Dollar Bullishness Is Based On Hope

European Mid Morning Update

Releases from Europe:

So far this European morning we have seen the Q1 non-farm payrolls and wages from France. The payrolls figure was less than forecast but still respectable for what was a quarter with decent growth in GDP. However, it compares with +1.5% in Q4 last year and does suggest that hiring saw a pause. Given the figures recently the risk is for a larger fall in Q2.

However, the figure that will concern the ECB will be the wage number that saw an above consensus forecast rise of +1.1% and will probably provoke Trichet to warn against excessive wage hikes. With consumer's budgets under stress this may well fall on deaf ears with frustrations at risk of causing a stronger claim for a rise to help meet increased costs.

The following economic releases are due today:

March

Swiss Adjusted Retail Sales (YoY) +3.0%
Italian Trade Balance (Total) EUR -860mn
Italian Trade Balance (EU) EUR 377mn

April

U.S. Housing Starts 935K
U.S. Building Permits 910K
U.S. University of Michigan Confidence 62.5

First Europe and then Japan announces higher than expected Q1 GDP. In recent months this would have provoked a flurry of Dollar selling. Well, it did initially in Europe yesterday but these were soon reversed which has the market baying for more blood and for the recent strength in the Dollar to continue.

The reaction to buy Dollars again was somewhat strange and has been described as the growing confidence in the U.S. recovery. However, yesterday's figures made it plain and clear that it is just too early.

Bernanke also made it plain that banks have still not recovered fully from the credit crisis and are not pulling their weight by becoming more relaxed about lending. Unemployment is still rising as suggested by continuing claims and industrial production hasn't been able to gain critical momentum to post even close to consensus forecasts.

One has to doubt that consistently good numbers are likely to occur at this stage and will more likely take until July to start peeking through the grey clouds covering the consumer who will be the catalyst for any recovery.

So while the market comments remain broadly Dollar bullish - wait for confirmation.

Note important support and resistance areas:

Ian Copsey
Global Forex Trading
http://www.gftforex.com

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