- Higher, Greek fiscal worries, Fed discount rate hike rumors, India hikes rates 25 bps
- Mixed, FSA says falling land prices confirm Japan's economy is still in deflation
- Lower, Greek uncertainty, EU inflation flat
- Lower, BOE's Sentance sees risk of UK double dip recession
- AUD & CAD lower, Canadian core CPI rises above BOC target, retail sales rise
Overview
The USD traded higher Friday with the EUR pressured by uncertainty about whether the EU will agree to aid Greece. Monitoring the news out of Europe in regard to potential for Greece aid rivals the back and forth reports of whether or not the US Congress has the votes to pass health reform. One report suggests that German officials want Greece to seek help from the IMF. Another report suggests that EU officials and the member states have agreed to help Greece if needed. An official with the German central bank says that Greece should declare insolvency if it can't finance its debt. USD was also supported by rumors circulating that the Fed may raise the discount rate before next April's policy meeting. GBP traded lower pressured by a statement from the BOE's Sentance that there is a risk of a double dip recession in the UK. Commodity currencies were mixed with the AUD pressured by increased fears of a trade war between US and China. CAD traded higher supported by report that Canadian February Core CPI rose above the BOC's target and January retail sales were strong. The above target Canadian CPI increases the risk of an earlier than expected BOC rate hike. AUD drifted lower pressured by increasing fear of a US China trade war as US officials increased pressure on China to revalue the Yuan. There is a growing risk that the US Congress will name China as a currency manipulator. If the U.S. Congress named China as a currency manipulator China may take some form of retaliation measures. China sent an envoy to Washington Friday to try and ease Chinese trade friction with the US. USD traded to the day's highs in reaction to report that India hiked rates 25 bps. The rate hike sparked selling of equities and a spike in risk aversion. There were no major US economic reports in today's trade.
Today's US data:
No major US economic data was released today.
Upcoming US data:
Next week's US economic calendar includes the March 23rd release of February existing home sales expected at 500mln compared to 505mln last month. On March 24th February durable goods will be released expected flat compared to a 3% rise last month. February new home sales will also be released on March 24th expected at 320k compared to 309k last month. On March 25th initial jobless claims for the week ending 3/20 will be released expected at 453k compared to 457k last week. On March 26th final Q4 GDP was released expected at 5.7% compared to 5.9% along with final March Michigan consumer sentiment expected unchanged at 72.5.
JPY
JPY traded mixed to lower pressured by improving risk appetite as equity markets firm in Asia and Europe and in reaction to a report from Japan's FSA that a drop in Japan's land prices confirms that Japan's economy is still in deflation. The FSA's Kamei said that Japan's land price survey shows the economy still in deflation and more measures are needed to boost the economy. His comments about deflation suggest that the Japanese government will continue to pressure the BOJ take more measures to combat deflation. Midweek the BOJ elected to expand its quantitative ease an increase in its lending operations to ¥20trln from ¥10trln. The BOJ however stopped short of announcing a plan to buy Japanese government bonds. Purchase of Japanese government bonds would likely be more effective in trying to combat deflation pressures in Japan as it would effectively be printing money. JPY downside was limited by gains in cross trade to Europe with the EUR pressured by ongoing worries about the Greek fiscal outlook and GBP pressured by report that the BOE sees a risk of a double dip recession in the UK. Focus turns to next week's release of Japan's CPI.
Next week's Japanese economic calendar includes March 24th release of February trade balance expected at ¥0.79trln compared to ¥0.06trln. On March 26th February CPI will be released expected flat compared to -0.2% last month.
Key technical levels to watch in USD/JPY include support at 89.63 the March 9th low with resistance at 91.30 the February 23rd high.
EUR
EUR traded lower pressured by ongoing uncertainty about the Greek fiscal outlook and whether EU officials will come to the aid of Greece. As noted above there are conflicting reports on whether EU member nations are in agreement on a plan to aid Greece. European press reported yesterday that the rift between Germany and Greece about a potential aid package has deepened. Friday one of the German central bank members Sarrazin said that Greece is not in need of aid and Greece should declare insolvency if it can't finance its debt. His comments suggest that Germany remains reluctant to join in financial aid for Greece. Greek officials indicate that if EU aid is not coming within a month that they will seek help from the IMF. If Greece is forced to go to the IMF for aid it would generate concern that the EU does not have a plan to deal with sovereign debt risk in the other peripheral EU nations. This means that the Greek fiscal crisis may turn into a contagion and spread to other parts of Europe. The Greek fiscal crisis is seen as a challenge to the unity of European Monetary Union and a possible threat to the EU economic recovery. EUR was also pressured by report that EU inflation was flat last month. The flat inflation report will likely encourage the ECB to maintain steady rate policy. Concern about the Greek debt crisis impact on the EU economy is a major focus for EUR trade. New York University economist Roubini says that the sovereign debt crisis in Europe increases the risk of a double dip recession for the EU. The risk of weaker economic outlook in the EU and low inflation will encourage the ECB to maintain steady rate policy and delay its exit strategy. The EUR may be vulnerable widening of yield and growth differential as rumors are circulating that he Fed hiked the discount rate before the next policy meeting in April. EUR traded to the days lows pressured by report that India hiked interest rates.
