USD higher, stocks drop on fresh US bank concern

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Written by Easy-Forex   
Monday, 06 April 2009 20:16 GMT
  • USD: Higher, stocks trade lower as Calyon's Mayo warns of large US bank losses
  • JPY: Lower, trades at six-month low as Asian equity markets firm, downside limited by weak US equities
  • EUR: Lower, tracking weaker equities, retail sales and PPI decline, Quaden says ECB can lower rates
  • CHF: Lower, gains limited by threat of intervention and weak Swiss CPI
  • GBP:Lower, initially supported by HSBC stock sale, gains limited by weaker equities
  • CAD and AUD: AUD and CAD lower, RBA may cut rates Tuesday, Canadian building permits plummet

Overview
JPY traded at a six-month low versus the USD and weakened in cross trade pressured by improvement in risk sentiment as Asian equity markets rise. JPY recovered in US session and rebounded in cross trade in response to weaker US equities. EUR traded lower with gains limited by report of weaker than expected EU retail sales and another decline EU PPI. GBP continues to outperform, gaining in cross trade to the JPY supported by HSBC stock sale and firming European banks stocks. GBP traded lower in US session tracking weaker US equity markets, CHF traded lower with gains limited by a Daily Telegraph report which says Switzerland faces increased deflation threat. Commodity currencies traded lower with AUD pressured by an AFR report which says the RBA will cut interest rates 50 basis points at Tuesday's RBA policy meeting. CAD traded lower pressured by a tumble in the price of gold, weaker crude prices and report of a sharp drop in Canadian building permits. Canadian manufacturing PMI was also weaker than expected.

USD direction remains closely tied to risk sentiment. The key question is whether the recent improvement in risk sentiment is temporary. Risk sentiment has been boosted by a sharp recovery in equity markets, economic reports from the US which suggest the US economy may be nearing a bottom and optimism that the G-20 meeting will help boost global growth. There remain significant questions as to whether recent US economic data will be enough to confirm a bottom for the US economy. The trade will be closely watching whether equity markets continue to rise. G-20 optimism may already be fading. US equities traded lower Monday pressured by concern about forecast of additional US bank losses. Calyon's Mayo predicts large US bank losses and weak US equity markets. Soros says global banking system is basically insolvent. USD firmed in US session tracking weaker equities. USD showed little reaction to comments from Soros that in the long term USD maybe replaced an IMF SDR.  

Today's US data:
No top-tier US economic data was released in today's trade.

Upcoming US data:
This week's US economic calendar includes the April 7th release of the February consumer credit expected at 1.5 Billion compared to 1.8 Billion last month. On April 8th, February wholesale inventories will be released expected at -0.5% compared to -0.7% last month. April 9th, initial jobless claims for week ending 04/04 will be released expected at 66 K along with March import prices expected at 0.8% compared to -0.2% last month. February trade balance will also be released on April 9th expected at -37.4 bn compared to -36 bn last month. On April 10th, March Treasury Budget will be released.

JPY
JPY traded at a six -month low against the USD and initially weakened in cross trade to Europe. JPY was pressured by improving risk sentiment as Asian equity markets trade higher. Report of a North Korean missile launch may have also contributed to JPY weakness but the missile launch did not seem to have significant impact on risk sentiment. Japan's February leading economic indicator falls 2 and the coincident indicator falls 2.7. JPY traded lower despite report that Japanese government plans to unveil a new economic package on April 10th. The package is expected to amount to 2% of GDP. EUR/JPY traded above 137.00 in Asian trade then came off sharply after the release of weaker than expected EU retail sales and a drop in EU PPI. GBP/JPY traded above 151 in Asian trade and the cross came off sharply as equity markets begin to weaken into the US open. JPY edged higher against the AUD with AUD pressured by speculation that the RBA may cut interest rates at Tuesday's policy meeting. JPY was the worst performing currency last week trading 2.5% lower versus USD   pressured by improving risk sentiment and continued deterioration in Japan's economic outlook. Further JPY weakness will hinge on a risk appetite and the direction of global equity markets. JPY downside was limited as US equity markets decline. The BOJ meet Tuesday and are expected to leave monetary policy unchanged at 0.10%. The trade will look for BOJ assessment of Japan's economic outlook.

On April 8th February current account will be released and on April 9th February machinery orders will be released. February current account is expected at ¥1.08 trillion to ¥ -0.17 trillion last month. February machinery orders are expected at -6.7% compared to -3.2% last month. On April 10th, March money supply and bank lending are due for release. March money supply is expected unchanged at 2.1% and bank lending for March is expected at 0.2% compared to -0.4% last month.

