Daily Forex Report – USD higher, recovery hope versus rate outlook

Here are the latest Financial News:

• USD: Higher, Greek debt troubles, optimism about US economy, NABE upgrades US GDP forecast
• JPY: Higher, S&P says there is a low chance of Japan being downgraded this year
• EUR: Lower, German finance Minister denies that the EU plans a 25bln aid plan for Greece
• CHF: Lower, SNB’s Jordan ready to act on excessive CHF strength
• GBP: Lower, UK election polls point to the risk of a hung parliament
• CAD and AUD: AUD & CAD lower, Australian vehicle sales decline, commodity prices mixed

Overview
The USD traded mixed to slightly firmer Monday as focus returns to Greece and the NABE upgrades its US 2010 GDP forecast to 3.2%. There was a report in overseas trade that the EU had agreed to a 25bln aid plan for Greece. The German finance minister denied the report and the USD rebounded from early overseas lows. The NABE upgrade of its US GDP forecast and outlook for continued improvement in the housing market and jobs growth generates optimism about the US recovery. There were no major US economic reports scheduled for release today. Focus turns to Tuesday’s release of US home prices and consumer confidence with durable goods and Q4 GDP to be released later in the week. The trade will also be closely monitoring Fed Chairman Bernanke’s testimony before Congress on Wednesday and Thursday. The trade will be looking for clues to the Fed’s decision last week to hike the discount rate. Fed officials indicate that the rate hike was primarily a technical measure and not an indication of a change in policy. The USD traded lower in early overseas trade pressured by diminished Fed rate hike speculation sparked by weaker than expected US CPI report Friday and the Feds assurance that the discount rate hike was not a sign of imminent tightening of Fed policy. USD price direction is caught between recovery hopes and interest-rate outlook.

Today’s US data:
No major US economic data was released in today’s trade.

Upcoming US data:
This week’s US economic calendar includes the February 23rd release of December Case Shiller Home Price Index expected at -3.8% compared to -5.3% last month. February consumer confidence will also be released on February 23rd expected at 56 compared to 55.9 last month. On February 24th January new home sales will be released expected at 360k compared to 342k last month. On February 25th January durable goods will be released expected at 1.5% compared to 1% last month along with initial jobless claims for the week ending 02/20 expected at 460k compared to 473k last week .On February 26th Q4 preliminary GDP will be released  expected at 5.5% compared to 5.7% in the original report. February Chicago PMI and final Michigan sentiment will also be released on February 26th. The PMI is expected at 60 compared to 61.5 last month and Michigan consumer sentiment is expected at 74 compared to 73.7 last month. Finally on February 26th, January existing home sales will be released expected at 550k compared to 545k last month.

JPY
JPY traded higher Monday despite improvement in risk sentiment and a 3% surge in the Nikkei. JPY gains were attributed to a rally in cross trade to Europe sparked by renewed concern about Greece and uncertainty about the UK election. JPY rallied against the AUD with the AUD pressured by report of weaker than expected Australian vehicle sales. JPY was also supported by a report from S&P that a downgrade of Japan’s debt rating is unlikely this year and in reaction to report that Japanese corporate bankruptcies declined to pre-crisis levels. There was limited reaction to report that the DPJ party support has dropped to 37% or a pledge from the BOJ to continue to combat deflation. Last week the BOJ elected to hold monetary policy unchanged and to not expand quantitative ease. Today’s statement from the BOJ appears to be a bit less hawkish. JPY direction appears to be more focused on Fed policy outlook then risk sentiment with JPY rallying despite today’s improved risk sentiment supported by dampened fears of an imminent Fed rate hike.

This week’s Japanese economic calendar includes the February 24th release of the January trade balance expected at ¥545bln compared to ¥-40bln last month. On February 26th January CPI  will be released expected at -0.2% compared to -0.5% last month along with January industrial output, retail sales, housing starts and construction orders. Industrial output is expected at 2.2% compared to 0.7% last month. Retail sales are expected to fall by 1.2% compared to 0.2% Last month. Housing starts are expected to rise by 3.3% compared to 2.5% last month and construction spending is expected to rise by 0.6% compared to 24.5% last month.

Key technical levels to watch in USD/JPY include support at 90.14 the February 17th low with resistance at 91.90 the February 22nd high.

EUR
EUR gave back early gains that were sparked by a Der Spiegel report which says the EU plans a 25bln bailout for Greece. The EUR was pressured by a statement from the German finance minister denying the report of the Greek aid plan. EUR failed to benefit from assurances from Greek officials that they were taking action to reduce the Greek debt. The Greek PM said that Greek borrowing needs are covered until March. According to Bloomberg derivative markets suggest that the EUR will continue to weaken even if the EU bails out Greece. George Soros says that the EU will face bigger problems than Greece. His comments add to negative sentiment towards EUR. CFTC commitment of traders for last week indicates that spec accounts have the biggest long USD position since September of 2008. EUR downside was limited by diminished Fed rate hike fears as Fed officials downplay the potential for an imminent Fed rate hike. The ECB is expected to maintain low interest rates because of concern about the impact of deficit reduction in peripheral European nations. Focus turns to Tuesday’s release of German IFO.

This week’s EU economic calendar includes the February 23rd release of German IFO expected at 92 compared to 91.2 last month. On February 25th EU business climate will be released expected at 98 compared to 97.1 last month. On February 26th EU January CPI will be released expected at 1.2% compared to 1.1% last month.

