Euro - Industrial Orders Plunge, Will IFO Follow?

Analysis by DailyFX

- Australian Dollar: CPI colder just like PPI
- Japanese Yen: March CSPI at 0.6% y/y matching 9 year highs
- Euro: Industrial Orders tumble
- US Dollar: Existing Home Sales and Consumer Confidence is next

Euro - Industrial Orders Plunge - Will IFO Follow?
Euro-zone New Industrial Orders plunged -0.7% versus expectations of an increase of 1.0%. Although the currency showed no negative reaction to the release, the results must be a concern for euro bulls, as they clearly show the drag of rising currency exchange rates on Euro-zone manufacturing and suggest that ECB may have difficulty hiking rates past the expected 4% level in June.
Last week we noted that the first signs of a possible slowdown in EZ production appeared in the Italian manufacturing data. Today’s decline in the region’s overall industrial demand confirms that negative trend. The soft numbers from the industrial new orders report therefore put into question the market’s rather optimistic assessment of the IFO survey due tomorrow at 8:00 GMT. Analysts predict a reading of 107.9 - higher than the prior months 107.7 - and within decade long highs of 108.7 set in December of 2006.
Granted Germany is by far the most efficient and productive economy among the Big Three in Europe, but the country’s manufactures are nevertheless subject to negative effects of currency valuation just like everyone else. Given euro’s relentless rise against the greenback, Germany’s export dependent manufacturing sector may be feeling the competitive pressures of higher exchange rates. This pain may be most evident in Germany’s important new trade with China as the EURCNY rate has uninterruptedly climbed from 10.0000 at the start of the year to 10.5000 presently. In short, the market may be mispricing the risk of a downward surprise in the IFO given the rather material slowdown in the growth of the Euro-zone Industrial sector.
The yen meanwhile continued to tread water as it remained range bound between 118.25-118.75. News that March CSPI index remained near 9 year highs at 0.6% suggesting that pricing power may be finally returning to the country’s service sector, had only a fleeting impact on trade.
Although the currency could see further positive event risk as the week progresses its questionable if it will be able to sustain a rally. Up to now, any sell offs in USDJPY remain shallow as carry traders continue to buy the pair on any pullback. With the DJIA still hovering near all time highs, the pair is unlikely to see much weakness given the placid attitude of most investors. However, should stocks sell off while Japanese consumption and employment data print positive, USDJPY could break the 118.00 support level later in the week. For now however, the impact of any positive economic news is minimal at best.

Daily Technical view June 25th

Analysis by Bogdan Parascanu of FX Instructor


EUR/USD Technical View

Euro continued the uptrend started on June 13^th and after a combination of quiet and more volatile days it is trading now above the 1.3460 resistance established on May 10th/11^th. The start of the week found the pair trading just under the 1.3410/60 resistance week and it took a couple of days in order for the Euro to gather enough strength to break above it. From Monday to Thursday the pair basically traded inside a new range formed between the 1.3365 support and bellow the 1.3410 resistance. After Friday's move above the 1.3460 level the pair's momentum has increased a bit and if we get to trade above 1.3500 in the first few days of the week it will bring more bulls to the table. First bull target is the 1.3500 level before the June 5^th high at 1.3550, once up there sights will be set on the 1.3610/30 resistance area as an intermediary target before the YTD high at 1.3680. Conversely the pair might not manage to hold above the 1.3460 level and if that happens bears will start again to put pressure and push it lower, now we have a new small range to be aware of between 1.3365 and 1.3410, a range that could be a base for future north-swings but at the moment is just an obstacle in the bears path. If Euro starts giving back some of what has gained in the last couple of weeks it will open up February 27^th High at 1.3260 as the first main short target and if price continues to go lower next support is the 1.3160 .50 Fib of the February-March range.

