaked out last week while the Dollar is finding a large weekly cycle low against the Swissie right now and therefore remember the Dollar’s upside does seem the overall vulnerability. Note important support and resistance areas:         USDJPY        EURUSD       USDCHF       GBPUSD Res:  108.57-96    1.4677-95    1.1135-76    1.9622-72 Res:  107.46-88    1.4535-75    1.1046-65    1.9528-66Spt:   106.65-70    1.4480-95    1.0969-90    1.9482-00 Spt:   105.88-03    1.4364-00    1.0871-15    1.9400-38 9 application/xml false Australia BOJ business confidence currencies debt Forex Fukui FX interest rates Japan Muto Ota recession subprime Thinking of switching to trade currencies? Read more about the largest global market http://www.gftforex.com/land/index.asp?aid=446 Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; hc; .NET CLR 1.1.4322; .NET CLR 2.0.50727; MS-RTC LM 8) 127.0.0.1 127.0.0.1 ICopsey 202.216.243.97 false true false false true 128466 blog blogsite/GFTForex/web