The technical outlook for the EUR is negative but the EUR is ripe for a short covering rebound due to oversold technical conditions. Expect EUR support at 1.3443 the February 19th low with resistance at 1.3654 February 22nd high.

GBP
GBP traded lower pressured by the latest UK election polls which suggest the risk of a hung parliament. The UK is expected to hold a national election on May 6th. According to a Sunday Times poll Conservatives will win 290 of the 650 parliamentary seats and labor will win 280. This poll suggests that there will be no clear majority in the UK Parliament. The lack of a parliamentary majority will greatly reduce the likelihood that the UK government will take action to reduce the UK budget deficit. UK government failure to reduce its budget deficit could lead to a downgrade of the UK sovereign debt rating. Last week the UK Telegraph reported that the UK is vulnerable to a worse deficit crisis than Greece. GBP is also pressured by concern about the UK recovery. Last week the UK reported a sharp 1.8% drop in January retail sales, a rise in jobs claimant count and weaker mortgage approvals and household spending. These reports generate concern about the strength of the UK recovery and the reports may increase pressure on the BOE to take further action to boost the economy and expand quantitative ease. GBP remains vulnerable to concern about UK debt, economic outlook and possibility of an expansion of the BOE’s quantitative ease. This week’s main focus will be Friday’s release of UK GDP. An upward revision in GDP could help to slow the rate of the GBP decline.

This week’s UK economic calendar includes the February 26th release of Q4 GDP expected at 0.2% compared to 0.1% in the prior report. January GFK survey and nationwide home prices will also be released on the 26th. The GFK is expected unchanged at -17 and house prices are expected to rise by 0.4% compared to 1.2% last month.

The technical outlook for GBP is negative as GBP trades below 1.5500. Expect near-term support at 1.5345 the February 19th low with resistance at 1.5683 the February 18th high.

CHF
CHF drifted lower pressured by a statement from SNB VP Jordan that the central bank is ready to act on excessive CHF strength. Jordan went on to say that recent CHF strength is no barrier to Swiss growth. CHF traded a new low for 2010 last week pressured by Fed rate hike speculation and report of a decline in Swiss investor confidence. CHF continues to strengthen in cross to the EUR supported by concern about EU sovereign debt risk. Last week Switzerland reported improvement in its trade balance despite strength in the CHF with exports reported to have risen by 3.2%. EUR/CHF continues to consolidate near the March lows around 1.4600. There were rumors that the SNB had intervened to try and weaken the EUR in cross trade late last week. The SNB intervention effort may not be as aggressive in light of Jordan’s comments about Swiss growth and improving Swiss trade balance. Focus turns to this week’s release of UBS consumption indicator on Tuesday, unemployment on Thursday and the main focus will be Friday’s release of the February KOF leading indicator. The consumption indicator is expected to rise to 1.23 from 1.19 last month, unemployment is expected at 3.4% and the KOF survey is expected to rise to 1.80 from 1.77 last month. Expect USD/CHF support at 1.0625 the February 11th low with resistance at 1.0955 the July 6th high.

CAD
CAD traded mixed to lower in a tight range with limited fresh news to move prices. A slight improvement in risk sentiment as equity markets rally and firmer crude prices failed to inspire interest in the CAD. There were no major Canadian economic reports scheduled for release today. CAD is consolidating near one-month high versus the USD supported by recent economic data from Canada which indicate that the domestic economy is improving. Last week Canada reported higher than expected retail sales and above expectation inflation with CPI rising close to the 2% BOC target. The BOC has pledged to maintain low yields through June of 2010 long as inflation remained in check. The next BOC policy meeting will be held on March 2nd and the trade will be looking to see if the BOC makes any adjustments and policy outlook because of the recent improvement in Canadian economic data and rising inflation.

On February 26th Q4 current account will be released expected at -8.75bln compared to -13.12bln last quarter

The technical outlook for CAD is mixed to positive as USD/CAD trades below 1.0500. Look for near-term support at 1.0350 January 19th low with resistance at 1.0580 the February 12th high.

AUD
AUD drifted lower despite improvement in risk sentiment with selling pressure attributed to report of weaker than expected Australian new vehicle sales. Australia’s January new vehicle sales declined by 3.4%. AUD has been benefiting from RBA rate hike speculation. Last week RBA Governor Stevens said that interest rates are still 50 to 100bps below average and that future policy changes will be made if the economy improves as expected. RBA Deputy Governor Lowe said that the outlook for the Australian economy is positive and he expects interest rates return to more normal levels. Lowes’ comments follow last Tuesday’s release of the RBA minutes which suggest that the RBA is considering future rate hikes. RBA watcher McCrann said that he expects the RBA to hike interest rates 200bps this year with a 25bps rate hike expected in March. AUD should remain well supported on breaks by RBA rate hike speculation and improving outlook for the global recovery.

On February 24th Q4 labor costs will be released expected unchanged at 0.7%. On February 25th Q4 capital expenditures will be released expected at -3.9% compared to 5% last month. On February 26th January private sector credit will be released expected unchanged at 0.3%.

The technical outlook for the AUD is positive as the AUD trades above 9000. Expect AUD support at 8848 the February 15th low with resistance at 9093 the January 22nd high.

Source: Easy Forex

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Posted on Monday, February 22, 2010 by admin in Financial News | Leave a Comment  
Tags: Economy, Inflation, Unemployment