Resistance Levels

• 1.3680 – April 27th High
• 1.3630 – May 7th High
• 1.3550 – June 5th High
• 1.3459 – May 10th/11th Low

Support Levels

• 1.3365 – December 3rd High
• 1.3300 – January 7th High
• 1.3260 – February 27th High
• 1.3160 - .50 Fib of Feb-March range

GbpUsd Technical View

Cable put in a strong week breaking clearly out of the previous week's range. With a single exception, Thursday when the pairs momentum took a breathing break, every day of the week was a healthy push north. The pair stopped on Friday just bellow the 2.00 level we have mentioned so many times until now, the current upside momentum is still intact but the fact that we didn't manage to break above the 2.00 psychological level could start to worry a few longs not to mention that will probably give shorts a new opportunity to build some positions. With a new monthly high cable looks bullish enough in order for us to check future resistance levels, first and closest one is without any doubt the almighty 2.00, if Gbp has enough strength to break through it will get the pair very close to the next resistance line at 2.0060 which is the only obstacle before the YTD high at 2.0133 established on April 18^th. Even though cable has gained a lot and is on a prolonged uptrend one has to be aware of the possibility of a slowdown or even a reversal, the pair might not be able to cross decisively the 2.00 level and that will more than likely bring to a halt the upside momentum and get us into a consolidation or even a full trend reversal. Support levels that stand out are former resistance that once broken have turned into support, closest one is 1.9965 June 5^th high followed by the 1.9900 round number, lower down we have the 1.9840/70 range and even lower is the starting point of this last leg-up at 1.9670.

Resistance Levels

• 2.0200 – Round number
• 2.0133 – April 18th High
• 2.0060/70 – April 25th High

Support Levels

• 1.9840/70 – May 4th / December 1st 2006 High
• 1.9750/60 – retested level, May 11th low
• 1.9700 – May 18th Low
• 1.9670 – February 21st Low
• 1.9550 - .50 Fib

Existing Home Sales And The $

by :

NewstraderFX

FFAN Analyst

Spring is the buying season for homes and May is usually one of the most active months. Because the data on new building permits and housing starts has been weak, it's likely to see weakness in existing home sales as well. There is an overhang of inventory so it's likely to see lower prices too.

If you haven't kept up to date with the Bear Sterns/CDO market situation-you should. Becasue of the recent problems there, a weaker number could really set equity markets on their ear and cause some serious unwinding of carry trades. A surprise to the high side should could cause things to calm down a bit. Look for an especially strong market reaction because of this.

MC...

Sorry to all friends & viewer for not online 2~3 day....had a bad fever....

Belgian National Bank sees ECB rates rising in line with market views

by : Thomson Financial
Forex News

(Updates with oil price, euro level assumptions)

BRUSSELS (Thomson Financial) - The Belgian National Bank sees the European Central Bank raising interest rates in line with the expectations of the market.In its latest set of economic forecasts, the central bank said: 'Interest rates are ... projected to rise in line with market expectations.'Bank governor Guy Quaden told reporters: 'Monetary policy is not restrictive nor negative for sustained activity and investment.'He said that the ECB's rate-setting 'governing council has not said that the tightening cycle has ended, nor that a new hike is necessary'. Quaden added: 'Two years ago rates were exceptionally low. Now at 4 pct in nominal terms and 2 in real terms our monetary policy is not restrictive.'After the ECB raised its main refinancing rate to 4.00 pct from 3.75 pct last Wednesday, president Jean-Claude Trichet signalled that the bank has not yet ended its tightening cycle.Otherwise, the Belgian central bank said oil prices 'are forecast to rise slightly again during the course of 2007 before levelling out at an average of 69.9 usd a barrel in 2008'.Exchange rates are see remaining 'constant at their mid-May 2007 level, namely 1.36 usd to the euro'.

US Treasury stops short of blaming China for currency manipulation UPDATE

by : Thomson Financial
Forex News

(Updates to add details throughout)

