NEWS / Foreign Exchange

The dollar is struggling for direction

The dollar is struggling for direction, but concerns about the state of the housing sector and by extension the economy put a cloud above the currency. The small tariffs against China and the danger the belligerent Iran is imposing on the world peace and economy are also pointing to a softer currency ??“ but only in the medium term. The record M&A activity is holding the U.S. indices strong, so these cross winds should amount to further mixed FX trading.

Past Week's Data and Events

United States

The dollar fell sharply, but briefly, on Friday, despite good economic data, after the U.S. Commerce Department added new duties on imports from China.

The newest crisis in Iran, where the extremist government is playing childish power games to make itself look less embarrassing to its people, is not fooling anyone. But the large hedge funds have revived their large oil positions and there is a risk of another unraveling of the energy prices. High energy prices would likely hurt the world economy without helping the misery of Iran. But that??™s what happens when dictators have their way.

The dollar slumped on Monday on news that sales of new homes fell 3.9 percent to an annual rate of 848,000 units in February, the lowest rate since June 2000, from a downwardly revised rate of 882,000 in January. In the Northeast, sales contracted 26.8 percent, in the Midwest 20 percent and in the South 7 percent.  Only the West saw an increase, and that was a hefty 24.6 percent. The previous housing data has been mixed, with the number of existing homes up.

The dollar spiked down briefly on news the Conference Board's index of consumer confidence fell to 107.2 in March from a downwardly revised 111.2 in February. The report remains very strong.

The dollar spiked briefly lower on weak data on Wednesday. Durable goods orders expanded only 2.5 percent in February, due to lower demand for metals, machinery and appliances after contracting a mammoth 9.3 percent in January that was worse than previously reported. Excluding transportation equipment, orders fell 0.1 percent. Orders outside of military equipment rose 2.5 percent last month. Inventories of all durable goods increased 0.2 percent.

The final estimate of the gross domestic product came in at 2.5 percent last quarter, up from 2.2 percent reported last month and down from an initial calculation of 3.5 percent.

The weekly jobless claims unexpectedly fell to a two-month low of 308,000.

Both incomes and spending gained 0.6 percent in February. Disposable income rose 0.5 percent after rising 0.8 percent the previous month. The core personal consumption and expenditures index, minus food and energy, rose 0.3 percent, up from 0.2 percent in January. From a year ago, prices climbed 2.4 percent, compared with 2.3 percent the prior month.

The Chicago PMI surged to 61.7 in March from 47.9 the prior month.

The Federal Reserve Bank of Chicago??™s National Activity Index rose to 0.03 in February from an upwardly revised -0.72 in January.

Construction spending rose 0.3 percent in February.  This was the biggest increase since March 2006, when construction spending rose 1.0 percent.

However, the University of Michigan final survey of consumer sentiment fell to 88.4 in March from 91.3 in February, the lowest since 85.4 in September 2006.

The Eurozone

The euro/dollar struggled higher last week and made no progress despite generally strong data.

The euro was boosted briefly by good economic data on Tuesday. The Ifo institute??™s index of German business confidence rose to 107.7 in March from 107 in February.  The current situation rose to 112.4 from 111.6 in February and the sub-index for business expectations advanced to 103.2 from 102.6.

Along the same lines, GfK index of German consumer confidence rose to 4.4 in April from a revised 4.3 in March.

There was no reaction to news the French Business Climate Indicator came in at 109 in March, up from 107 in February.

Italian business confidence fell to 94.9 in March from a revised 95.5 in February.

German unemployment dropped to 9.2 percent in March, the lowest since May 2001.

The French unemployment improved as well, falling to 8.4 percent in February.

The Eurozone retail sales PMI rose to 53.4 f in March from February's 49.8. Germany??™ rose to 52.8 from 45, France??™s to 56.8 from 54.7 in February, but Italy??™s fell to 49.6 from 50.4 in February.

The German CPI rose by +0.4 percent in February and 1.6 percent on a yearly basis.

Japan

Dollar/yen traded sideways and remained stuck in an inside range.

The economic data was mixed.

Japan??™s corporate service price index edged lower to 0.4 percent in February on a yearly basis from 0.6 percent in January.

