More positive data sought

Market Outlook :

The key US February employment report disappointed and raised again the question of the jobless recovery.

This week we expect US retail sales and consumer sentiment to show that private consumption remains healthy after last month's declines.

German and French industrial production for January should confirm the manufacturing pick up in the eurozone. In Japan, machinery orders are likely to have advanced in January.

Focus on Equities :

European equity markets clearly took the lead last week, boosted by a strengthening greenback. Besides the dollar, also the oil price went up substantially as investors focused on the 28-year low of the US non-strategic reserves.

Although we agree that we should stay cautious at this point in the cycle, we think it is too early to call for a strategic U-turn. It is normal to see some consolidation and even a pull-back after the strong rally of recent months.

Foreign Exchanges :

The euro fell below its September-November support line and below the previous January-February support zone of 1.2375/1.2400.

This weakens the outlook and suggests further losses to be seen with 1.1975 and 1.1750 as next supports. Any rise should be corrective in nature with 1.2300 and especially the 1.2375/1.2400 area as next candidate resistance levels.

The dollar/yen price may encounter resistance at 111.50, the target of its falling wedge breakout. To keep the immediate trend higher, the dollar should find support at 110.50. Below this level, a deeper correction to 110.00 may follow.