WASHINGTON (Thomson Financial) - China is not intentionally manipulating its currency to gain an unfair trade advantage, but its massive buildup of foreign reserves raises risks for the global economy, the US Treasury's semi-annual report said today.In the much anticipated report, the Treasury stopped short of labelling Beijing a currency manipulator, which could trigger sanctions under US law.It did call for the Asian nation to speed up its currency appreciation to avoid what it called real 'risks' for the global economy. The yuan has appreciated by a bit more than 8 pct since July 2005, a pace that the US has said is not fast enough.'Allowing the currency to adjust is a matter of international interest and responsibility, with critical implications for the smooth functioning of the world's largest trading system and the adjustment of global imbalances,' the report said.'China should not hesitate any longer to take far more vigorous action to rebalance its economy, promote immediate (yuan) movement to tackle the currency's undervaluation, and achieve far greater flexibility in the exchange rate regime.'The Treasury report was released on the same day key senators are expected to introduce legislation aimed at forcing the US to put more pressure on China, possibly by bringing a World Trade Organization dispute settlement case against China's currency regime.Many members of Congress are upset that the administration has failed to cite China as a manipulator, even while it agrees that the yuan is undervalued.The Treasury report said it could not determine whether China was keeping the yuan undervalued in order to gain a trade advantage. The department has said this finding must be made before it formally cites any country as a currency manipulator, a move that would be followed by formal consultations.The report said US officials are already pressing China on currency reform in a wide range of bilateral talks.'China's tightly managed exchange rate regime is a substantial obstacle to the resolution of economic imbalances that foster China's high savings, high investment, and large trade surpluses,' the report said. Treasury said China's net exports reached a record 7.3 pct of China's GDP in 2006, and said China's current account surplus reached a record 250 bln usd that year.The Treasury has been working with China to promote domestic growth over the last year, but the report said China's 'grew more unbalanced in 2006', and said this trend can be seen in the levels of China's intervention in currency markets. The People's Bank of China's intervention level increased by 247.5 bln usd in 2006 over 2005 to reach 1.066 trillion usd that year.The Treasury said all of these factors 'increase the risk of a renewed boom-bust cycle, which would be quite harmful' for the world economy.The Treasury also reiterated that US officials do not believe the Japanese yen is being manipulated, despite continued pressure from US automakers to make this finding.'Japan maintains a floating exchange rate regime,' the June 13 report said. 'Japanese authorities have not intervened in the foreign exchange market since March 2004.'

US expected to stop short of labelling China currency manipulator

by : Thomson Financial
Forex News

WASHINGTON (Thomson Financial) - Despite growing trade tensions between the US and China, the Bush administration is not expected to label China as a currency manipulator in its semi-annual report on foreign exchange regimes due out tomorrow. Instead, most industry observers expect the Treasury to maintain its previous position that it cannot meet the technical hurdles needed to point the finger at China.Even a vocal lobby group does not expect any change in the general tone. 'I have no expectation of anything different from the past,' said Skip Hartquist, counsel to the China Currency Coalition.In past reports, Treasury said the balance of proof is high before it can make outright accusations. The Treasury has said repeatedly that it cannot prove intent.US auto makers have been lobbying the Treasury to label Japan as a country that manipulates the value of its currency in order to benefit its exporters. The yen, however, is a freely traded currency.The release of Treasury's report will prompt four key senators to introduce legislation in the afternoon of June 13 aimed at addressing congressional complaints about undervalued currencies of China and Japan. The contents of this bill are still secret, but most industry observers believe it will put more pressure on the administration to bring a World Trade Organization case against China over currency.'The Senators will discuss the new U.S. responses their bill requires when other nations, including China, unfairly undervalue their currency,' according to a June 11 Senate Finance Committee statement. 'Fundamentally misaligned currencies distort global markets and put U.S. manufacturers and farmers at a competitive disadvantage.'The bill may also aim to change US law to require the US to accept anti-subsidy cases against non-market economies like China. In an apparent bid to head off this legislation, the Commerce Department earlier this year accepted an anti-subsidy case against China involving imports of glossy paper, which represented a change in Commerce policy dating from the early 1980s.Commerce department's preliminary finding in that case calls for anti-subsidy duties of up to 10 percent on these imports.Another anti-subsidy case against imports of steel pipe from China was filed last week, and observers have said many more are in the pipeline.Leaders of the Senate Finance Committee have been working on the Senate bill since earlier this year, along with Sen. Charles Schumer (D-NY) and Lindsey Graham (R-SC). Schumer and Graham last year threatened to move a bill imposing a 27.5 pct tariff on imports from China as a way of retaliating over currency, but agreed to drop that bill in order to work with Senate Finance on a bill that is consistent with WTO rules.

