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USD

Yesterday was a very quiet day for the majors with tight ranges seen during the local session. The USD was softer in our morning session which allowed to push back up to the overnight highs around 1.3608 on the EUR/USD. USD/JPY was quiet despite upward revisions to March IP data. Broad USD strength was seen in offshore trading as US data posted strong results.

However, the greenback remains firmer across the board heading into today's session, with traders turning to US economic reports. The data which include: the weekly jobless claims, April leading indicators and the May Philadelphia Fed survey will be the main attractions today.

Jobless claims are seen edging higher to 310k from the week before, 297k, while the April leading indicators are expected to give back last month's 0.1% increase, falling by 0.1%. Lastly, the Philadelphia Fed survey is forecasted to improve to a 3.0 reading, up considerably from the previous 0.2.

Yesterday's US industrial production was up 0.7% in Apr, continuing the run of orders, survey, and output data suggesting the factory sector is experiencing a revival heading into the second quarter. The output bottom line was boosted by a partial bounce in utilities and the third consecutive monthly rise in auto production. Business equipment output rose a solid 0.9% for the second month running.

Also , US housing starts were up 2.5%, but permits down 8.9%, in Apr. Following the weaker NAHB builder sentiment survey, it seems that the home construction sector is not out of the woods yet. That said, the plunge in permits does correct for the fact that permits right through the first quarter were running ahead of starts; actually it is a synonym phrase which won't automatically follow and the upcoming reaction could be a sharply crashing in the coming months. This is occurring since there is still a backlog of permits from Q1 that could yet lead to new starts later in Q2. But we would need to see at least a partial bounce in permits in the May data to be confident that a renewed collapse in housing activity is not about to emerge.

Bottom line the USD expected to strengthen in the upcoming days.

Among other news released yesterday the US TIC report, which measures the demand for US debt and assets, came in below expectations at $67.6 billion. Despite the trade deficit for March returning above the $60 billion mark even in the cheap dollar environment with a figure of $63.9 billion, consensus estimates pointed to an even stronger projected TIC figure of $72 billion. This poor figure maximized the dollars' vulnerability to damage stemming from the CPI weakness.

Also it seems that problems in the US housing sector are set to continue as it was reported yesterday that The National Association of Home Builders Fargo index of sentiment fell to 30 this month from 33 in April, matching a 15-year low reached in September. A reading below 50 on this index indicates that most respondents view conditions as poor. We can also see that tighter lending standards have made it more difficult for buyers to get home loans and at least 50 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006. Declining prices, coupled with yesterday's reports showing foreclosures are continuing to rise and confidence among homebuilders is slumping, demonstrate that the yearlong housing slump isn't abating.

Today US Building Permits and Housing Starts will be released and are both forecasted to come in lower than there previous months figures and as a result of home builders pessimism we may see both these numbers release very weak. Also due for release today is US Industrial Production which is expected to bounce out of negative territory and come in at 0.3%. If today's housing figures come out poor and industrial production disappoints we will see the dollar slip deeper into the bear's cave and it could once again breach well past the 1.36 level against the EUR.

EUR

It seems that the EUR fell a victim to USD strengthening in the last days

Despite the fact that officials from the European Central Bank continued to stress their hawkishness, the EUR almost erased all of its gains against the USD from last month . The move did not come until the US session as the upside surprises to Eurozone data kept the EUR hovering around 1.36 until the open of the US session. The data indicated that French wage growth accelerated in the first quarter along with non-farm payrolls. Eurozone CPI remained unchanged at 1.9 %, which was slightly stronger than market expectations. The ECB is set to release their monthly report tomorrow and we expect the details to contain the same hawkish tone. Growth and inflation data give us no reason to question whether the ECB will follow through with their plans to raise interest rates next month.

Yesterday's EUR CPI for April was revised up to 0.6% from the 0.7% flash estimate, back where it was in March.

UK unemployment fell 16k in April on the benefit claimant measure. However the broader household survey, which also captures those looking for work but who don't qualify for the dole, such as recent immigrants, rose 13k in the three months to March. The same survey also showed employment falling in Q1, by 55k. Given these developments, the relatively subdued 3.7% y/y growth rate for core earnings is no surprise.

The Bank of England quarterly inflation report showed that the Bank's central projection has inflation falling below 2% next year, then rising back to 2% on a two year view, assuming the market's view on BoE policy. That view incorporated about one further 0.25% rate rise which is expected at some point later this year, which of course could strengthen the GBP against the majors and also repercussions would be felt on the EUR.