USD /JPY traded above 101.00 Monday. The break above 101.00 may spark a move to 104.00. USD/JPY is approaching overbought and may be ripe for a modest technical correction. Key technical levels to watch in USD/JPY include support at 99.90 the April 6th low with resistance at 101.70 and 102.40 the October 20th high.

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EUR
The EUR traded mixed to lower with gains limited by report of weaker than expected EU PPI, retail sales and weaker US equity market trade. EU February PPI falls 0.5% and February retail sales declined 0.6%. These reports suggest increased risk of deflation in EU and continued deteriorating economic outlook. EUR traded firm in overseas trade supported by report of improving April Sentex index and gains in cross trade to the JPY. EU April Sentex index rises to -35.3 compared to -42.7 last month, reading of -40.7 was expected. EUR/JPY cross gains were attributed to stronger Asian equity markets and a sharp drop in the price of gold. Stronger Asian equity markets contribute to improving risk sentiment. The sharp drop in the price of gold suggests that investor fears may be receding. ECB officials continue to leave the door open for further ECB rate cuts. ECB's Qauden said that the ECB has room to lower interest rates. ECB's Tumpel -Gugerell says there room to move on ECB rates. These comments sparked light selling of the EUR. EU officials continue to reject calls for fresh economic stimulus. The German economics minister said that he prefers income tax cuts to stimulate the economy. French and German officials were the most opposed to G-20 calls for coordinated global fiscal stimulus. The trade showed limited reaction to the IMF call for struggling Eastern European countries to adopt the EUR. EUR price direction will continue to key on the direction of equities, risk sentiment and ECB policy outlook.

On April 8th, EU Q4 GDP is due for release expected at -1.5%. On April 8th, February German trade balance is due for release along with February industrial orders. German trade balance is expected at 7.8 Billion compared to 8.5 Billion last month. German February industrial orders are expected at -3% compared to -8% last month. On April 9th, March final German HICP will be released expected at -0.2%. On April 10th, French March HICP and February industrial production are scheduled for release. French March HICP is expected unchanged at 0.4% and French industrial production for March is expected at -0.8% compared to -3.1% last month.

The technical outlook for the EUR is mixed with EUR struggling to hold above 1.3500 and failing to take out recent highs despite improving risk sentiment. Expect key EUR support at 1.3241 the April 2nd low with resistance at 1.3590 the March 27th high. Look for major resistance at the downtrend line near 1.3640 trendline. A break of this trendline could spark a rally in the EUR to the 1.4000 level.

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CHF
CHF traded mixed to weaker with upside limited by report of falling Swiss CPI and fresh threats of SNB intervention. Swiss February CPI falls 0.3%. Swiss CPI declined the most in 40 years. The Daily Telegraph says Switzerland is faced with continued deflation threat and the deflation threat will be the next chapter of the global crisis. SNB officials said they will use all means to prevent the CHF from firming. Stronger CHF will contribute to increased inflationary risks and threaten Swiss export outlook. The SNB executed a large intervention to weaken CHF on March 12 th. The lasting impact of the intervention was limited as focus returned to improving risk sentiment and broad dollar selloff against the majors. CHF traded about 1% higher last week versus the USD. The SNB is expected to try and defend the 151 level in EUR/CHF. The cross is holding above 1.5200. The next wave of SNB intervention may come through the EUR/CHF cross. The outlook for the CHF will hinge on what the SNB elects to do to try to combat deflation. The risk of SNB intervention is rising. The only economic data due for release in Switzerland this week is Thursday's release of Swiss unemployment expected at 3.3% compared to 3.1% last month. USD/CHF is entering a range between 1.1150-11500. Expect USD/CHF support at 1.1165 the March 19th low with resistance at 1.1485 the April 2nd high.

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GBP
GBP initially traded higher supported by report of HSBC stock sales and gains in cross trade to the JPY. HSBC is reported to have sold 172.7 Million shares to new investors. The HSBC stock sale may be a sign that that the worst of UK bank troubles have passed. GBP was the best performing currency last week rising over 3.5% against the USD. GBP price direction has been the most sensitive to the direction of equities and risk sentiment. GBP benefited from last week's improvement and risk sentiment and rising equity markets. GBP gains were limited by weaker US equity trade and GBP traded lower in US session. This week's main focus will be Thursday's Bank of England policy meeting. The Bank of England lowered interest rates to record low .5% last month and adopted quantitative ease. The Bank of England is expected to leave rate policy steady. The trade will look to see if the Bank of England takes additional measures to try to boost growth and increase bond purchases. Recent UK economic data has improved with manufacturing and services PMI coming in better than expected and Nationwide house prices posting the first rise in 17 months. Not all UK economic data has been positive with February consumer confidence contracting for the first time in 16 years and UK auto sales fell 30.5% in March. The drop in UK consumer confidence may revive concerns about UK economic outlook. UK will release fresh consumer confidence data Tuesday.