US Treasury will release currency report on Wednesday

by : Forex News

WASHINGTON (Thomson Financial) - The US Treasury will release its semiannual foreign exchange report on Wednesday morning at 10am.The Semiannual Report on International Economic and Exchange Rate Policies is where Treasury either does or does not accuse foreign governments of manipulating their currency exchange rates. It has been controversial in the past for not designating China as a currency manipulator. Treasury is expected, as in the past, not to make such a designation. Both the Bush and Clinton administrations have used the threat of sanctions required by a designation to put pressure on the Chinese government to allow more flexibility in the yuan's rate against the dollar.

US Trade Balance and the $

by :
FFAN Analyst

Wall St. is definately in a bit of a tizzy over the likely course of Fed interest rates. A cut's been taken off the table and like a child with many toys who loses one, they're throwing a tantrum.As i've discussed many times, losses in equities relate to losses in carry trades. Have a look at the daily charts and you'll see the pound has plunged while USD/JPY has come way off the highs. That's a sure sign that carry trades unwound in the 200 point DOW sell-off today.On to the trade balance-and i'm going to suggest you look at it in a different way. Don't look so much at the overall gain or loss in the deficit, look at it in terms of overall activity. In other words, watch whether imports and exports both rose.If they did that will indicate an increasing pace of overall economic activity-a growth indicator. With Wall Street so upset now an indication that growth is picking up will absolutely send them to the nearest ledge, because it will only indicate even less chance of a Fed rate cut to them. How likely is it that overall activeity picked up? Very likely because a lot of activity was lost due to Chinese holidays in March.It's more then just the drop in the indexes that indicate unease-the "fear" index has risen as well. If you don't know, the fear index aka the VIX is actually something that can be traded on the CBOE. You can actually bet on how wet trader's undergarments are likely to get!The VIX index closed at 17.06 Thursday, compared to last week when the index traded well below 14.0. In 2007, the VIX has seen a low of 9.70, seen Feb 14 (before the Feb 27 one-day China stock tumble) and a high of 21.25, seen in early March.

Euro Vunerable-For Now

Edited by : NewstraderFX

The key thing for anticipating future ECB moves is that the term "strong vigilance" was removed from the ECB statement. This will likely remove market expectations for a rate hike in July. However, the use of the phrase "still on the accomodative side" indicates another rate hike is in the works for the September meeting, since there's no meeting scheduled for August. What could also drive the EUR/USD lower in the short term is that the 2008 inflation rate forecast was left at 2.0%, coupled with the fact that Fed Funds Futures are pricing in a rate hike in Q4 and that the market sees virtually no chance of a rate cut.Because of the weaker US productivity, higher wages, downwardly revised 2007 US GDP and overall market unease, there's a potential for some correction in equity markets which would also lead to some unwinding of carry trade positions. As EUR/JPY carry trades unwind, the dollar appreciates vs the Euro as it depreciates vs the Yen.

Euro/Usd support level holding so far

by Angelo Airaghi [Guest Analyst]
6/4/2007
As the European economy maintains a strong momentum in most of its productive sectors, the European Central Bank is meeting this week in Frankfurt am Main (Germany). A decision on rates is a possibility that could help shake the European currency after the recent period of consolidation.

U.S. Growth Process Might Again Pick up.
The U.S. economy remains in good conditions, albeit moderating, as labor market and consumer confidence are balancing strong gasoline prices and the unstable housing market. The average monthly increase in employment slowed in the first six months of 2007, from the 189,000 average monthly gain seen in 2006 to the 133,000 pace in 2007, but overall the unemployment rate is still near the lowest level in more the five years. In May, U.S. nonfarm payrolls increased by a better than expected 157,000, above the 150,000 units previously forecasted, and the unemployment rate remained unchanged at 4.5%. The service sector (176,000 new positions) contributed to all the job growth in May. Income keeps on expanding as well, hourly earnings are up 3.8% in the past year and weekly earnings are targeting 4.1%, to testify an healthy labour market that should support consumer spending in the coming months.