Today we should see the EUR continue on its bullish path but much depends on how US housing figures will release. The only news expected out of the Euro-zone today are the Consumer price figures and the French Non Farm Payrolls. The recent slight lag in growth should bring about a weaker French NFP whereas consumer prices should release inline with expectations as a result of the strong EUR.

Elsewhere, the GDP picked up against the dollar but remained weak against the EUR after inline inflation figures disappointed a market that had become used to positive surprises from recent UK data. Focus for the UK will centre on tomorrow's release of the quarterly Bank of England Inflation Report, where the central bank will lay out its latest forecasts for growth and inflation and which should give some clue as to when and whether the market can expect a further rise in interest rates.

JPY

Japanese April IP(Industrial Productive) revised up. The headline production measure fell 0.3% from March, versus the preliminary estimate of -0.6%. The annual rate improved to 2.0% from 1.6%. Either way, this looks a little low given global growth surged in Q1, capex fundamentals are strong ,and the yen is historically weak.

The Japanese Yen is weakening across the board after interest rates remained unchanged at 0.5% and whoever had in mind and hoping for an interest rates hike was proven false.

Reuters issued their own Tankan Report for May which saw a mild improvement in the manufacturer's DI by 1 point to +29. The non manufacturer's DI fell 5 points to +21 as companies felt the pressure of rising oil prices. Part of the survey queried companies tolerance to rate hikes with almost 50% agreeable to a further 0.25% but the level dropping to 25% which could tolerate a further 0.50%. The report hardly reflects the same confidence seen in Europe - or for that matter the States.

The recent record current account surplus reported by Japan puts pressure on Japanese officials to do something about the currency's weakness however it won't happen in the near future. Japan's Q1 GDP was also announced seeing it grow by +0.6% QoQ and +2.4% YoY. This compares to forecasts of +0.7% and +2.7% respectively. The numbers are down quite sharply from Q4 which saw levels of +1.2% QoQ and 5.5% YoY. Private consumption was up but CAPEX was down by -0.9%. Government consumption was down by -0.1% but exports continued to be positive reflecting the main driver of the GDP growth.

Even the economics minister Ota accepted that the economy has still not been able to climb its way out of deflation though Shiozaki said the end to deflation is in sight - but that's what they were saying on a year ago... Ota went as far as to say that another interest rate hike was impossible with deflation still lurking.

It seems that the market are still testing where and when this currency will hit the lowest level before the reversal will take place.

Today the JPY should trade in a tight range ahead of tomorrow's interest rate and GDP release which are expected to cause high volatility in the yen crosses.

Technical Analysis

EUR/USD

Since yesterday afternoon ,this pair has traded in a tight channel 1.3502-1.3541 and in clearly bullish trend ,according to the 30 M chart the high Bollinger band was breached and may point to an upcoming strengthening of the EUR to the 1.3547 level (Fibonacci).

GBP/USD

On the 4 H chart, a rising wedge (bearish) is forming which may imply an upcoming bearish trend, its recommended to time the entrance to the market with short term charts, 1.9780 seems like a strong entry point.

USD/JPY

On the 4 H chart, Slow Stochastic is clearly overbought however its seems that there is still steam left for another minor strengthening that may halt at 1.2095 level then going short will be the preferable strategy to stick with.

USD/CHF

The pair is in the middle of a bearish trend and still has steam and is expected to keep its trend ,a reversal is not expected before reaching 1.2177 (Fibonacci retracement level).

Wild Card

EUR/JPY

On the 4 H chart, the 5 Elliott pattern can be observed and the A,B,C is to be formed ,in this case the C wave is expected to make this forex pair consolidate at 163.40 however its not a classic pattern and therefore need to be caution is needed on this kind of move.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3658	1.9960	122.00	1.2315	0.8375	0.6925
	1.3608	1.9870	121.64	1.2284	0.8350	0.6895
	1.3557	1.9837	121.35	1.2248	0.8277	0.6865
Support	1.3480	1.9750	120.17	1.2204	0.8240	0.6824
	1.3420	1.9700	119.38	1.2169	0.8189	0.6800
	1.3365	1.9456	118.44	1.2123	0.8154	0.6780

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
05/17/07	13:30	US	Former Fed Chairman Greenspan Speaks
05/17/07	14:30	US	Fed Chairman Bernanke Speaks
05/17/07	17:00	US	Philadelphia Fed Manufacturing Index		0.2	3.0