Forex Tips & Daily Analysis

Economical News

USD

Yesterday the dollar leaped to one-month highs against the EUR and two-and- half month peaks versus the JPY. The greenback strengthened amid news that the European Central Bank decided to keep interest rates at 3.75% after its monthly policy meeting. Comments by U.S. Treasury Secretary Henry Paulson that a strong dollar was in the interest of the United States also helped the greenback's rally gather momentum. The important news that came out of the US yesterday was the trade balance which came in at a negative 69.3 billion, much lower than the forecasted figure of 60.0 billion. This news of a wider than expected trade deficit caused the dollar to edge lower as it raised worries over downward revisions to economic growth but it recovered after ECB President Trichet's remarks. Also the Department of Labor released its report on initial jobless claims indicating a drop to 297,000 from the previous week's revised figure of 306,000. The market expected jobless claims to rise to 315,000 from the originally reported 305,000 for the previous week.

The general market sentiment about the dollar has been negative for many weeks as concerns over the US economy and expectations for higher interest rates in Europe and the UK have pushed bearish positions to stretched levels. Investors were expecting an aggressive attitude by the Bank of England and more hawkish comments by the ECB President Trichet but since that did not materialize and the three central bank meetings offered few surprises, this has left traders with little incentive to further sell the dollar.

The most important economic news coming out of the US today will be core retail sales, which is expected to come in at 0.5% from a previous months figure of 0.8%. US retail sales suffered the biggest sales decline on record last month as shoppers were deterred due the cold weather conditions. Also the Producer Price Index (PPI), which measures the rate of inflation experienced by manufacturers when purchasing goods and services, will be released and it is expected to come in at 0.6% which is lower than last months figure of 1%. Traders should beware of weaker than expected figures as this may halt the fragile dollar rally.

Today, if the economic news from the US comes in-line with market expectations without major surprises we should see the dollar resurrection continue as traders will resume paring there over-bearish positions on the greenback and the behavior of yesterday's market reiterates our opinion that the dollar reversal has begun, albeit temporarily, and we should see the dollar head towards the 1.3450 level.

EUR

Yesterday at the meeting in Dublin, the European Central Bank announced that for the current period it would keep the leading interest rates on hold at 3.75%. At the press conference that immediately followed, ECB chief Trichet sent strong signals of a rise next month, saying that "strong vigilance" was required with regard to inflationary risks in the Eurozone economy. "Strong vigilance is of the essence in order to ensure that risks to price stability over the medium term do not materialize," Trichet said. The term "strong vigilance" is seen by the financial markets as Trichet's codeword for signaling an imminent rise in rates. At each meeting prior to a rate increase, the ECB chief has always said that the Euro-zone bank would remain "vigilant" or "strongly vigilant" with regard to potential inflationary risks. By analyzing the Presidents speech we see that it did not contain many surprises and was pretty much as most economists expected. He was asked few times about the next monetary policies regarding the EUR, but he was not particularly forth coming to respond to those questions and refused to be drawn on the outlook for interest rates beyond June. Nevertheless he did describe the ECB's monetary policy as accommodative and the current level of rates as moderate. According to Trichet the growth in the Eurozone will continue to expand and will remain solid along with some conditions for the ongoing economic expansion in order to proceed sustained rates.

As it seems at the moment, the ECB at the June conference will have allot more to discuss about the future moves, but at the same time the central bank signaled that it would not be moving rates in either direction for the months to come

With the Euro-zone devoid of any significant news releases, much depends on how traders will react to today's release of US retail sales and PPI. If these figures are not weaker than expected we may finally see the EUR lose its stronghold on bullish momentum for a sustained period.

The GBP also fell against the dollar to $1.9828, down 0.6% on the day. The Bank of England raised rates to 5.5 percent, also as forecast, but the accompanying statement neither promised nor ruled out further action going forward. This was seen as a disappointment by traders thus resulting in a downhill slide for the GBP. The rate hike would have had to be in excess of 0.5% to have any positive impact on the pound as the 0.25% increase was already priced in.

JPY

Yesterday the Ministry of Finance of Japan announced that Japan's foreign exchange reserves have reached a new all time high of $915.62 bln, when the last record, in March, stood at $908.96 bln. The reserves include different types of elements such as IMF special drawing rights, foreign currencies, gold, and international fund reserves.

Japan's foreign exchange reserves are being considered one of the largest in the world. The reasons for this are increases in dollar holding as a result of a rise in coupon income from the United States, and this is due to the last period of the bullish movement of the EUR against the USD, which has depreciated the dollar value. At the moment, after yesterday's ECB meeting in Dublin regarding the interest rates, the Bank of Japan believes that a fall in the EUR and the Sterling against the USD will encourage investors to sell more of those currencies against the JPY.

Technical Analysis

EUR/USD

EUR USD is in a downtrend directed by 15min exponential moving averages (EMA). The pair is consolidating after the last bearish movement. The volatility is low. Bollinger bands are flat, and there is a bearish pressure on EUR USD. The downtrend should resume. The target is expected at 1.3350.

GBP/USD

Despite expectations to the contrary, the reversal is here. MACD provided a reversal signal near 1.9890, which was also the short term support level of interest - and hasn't looked back since. Although somewhat quiet now, it looks as though the target is expected to remain 1.9710.

USD/JPY

USD CHF is in an uptrend pressure on the basis 1H exponential moving averages. The price is bellow 1.2250 resistance. The volatility is low, and for today the configuration is in a bullish . The uptrend will continue to gather momentum

USD/CHF

USD CHF is in an uptrend pressure on the basis 1H exponential moving averages. The price is bellow 1.2250 resistance. The volatility is low, and for today the configuration is in a bullish . The uptrend will continue to gather momentum

Wild Card

EUR/CHF

EUR CHF is in a bearish configuration. The volatility is quite high. Bollinger bands are parallel. The downtrend should continue to gather momentum. Forex trader should realize that the price should find a support above 1.6460. In case the resistance will be broken then the target will become 1.6400

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3580	1.9910	120.50	1.2250	0.8340	0.6850
	1.3535	1.9875	120.35	1.2235	0.8320	0.6835
	1.3512	1.9850	120.15	1.2222	0.8310	0.6820
Support	1.3430	1.9750	119.50	1.2175	0.8210	0.6778
	1.3400	1.9725	119.23	1.2150	0.8190	0.6753
	1.3380	1.9700	119.00	1.2130	0.8172	0.6718

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
05/11/07	12:00	CAD	Employment Change		54.9K	18.5K
05/11/07	12:00	CAD	Unemployment Rate		6.1%	6.1%
05/11/07	13:30	USD	Retail Sales	m/m	0.7%	0.4%
05/11/07	13:30	USD	Core Retail Sales	m/m	0.8%	0.5%
05/11/07	13:30	USD	PPI	m/m	1.0%	0.6%
05/11/07	13:30	USD	Core PPI	m/m	0.0%	0.2%
05/11/07	15:00	USD	Business Inventories	m/m	0.3%	0.2%