This weeks UK economic calendar includes the April 8th release of February industrial production. February industrial production expected to fall 1.2% compared to -2.6% last month. Nationwide consumer confidence survey is also due for release on Tuesday expected at 45 compared to 43 last month. On Wednesday, April 8th BRC retail shop price index is due for release expected unchanged at 1.9%. On April 9th, March PPI is due for release along with February trade balance. March PPI is expected at 2.1% compared to 3.1% last month. February visible trade balance is expected at -7.60 Billion compared to -7.74 Billion last month The main focus for this week's GBP trade will be the BOE policy meeting on Thursday. The BOE is expected to leave its bank rate unchanged at 0.5%. The trade will be looking to see if the Bank of England announces any additional quantitative ease measures or other plans to try and boost UK growth.

The technical outlook for GBP is improving as GBP trades above 1.4900. Look for key GBP support at 1.4650 April 3rd low with resistance at 1.4985 the February 9th time and 1.5155 the January 12th high.

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CAD
CAD traded lower pressured by weaker crude, lower gold prices, report of a sharp drop in Canadian building permits and a dip in risk appetite as US equity markets weaken. Gold prices tumbled in overseas trade pressured by IMF sales and stronger Asian equity markets. The drop in the price of gold seems to correlate to improving risk sentiment. The crude price decline was attributed to concern about global demand. Canada's February building permits fall 15.9%, the trade was looking for a 3.5% decline. March Ivey PMI falls to 43.2, a reading of 46.3 was expected. The drop in Canadian building permits and Ivey PMI will generate fear about deepening recession in Canada.  This data will increase pressure on the Bank of Canada to adopt quantitative ease. Bloomberg News reports that traders expect BOC Governor Carney to soon join the BOJ, SNB, BOE and Fed and adopt quantitative ease.

This week's Canadian economic calendar is active. On April 8th, March housing starts will be released. March housing starts are expected at 132 K compared to 134.7 K last month. On April 9th, March unemployment rate will be released along with February New House Price Index and February trade balance. March unemployment is expected to rise to 7.9% from 7.7% last month with net job loss of -50 K compared to -82.6 K last month. February trade balance is expected to widen to -1.4 Billion compared to -1 Billion last month. February New Housing Price Index expected to fall to -5% -compared to -0.6% last month.

The technical outlook for CAD is mixed with USD/CAD weakening from resistance above 1.2600. Look for near-term resistance at 1.2470 and 1.2606 the April 2nd high with support at 1.2226 the April 6th low.

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AUD
AUD traded lower pressured by report of weak Australian economic data, falling inflation and speculation that the RBA may cut interest rates at tomorrow's policy meeting. Australia's March job ads fall at a record pace of 8.5%. March TD/MI inflation index falls 1%. The main focus for the AUD is Tuesday's RBA policy meeting. AFR says the RBA will cut interest 50 basis points to 2.75% at Tuesday's RBA policy meeting. Analysts are split about the outlook for RBA policy as most recent comments from RBA officials suggest that any future rate moves with minor adjustments. AUD traded 3% higher last week as the commodity currencies have been the primary beneficiaries of improving sentiment in the recovery and global commodity markets of equities. The key to AUD outlook will be whether risk the improvement in risk sentiment is sustained or proves temporary. Optimism about last weeks G-20 meeting appears to be fading. US equity markets traded lower today pressured by concern about possible announcement of more US bank losses.

On April 7th, the RBA meet and majority of analysts are expect the RBA to leave interest rates unchanged at 3.25%. AUD could experience a sharp break if the RBA surprise cuts rates. The RBA's Battellino said Tuesday that the RBA will be making only minor adjustments to monetary policy going forward. Westpac consumer confidence will also be released on April 7th expected unchanged at -2%. On April 8th, February housing finance and investor lending will be released. On April 9th, March unemployment is due for release. March unemployment is expected to rise to 5.4% from 5.2% last month with a loss of 25 K jobs. AUD price direction will remain closely correlated to risk sentiment in the direction of equities and commodities. Steady RBA policy outlook should limit AUD downside and AUD remains an attractive buy on dips.

The technical outlook for the AUD is improving with AUD breaking above support at 7000. Look for AUD support at 6975 the April 2nd low with resistance at 7265 the January 7th high. Last weeks AUD break above 7025, sets the stage for a possible test of 7300 as long as 7000 holds.

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