Forex Tips & Daily Analysis

Economical News

USD

Yesterday the greenback strengthened all across the board and it managed to hold a three month high against the JPY. The major driver of the dollar strength was the news that US initial jobless claims fell by 5000 to 293 000. The market expected a much weaker figure as a result of last week's low Non Farm Payrolls report so this surprising figure has left economists scratching their heads. With the US labor market showing resilience and robustness, offsetting any weakness in the housing market, there is increased speculation that the Fed will leave interest rates unchanged at its next meeting in June. There was further positive news yesterday for the US economy as the Philadelphia Federal Reserve business activity index increased to 4.2 in May from 0.2 in April. However, the greenback failed to extend its gains after the Philadelphia Fed survey, as a stream of large offers to sell the dollar was halting the currency's advance against both the EUR and the JPY.

Also Fed Chairman Bernanke gave further indication that he believes that there is underlying strength in the US economy as he mentioned in his speech yesterday that he did not believe that the growing number of mortgage defaults would seriously harm the economy. He claimed that the effect of the troubles in the sub-prime sector on the broader housing market will be limited and he does not expect significant spillovers from the sub-prime market to the rest of the economy or to the financial system. In other words he believes that the financial system will be able to absorb the losses from the sub-prime mortgage problem.

The only data to be released today is the US Consumer Sentiment which is expected to be reported at a slightly weaker figure of 86.4%. Without further news expected from the US today we should see the strong dollar momentum continue

EUR

The EUR slumped against the robust dollar but approached new all time highs against the yen. The ECB stated in its monthly bulletin published yesterday that strong vigilance is of the essence in order to ensure that risks to price stability do not materialize. Also published in the monthly bulletin was the Eurozone residential property prices which rose 6.4% in 2006, down from 7.9% growth in 2005 and the slowest rate of increase since 2001. House-price inflation slowed to 6.0% in the second half of 2006 from 6.9% in the first half.

On the basis of new estimates of several economists surveyed by the ECB, the Euro zone economy is expected to expand and grow by 2.5% during this year, and by 2.3% during 2008. These forecasts are mainly based upon growth expectations in European domestic demand of consumption and investment, and at the same time growth of foreign demand in the same fields. In addition, their estimates regarding the European inflation issue are quite positive, due to the increase in Germany's VAT rate. Regarding this year, inflation will fall by 0.1% from 2%, while in the next year, inflation is expected to remain stable and unchanged on 1.9% over the medium term.

For the moment, the European labor market will continue to grow and to flourish. The unemployment rate decreased to 7.2%, and more European citizens are employed now more than ever. In addition to the good economical conditions, Germany's export department has seen its trade surplus expand to18.4 billion EUR, the biggest since 1990.

With no significant data due out today and most of Europe closed for the Ascension Day holiday the EUR should remain range bound in the near term before continuing on its bullish charge.

JPY

As was expected, the Bank of Japan decided yesterday to once again keep its benchmark interest rate unchanged at 0.5%. The main purpose of this decision is to maintain Japan's economic growth as slow as possible. The decision of maintaining the current interest rate level was based upon the Japanese government statement report regarding the CPI data for the month of April, which indicated a sharp slowdown of the countries economic growth upon its long term deflation problem.

The Bank of Japan has kept interest rates unchanged since February this year, but as it is being predicted by the major banks over the world, the BoJ will decide to slightly hike rates in August or September. The major banks forecast is based upon the main part of the speech by BoJ governor Toshihiko Fukui, " We need to adjust interest rates despite near term weak price growth, if we can confirm that long term price moves are strong and the economy and prices are heading towards a good direction ". We can expect that the interest rate increase will be made slowly and step by step in order to avoid the risk of unsustainable economical boom.

Also yesterday the Gross Domestic Product data was published by the Japanese government. Japan's economy grew by 0.6% in the first quarter of 2007, slightly below market expectations of 0.7%. This result implies a sharp slowdown of the Japanese economy, if we will compare it with the last year's fourth quarter figure. Consumer spending rose slightly more than expected and capital investment unexpectedly declined 0.9%. Exports rose a more-than-expected 3.3%. The GDP deflator fell 0.2% y/y, compared with expectations of a 0.4% drop. The deflator has not risen since 1998. As a result of the weak growth figures the JPY declined against its major counterparts and slumped to its lowest level in nearly three months against the greenback.

With indications of a continuation of a slow economy in Japan, investors are starting to ease any expectation for a further rate hike from the BoJ and in our opinion the JPY will remain on a slippery slope in the near future.

Technical Analysis

EUR/USD

The EUR USD is in consolidation after the last bearish movement. EUR USD moves without trend and swings around exponential moving averages (EMA 50 and 100). The volatility is high. Bollinger bands are flat . Oscillators are neutral. The price should continue to move downwards in a range of 1.3450 to 1.3580. As it seems, the bullish pressure will continue to gather momentum on the EUR USD.

GBP/USD

On the 4 H chart, a rising wedge (bearish) is forming which may imply an upcoming bearish trend, its recommendable time to enter the market with short term charts, 1.9720 seems like a strong entry point. At the moment GPB USD is being traded around 1.9765 to 1.9700 range. The volatility is low, we should also expect to see today bearish pressure on the GBP.

USD/JPY

The USD JPY broke 121.10 resistance. USD JPY is in an uptrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands are tightened. We should expect to also see today a bullish configuration. 1H, 4H Elliott pattern implies that the USD JPY will continue to gather momentum. The target price is at 121.70

USD/CHF

The USD CHF is in a bullish configuration. The volatility is high. USD CHF moves without trend and swings around exponential moving averages (EMA 50 and 100). Bollinger bands are tightened. 1H, 4H Elliott pattern implies a continuation of the bullish pressure.

Wild Card

EUR/JPY

Forex traders should be alert to the fact that 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 pair consolidate at 163.70 however its not a classic pattern and therefore caution is needed on this kind of move. Forex

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.3560	1.9815	122.00	1.2325	0.8300	0.6890
	1.3540	1.9785	121.75	1.2305	0.8280	0.6870
	1.3520	1.9765	121.50	1.2290	0.8255	0.6850
Support	1.3465	1.9720	121.00	1.2245	0.8190	0.6810
	1.3435	1.9700	119.85	1.2220	0.8165	0.6785
	1.3315	1.9690	119.65	1.2200	0.8140	0.6755

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
05/18/07	09:30	GBP	Retail Sales	m/m	0.3%	0.6%
05/18/07	13:30	CAD	Retail Sales	m/m	0.1%	0.7%
05/18/07	13:30	CAD	Core Retail Sales		0.1%	1.1%
05/18/07	15:00	USD	Consumer Sentiment		87.1%	86.4%