A Quarterly Look at the Dow, S&P500
Last week we mentioned that the S&P 500 would need to breach 3% beyond its 50 day moving average in order to shake out the bearish spirits in the index. But failure to cross above 1.370, is now giving rise to 1,300. The quarterly charts below for the Dow and the S&P 500 are technically aligned for deeper declines ahead. We assert that the S&P500 support at 1,260 coincided with the Dow's holding at the 11,634, which is well below the 2000 high of 11,750. We deem this to have been a viable breach of the 2000 low and further erosion is in the works as early as this week, with Friday's labor report to be the likely catalyst. The long term nature of these quarterly charts also allows for the possibility of more substantial rebounds to as high as 1,400 in the SP500. Such forcast is in line with our FX outlook for a prolonged sub 100 yen/dollar rate and deeper losses in GBP.

Yen Broadens Strength, Caution Urged Ahead of Tankan

Yen rallied across the board today as risk appetite recedes, but this evening's release of the Bank of Japan's quarterly Tankan survey on business sentiment is expected to show a sharp decline in business confidence. Markets will also mull planned capex and the forecast for the July survey. The tankan may trigger yet another short term break out above the 100, where we see substantial resistance at 100.50. Support starts at 99.40, followed by 98.70.

Euro to Test $1.60

Another day passes and another valid reason for the euro to test near its $1.59 record high and hit a fresh record at against the pound at 79.70 pence. The flash estimate for Eurozone inflation surged to a record 3.5% in March, exceeding consensus forecasts of a 3.3% reading. data showed on Monday, effectively ruling out any near-term ECB rate cuts despite a further weakening of economic sentiment and falling inflation expectations. On Friday, ECB Gov Council member Axel Weber said the ECB would not cut rates any time soon and that present level of rates maintain price stability in the region. Earlier in the week, ECB JC Trichet said ECB interest rates were appropriate. Both of the statements boosted the euro. Today's inflation report is the reason why markets bid the single currency higher each time they hear the same inflation vigilance from Fed officials vigilance listen to the ECB's hawkishness.

EURUSD carries the technical demeanor to reach towards the $1.59, which is expected to be breached at 1.5950. This week's array of key US data on ISM services, manufacturing, ADP and payrolls bolsters chances of $1.60 this week as the potential for further negative US news broadens by the day. Support climbs $1.5650, backed by 1.5590.

Cable Downed by Data, King

More bad news for the beleaguered pound after the UK services sector index grew 0.5% in the 3 months ending in January, the weakest pace since May 2005. Separately, Bank of England Mervyn King all but supported further declines in the pound when he described the current sell-off as merely correction of previous strength, adding that inflation will come down in the long term.

The latest report showing UK housing deterioration is the Hometrack price index, which fell 0.2% in March and up 0.4% from a year ago. Last week, a separate home price measure fell for the the fifth straight month in March, while consumer confidence dropped to lowest in 15 years.

With the a 25bp-rate cut secured by the Bank of England this month, it's a matter of time before cable extends losses towards $1.9750, which is the 61.8% retracement of the 1.9360-2.0396 rise. Upside faces increased pressure at 1.9920, followed by 1.9960. Medium term target stands at 1.9650.

EURGBP hits its third daily record high finally breaks above the 79.10 pence high to a new record of 79.20 pence. We expect further gains to as high as 79.40 pence, before a retreat down to 78.80.