Australian manufacturing activity bounced 7.4 points to an index reading of 37.5 in May from April’s record low. It still remains well below the 50 mark, which separates growth from contraction, but was the highest reading in seven months.

The index of production jumped 12.6 points in May to 41.4, while new orders climbed 12.7 points to 39.4.

Thin Monday morning liquidity has enabled traders to trigger stops above 8030 and 8050, pushing to a high of 8072 before a rapid retreat back below 80c. Japanese accounts were seen selling AUDJPY on top. Exaggerated moves early on a Monday morning, especially stop loss triggers, are usually negated and consolidation for the rest of the day can follow.

I would say we have seen the high for the Asian session. Look for 7930 to offer same technical supports with some bids between 7880 – 7920. Day traders will look to buy 7950-70 and play range 7950 - 8050.

Retail sales for April is released at 0130GMT. Forecast is for +0.5%. Look for direction via the number, especially if it comes in at the extremes.

Friend of mine has a short term trading system which seems to do alright. It went long EUR/USD at 1.4130 with a stop at 1.4107 and a profit target at 1.4156. Not sure myself if its worth the bother but if the spreads are tight enough and you can get 66% of trades right, then I guess it makes sense. This trade would appeal to Sam more than me and I’ll pass over to him now for a few hours through the Tokyo open.

Geithner is in Beijing for talks with China’s leadership. He told the press Monday that no one is more concerned about US deficits that President Obama but offered no concrete plans for dealing with their explosive growth.

To sooth Chinese jitters, he’s going to have to offer some spending restraint, something the administration has avoided thus far. Either that, or a shift away from quantitative ease is needed from the Fed. Otherwise, the buck will continue to be pounded in the court of public opinion–particularly Chinese public opinion.

Will China and Japan continue to buy US treasuries? If they do, will they only buy short-end? What is going to the effect of the Fed cranking up the printing presses? If you think you know the answer to some of these questions, then you might be able to forecast the medium term prospects for the USD. I don’t know any of the answers and I think most others are in the same boat. This uncertainty will keep the USD “offered” for some time to come.

No major surprise here. Coming across the Reuters newswires is news that GM will file for bankruptcy before business opens later today in the US.

Price is very important in foreign exchange. If you get bearish or bullish at the wrong level, it can be very costly. EUR/USD was a stand-out buy for me at 1.31 a few short weeks ago but in reality not all that much has changed since. The market has gone from short to slightly long and sentiment has turned from bearish to slightly bullish. Now is the time to start putting offers in the market and booking some profits. I still expect EUR/USD to test 1.50 in the coming weeks but I’m not sure if we are going to go in a straight line or if we now consolidate for a period before the next push. USD/JPY is in a 92/102 range as I’ve maintained for months and is again nearing the bottom of this range. I expect the AUD/USD to struggle to hold above .80 for an extended period. There is excellent technical resistance at .8370, the big golden Fibo, and I will be selling rallies towards there.

The danger with being long EUR or AUD at current levels is the return of risk-aversion. If it comes back, some of these pairs will have a long way to fall before reaching stable levels. Buying dips is certainly still the strategy but don’t forget to include price in your calculations and to sell rallies as well.

• EUR/USD sees a mixed bag of sellers and stops until 1.4300/50 when I’m told there are some heavy sell orders. Buyers on the day at 1.4050.
• USD/JPY bids at 94.80. EUR/JPY has little activity on the order books around 135 with few bids until 133.50, sellers at 137, and with heavy stops above 137.75.
• Stop-loss sell orders below 1.0600 in USD/CHF may attract dealers attention. Bids rumoured from BIS/SNB at 1.5050 in EUR/CHF.
• Profit-taking bids in EUR/GBP at .8685/00

EUR/USD is trading at 1.4150, USD/JPY at 95.10, cable at 1.6200 and AUD/USD at .8050. Not much news on the economic front over the weekend has meant that the market has opened virtually unchanged from the NY close. Some political disharmony in the German ruling coalition over the government-orchestrated rescue of Opel is unlikely to affect the EUR, as Germany will go to the polls in the next few months anyway. Geo-political issues maintain their importance but the USD remains friend-less.

Good luck today.

Hyok Kang, who escaped from his oppressive homeland in 1998, provides a unique and harrowing insight into Kim Jong-il’s dictatorship, which can build nuclear weapons, but not feed its people.

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