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EUR/USD Technical Analysis 24 July 2008 The dollar ups after oil recovery Market Moving News: EUR/USD - Jul 24 More EUR/USD USD/JPY: The Dollar rallies to a month-high Market Moving News: USD/JPY - Jul 24 Forex and Dow Jones recommended levels More USD/JPY

Eurozone finance ministers meet next week

Eurozone finance ministers will gather on Tuesday evening for a regularly scheduled monthly meeting which will continue on Wednesday. Euro-area officials have generally welcomed the pullback of the EUR, but they clearly desire a more substantial EUR adjustment lower. I expect there will be some verbal intervention to that effect and I expect the EURs upside to remain limited as a result. Im focused on the 1.5550-90 area as the likely extent of EUR/USD gains; strength beyond suggests another try at 1.6000. This past week, EUR/USD made a false break to the downside, briefly dropping to 1.5285, but then rebounding and closing above key support between 1.5300-40. Such a false break does increase the prospects for a further upside recovery in EUR/USD, and I prefer to use such strength as an opportunity to sell. Higher energy prices are also affecting European growth outlooks and the market is still in the process of marking down EUR and GBP in this light. Finally, several major Eurozone banks will be reporting 1Q earnings next week, and additional losses are likely, further souring the mood on the Continent. 1.5270/80 now looks to be the key downside trigger in EUR/USD, suggesting a test of the Ichimoku cloud base at 1.5170/80, below which sees sharper losses to the 1.48-49 area.

Risk aversion comes back with a bang

It started a week ago with a major US bank waffling on whether it would complete its buyout of the largest US mortgage lender and continued this week with a nearly $8 bio loss by a major US insurer. Credit market concerns and housing-related write downs are continuing and the only thing we can be sure of is that we cant be sure of anything. News that the SEC will require investment banks to make greater public disclosure of capital and liquidity positions generated a horrific reaction in the markets. It was as if investors who were willfully ignoring the prospects of deeper losses suddenly realized they couldnt breathe with their heads in the sand any longer. And on Friday, Moodys was reporting that another major US mortgage lender might be shut off from funding by its foster-parents, leaving another smoldering wreck on the sub-prime highway.

This is not an environment conducive to investors bringing in money from the sidelines, but rather for the opposite. Risk aversion has come back yet again. Markets finally seem to be coming around to the view that even if the financial sector crisis is nearly over, which it probably isnt, we still have a crumbling consumer-led economy that is going to be with us much longer. Higher energy prices are the icing on the cake, hastening a sharper contraction in personal consumption and threatening a much hoped-for recovery in 2H 2008. Heightened risk aversion will be another factor adding to pressure on the JPY-crosses in particular and stock markets more generally. I look to re-sell rebounds in JPY-crosses, using 160.50-161.50 in EUR/JPY and 202.00-203.00 in GBP/JPY as the preferred sell zones.

Key data and events to watch next week

US data next week begins on Tuesday with April advance retail sales, May IBD/TIPP Economic Optimism, March business inventories, and April import prices, followed by weekly ABC consumer sentiment at the 5 pm close. Wednesday sees weekly mortgage applications and April CPI. Thursday sees weekly jobless claims, May Empire manufacturing index, March TIC data, April industrial production, May Philadelphia Fed index and the May NAHB housing market index. Friday sees April housing starts and building permits and preliminary May Univ. of Michigan consumer sentiment. There are multiple Fed speakers next week, but only a few are addressing the economic outlook: Evans (non-voter) on Monday; on Tuesday, Fed Chair Bernanke on liquidity measures, then Yellen (non-voter), Hoenig (non-voter) and Fisher (hawkish voter).

Eurozone data does not see any major releases until Wednesday with April French and Italian CPI and March Eurozone industrial production. Thursday sees advance 1Q German and French GDP and April Eurozone CPI. Friday sees the March Eurozone trade balance and 1Q French employment. Eurozone finance ministers will be meeting beginning Tuesday evening and continuing on Wednesday. ECB Pres. Trichet will speak on Thursday morning in Vienna.

UK data begins on Monday when we see April PPI and March trade balance, followed at midnight local-UK time by the April BRC retail sales monitor and the April RICS house price balance. Tuesday morning proper sees April CPI/RPI and March DCLG UK house prices. Wednesday morning sees April employment and March average earnings, but the key will be the quarterly BOE inflation report, which will be viewed for what it suggests for the timing of the next BOE rate cut.

Japanese data begins on Monday morning Tokyo-time with April money supply and bank lending data, followed in the afternoon by the April Economy Watchers survey and April machine tool orders. There is no data of note on Tuesday. Wednesday morning sees April domestic corporate goods prices, March current account balance, and March Machine Orders. No major data on Thursday. Friday finishes up with preliminary 1Q GDP, final March industrial production and April consumer confidence.

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