Retail sales unexpectedly fell 0.2 percent in February from a year earlier.

Also on the negative side, the PMI fell to 52.5 in March, and this was the lowest level in nearly two years.

Moreover, housing starts fell 0.7 percent in February, and a whopping 9.9 percent on a yearly basis.

Japan's household spending rose 1.3 percent in February, while the industrial production fell less than expected by 0.2 percent on the month.

The jobless rate held at an eight-year low of 4.0 percent in February for a fourth month.

Core consumer prices fell 0.1 percent in February from a year earlier, while core prices in Tokyo unexpectedly contracted 0.1 percent in March.

The UK

Sterling/dollar edge marginally higher last week.

The U.K. gross domestic product was revised downward to 0.7 percent from 0.8 percent in the fourth quarter due a slower growth in health services. The annual rate for the GDP was unchanged at 3 percent and growth for all of 2006 was revised up to 2.8 percent.

Canada

Dollar/Canada traded sideways for most of the week and then slumped to an over three-month low.

The economy grew 0.1 percent In January from 0.4 percent in December.

Factory prices increased 0.9 percent in February.

Switzerland

Dollar/Swiss made little progress last week.

The Swiss KOF leading indicator rose to 1.90 in March from an upwardly revised 1.81 in February.

Australia

The Aussie/dollar marched higher for a fourth week and reached a new over 10-year high last week.

This Week's Data and Events

United States

The US economic agenda will begin on Monday with the release of the ISM Manufacturing PMI report for March.

The ISM Non-Manufacturing report for March, along with the Factory Goods Orders report for February, will be seen on Wednesday.

It??™s the first Friday of the month, so all eyes will be on the Non-farm Payrolls and Unemployment Rate reports for March. Best of luck dodging the bullet!

The Eurozone

The Eurozone economic calendar will begin on Monday with the release of the regional and the individual PMI Manufacturing reports for March.

The Eurozone and the individual PMI Services reports for March are due on Wednesday, along with the Eurozone Retail sales report for February and Germany??™s Factory Orders report for February.

The German Industrial Production report for February is due on Thursday.

Japan

Japan??™s economic calendar will start on Monday with the release of the all-important Tankan Large manufactures Index for the fourth quarter.

The Coincident and Leading Indices for February are due on Friday.

The UK

The UK economic calendar will begin on Monday with the release of the Halifax house price and the PMI Manufacturing reports for March.

The Nationwide Consumer Confidence report for March will be seen on Wednesday, along with the PMI Services report for March.

Thursday will see the Industrial Production report for February.

The same day, the Bank of England Rate will leave rates unchanged at 5.25 percent.

Canada

Canada??™s economic calendar is light this week.

It contains only the Ivey Purchasing Managers report for March, which is due on Thursday.

Overview

Euro/dollar

Last week's range: 1.3252 ??“ 1.3399 (Up)

Previous range: 1.3270 ??“ 1.3410 (Mixed)

Euro/dollar closed the week higher, but held below the two-year high it had reached a week earlier. The pair remains in the fifth wave, and is not quite done with it.  Mixed to higher trading is favored.

Initial resistance is at 1.3400. Next levels are 1.3435 and 1.3475.  Distant resistance is at 1.3585.

Immediate support comes at 1.3295. Next level is 1.3255. Below 1.3225, support remains at 1.3200 and a close below 1.3160 would signal a further dip to 1.3070. Next support is pegged at 1.2995. Below 1.2920 there are two pivotal lows at 1.2882 and 1.2868.

NEAR-TERM:Mixed with upside risk

MEDIUM-TERM:Bullish

LONG-TERM: Bullish

Dollar/yen

Last week's range: 116.36 ??“ 118.40 (Mixed)

Previous range: 116.22 ??“ 118.28 (Up)

Dollar/yen was all over the place last week, but made little progress and remained confined to a medium-term consolidation phase.

Initial resistance remains at 118.25 from a 50-point pivot that targets 117.75 and 118.75. Above 119.00, distant resistance is at 119.65 from another 50-point pivot that targets 119.15 and 120.15.

Below 117.35 there is support at 116.85, from a 50-point pivot, which targets 116.35 and 117.35.  Distant support comes at 115.50 from another 50-point pivot, which targets 115.00 and 116.00.