Next week's EU economic calendar includes the March 24th release of EU manufacturing and services PMI along with March German IFO index. Manufacturing PMI is expected at 54.6 compared to 54.2 last month. Services PMI is expected at 52 compared to 51.8 last month. The IFO is expected at 94.9 compared to 95.2 last month. On March 25th February M3 will be released expected at 0.1% compared to -0.1% last month. Also on March 25th German April GFK Index will be released expected at 3.3 compared to 3.2 last month.
The technical outlook for the EUR is negative as EUR trades below 1.3600. Expect EUR support at 1.3433 the March 2nd low with resistance at 1.3627 the March 19th high.
GBP
GBP traded lower pressured by report that the BOE's Sentance sees the risk of a double dip recession in the UK. His statement about the risk of a double dip recession adds to fears about the strength of the UK recovery and may encourage speculation that the BOE will expand quantitative ease. Recent UK economic data has been mixed. UK reported a sharp improvement in the labor market outlook. The improvement in the labor market helped to reduce fears about the UK recovery. The comments by Sentance coupled with Thursday's report of weak UK lending and mortgage approvals data and a drop in CBI orders may revive these fears. Sentance also said that the UK faces substantial fiscal tightening in the BOE may have to maintain a common data policy to offset the impact of less government spending. Recent weakness of the GBP has partly reflected concern that rising UK budget deficit increases the risk that the UK could lose its AAA sovereign debt rating and BOE ease speculation. Focus turns to next weeks release of UK CPI and retail sales. The BOE minutes for the March policy meeting state that the BOE was becoming more concerned about rising inflation risk in the UK. The trade will be looking at a CPI report for indications of UK inflationary pressures and the retail sales report for clues to the strength of the UK recovery.
Next week's UK economic calendar includes the March 23rd release of February CPI expected at 0.1% compared to -0.1% last month. On March 24th January CBI distributive trades will be released expected at 24 compared to 23 last month. On March 25th February retail sales will be released expected at 0.2% compared to -1.8% last month.
The technical outlook for GBP is mixed as GBP trades below 1.5200. Expect near-term support at 1.4977 the March 16th low with resistance at 1.5329 the February 18th high.
CAD
CAD initially traded higher supported by report of above forecast Canadian CPI and strong retail sales. CAD turned lower for the day pressured by report that India's central bank hiked interest rates. Canada's February CPI rose by 0.4%, a 0.3% rise was expected. The core inflation rate rose by 2.1%. The core inflation rate is above the BOC's 2% inflation target. The above target CPI increases the risk of an earlier BOC rate hike. The BOC pledged to maintain low yields through June of 2010 provided inflation remains in check. Today's Canadian CPI report will increase pressure on the BOC to consider an earlier rate hike. The CPI report follows recent economic data from Canada that shows that the Canadian recovery may be accelerating faster than expected. Canadian wholesale trade surged by 3%, a 0.5% rise was expected. The surge in wholesale trade follows Wednesday's release of strong Canadian manufacturing shipments and productivity data. Canada's January manufacturing shipments surged by 2.4% and Q4 productivity increased by 1.4%. The stronger manufacturing shipments and productivity data follows last week's report of better than expected employment growth in Canada. January retail sales rose by 0.7%. CAD has been outperforming supported by last week's decision by the BOC to maintain steady monetary policy and signal a shift in its policy bias. In the BOC policy statement the BOC dropped reference to inflation risks being to the downside. Today's Canadian CPI report will encourage speculation the BOC hikes rates before the Fed. BOC rate hike speculation is the main driver for CAD trade.
Next week's Canadian economic calendar includes the March 23rd release of this February leading index expected at 1.1% compared to 0.9% last month.
The technical outlook for CAD is positive as USD/CAD trades below 1.0100. Look for near-term support at 0.9975 the July 15th 2008 low with resistance at 1.0188 the March 19th high.
AUD
AUD traded lower pressured by Fed discount rate hike rumors and increasing trade friction between US and China. AUD traded to the day's lows in reaction to report that India hiked interest rates. Rumors are circulating that the Fed may hike the discount rate before next April's policy meeting. Although Australia has a wide yield advantage to the US there is speculation that the RBA may pause in its rate hike cycle in April. As the Fed moves closer to raising interest rates it will take some of the yield gap attraction away from the AUD. US officials have increased pressure on China to revalue the Yuan. Chinese officials have pushed back against this pressure and indicate that they not allow foreign influences to dictate Chinese currency policy. There's a movement in the U.S. Congress to label China as a currency manipulator. If Congress labels China as a currency manipulator it would likely increase trade tensions between the US and China and increase the risk that China will take retaliation measures against the US. Escalation of US/China trade friction would not be positive for the global economic outlook or the AUD. AUD has held firm but remains reluctant to build on recent strength as uncertainty about the outlook for China's economy and RBA policy limit demand. RBA watcher McCrann says that the odds slightly favor a RBA pause in April. At the beginning of the month the RBA hiked interest rates 25bps to 4%. The RBA is expected to raise interest rates to 5% by the end of the year, so a pause in April should not be a major deterrent to demand for the AUD. The trade will be closely monitoring developments in regard to the Yuan and US/China trade friction. AUD could fall sharply if the US names China a currency manipulator. Today's Indian rate hike generates concern about the growth outlook in Asia.
Next week's Australian economic calendar includes the March 22nd release of February new auto sales expected at 1% compared to -3.4% last month.
The technical outlook for the AUD is mixed as the AUD fails to hold above 9200. Expect AUD support at 8985 the March 5th low with resistance at 9378 the November 17th high.
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