NEAR-TERM: Mixed with downside risk

MEDIUM-TERM: Bullish

LONG-TERM: Bullish

Sterling/dollar

Last week's range: 1.9544 ??“ 1.9720 (Up)

Previous range: 1.9382 ??“ 1.9725 (Up)

Sterling/dollar climbed up for the second week and reached a 1 ??-month high of 1.9725 on Thursday.  It remains in an 11-month uptrend, but the trendline is under pressure. A head-and-shoulders seems to be forming but only a close below 1.9300 on a weekly basis would confirm this.

Initial support is at 1.9545. Strong support follows at 1.9460. Next level is at 1.9365. Below 1.9340 support remains at 1.9300.  Support then follows between 1.9260 and 1.9250.  A break below this area would suggest the pair would then shoot for the intermediate pivot low at 1.9185.

Initial resistance is at 1.9660. If this level breaks, Cable would likely take another swing at the pivotal 1.9725 level.  Distant resistance is at 1.9915.

NEAR-TERM:Mixed

MEDIUM-TERM:Bullish

LONG-TERM:Bullish

Dollar/Swiss franc

Last week's range: 1.2075 ??“ 1.2238 (Mixed)

Previous range: 1.2045 ??“ 1.2188 (Up)

Dollar/Swiss franc encountered choppy trading in the aftermath of the Iranian extravaganza, but remained confined to an inside range. The pair needs more information before the next big move.

Immediate support remains at 1.2080. There is a key level at 1.2050.Below 1.2030, dollar/Swiss franc has strong support at 1.2000.  Distant support follows at 1.1883.  

Initial resistance comes at 1.2235. Above 1.2370, strong resistance comes at 1.2400. Above 1.2450, there is strong resistance at 1.2500.

NEAR-TERM: Mixed with bearish bias

MEDIUM-TERM:Slightly bearish

LONG-TERM: Bearish

Dollar/Canada

Last week's range: 1.1497 ??“ 1.1635 (Down)

Previous range: 1.1526 ??“ 1.1786 (Down)

Dollar/Canada plunged for the second week to an over three-month low of 1.1497 on Friday. The Fibonacci retracement level at 1.1506 helped to brake the slide, but the outlook remains bearish.

Below 1.1497, support is still seen at 1.1566.  If the 1.1526 level gives way, then the pair would challenge the further support at 1.1410. Dollar/Canada has a distant support at 1.1325.

Immediate resistance is at 1.1585.  The next level is 1.1635 and this is followed by 1.1665. Above 1.1710, the next resistance is at 1.1750. The area between 1.1850 and 1.1875 follows.  Distant resistance is pegged between 1.1910 and 1.1935.

NEAR-TERM: Bearish

MEDIUM-TERM: Mixed

LONG-TERM: Mixed

Euro/yen

Last week's range: 155.33 ??“ 158.00 (Up)

Previous range: 154.75 ??“ 157.62 (Up)

Euro/yen rallied for the fourth consecutive week to a one month-high of 158.00, in line with expectations. The short-term outlook remains guardedly positive.

Initial resistance is at 158.00. Strong resistance follows at 158.55. There is a pivot high at 159.65. Distant resistance looms at 160.25.

Immediate support is seen at 156.60.  The next level is 156.25. Below 155.20, the cross would test 154.25. Distant support lies at 152.64.

NEAR-TERM: Slightly bullish 

MEDIUM-TERM: Bullish

LONG-TERM: Bullish

Euro/sterling

Last week's range: 0.6751 ??“ 0.6811 (Mixed)

Previous range: 0.6765 ??“ 0.6864 (Down)

Euro/sterling bottomed at one-month low of 0.6751 early last week and then made a wobbly recovery through early Friday. But when the dust settled, it closed the week little changed, so the immediate outlook is mixed.

Initial support is still seen at 0.6762 from a Fibonacci retracement level. Below 0.6745, support remains at 0.6725.  Strong support follows at 0.6690.

Above 0.6811, the euro/sterling has resistance at 0.6830. There is strong resistance at 0.6867.  Distant resistance is at 0.6960.

NEAR-TERM: Mixed 

MEDIUM-TERM: Bullish

LONG-TERM: Bearish