USD lower, investors digest the Greek aid plan

Here are the latest Financial News:

USD: Lower, pressured by the announcement of EU/ IMF aid package for Greece, consumer sentiment rises

JPY: Lower, CPI falls for the 12th consecutive month, Nikkei closes at an 18 month high

EUR: Higher, EU and the IMF agree to a plan to support Greece, Trichet endorses the plan

GBP: Higher, Q4 business investment declines at a record pace, polls show the election race narrowing

CAD and AUD: AUD & CAD lower, pressured by selling in cross trade to the EUR

Overview
The EUR traded higher Friday supported by the announcement that the EU has agreed to a plan to support Greece with help from the IMF. The aid package will include bilateral loans from the EU and the IMF and is expected to be used as a safety net for Greece. The aid plan received an endorsement from ECB President Trichet. Trichet said that the plan is workable and that IMF involvement is no threat to ECB independence. GBP underperformed pressured by report that UK Q4 business investments declined at a record pace. Commodity currencies traded lower despite firmer equity market trade and a rebound in commodities pressured by selling in cross trade to the EUR. JPY traded lower in reaction to report that Japan’s CPI declined for the 12th consecutive month. US final Q4 GDP was revised down by 0.1%. Michigan consumer sentiment came in with a slight upward revision.

Focus turns to next Friday’s release of US March unemployment and nonfarm payrolls. The March unemployment rate is expected to hold steady at 9.7%. Nonfarm payrolls are expected to post a modest rise. Improving outlook for the US labor market may contribute to higher US bond yields and boost demand for the USD. Thursday Chairman Bernanke said the US economy is not out of the woods and the timing of an exit will be data dependent.

Today’s US data:
Final Q4 GDP came in at 5.6%, a reading of 5.7% was expected. Final March Michigan consumer sentiment came in at 73.6, a reading of 72.5 was expected

Upcoming US data:
Next week’s US economic calendar includes the March 29th release of February personal income and consumption. Personal income is expected to be unchanged at 0.1% and consumption is expected to rise by 0.3%. On March 30th January Case Shiller Home Price Index will be released expected at -3.3% compared to -3.1% last month along with March consumer confidence expected at 49.5 compared to 46 last month. On March 31st March ADP employment will be released expected at 20k compared to -20k last month. Also on March 31st March Chicago PMI and factory orders will be released. The Chicago PMI is expected at 61 compared to 62.6 last month and factory orders are expected to rise by 0.5% compared to a 1.7% rise last month. On April 1st initial claims for the week ending 3/27 will be released expected at 438k compared to 442k last week along with February construction spending, the March ISM index and March domestic auto sales. Construction spending is expected to fall by 1.1% compared to a 0.6% decline last month. The ISM index is expected unchanged at 56.5. On April 2nd the March unemployment rate and nonfarm payrolls will be released. Nonfarm payrolls are expected to rise by 168k compared to -36k last month and the unemployment rate is expected unchanged at 9.7%.

JPY
JPY traded lower pressured by report that Japan’s CPI continued to decline in February. JPY was also pressured by improving risk sentiment as the Nikkei trades at an 18 month high and by selling pressure in cross trade to the EUR. Japan’s February CPI declined by 1.2%y/y. This marked the 12th consecutive monthly decline in Japan’s CPI. The CPI report confirms that deflationary pressures continue in Japan. The CPI report is likely to increase pressure on the BOJ to ease monetary policy to try and combat deflationary pressures. The Nikkei closed 168 points higher. Firmer equity market trade contributes to improving risk appetite and reduces safe haven demand for the JPY.EUR/JPY traded close to 1% higher with the EUR supported by the announcement that the EU has agreed to a plan to support Greece with help from the IMF. JPY is trading at a two-month low versus the USD pressured by widening yield gap with the US and concern about Japan’s budget outlook. US bond yields are trading near their highest level since last July. US bond yields are rising in response to weak demand and increasing supply pressures. Last week the BOJ eased monetary policy and increased its funding operations from ¥10trln from ¥20trln. In light of the recent easing of monetary policy by the BOJ and spike in US bond yields, yield differential is moving in favor of the USD. The widening of the US and Japanese yield gap makes the USD less attractive as a funding currency. Yield differential is emerging as a key driver for JPY trade. Japan announced a record $1trln budget for next fiscal year. The budget includes a record ¥44.3trln in new bond issues. The sharp increase in Japan’s bond issuance and budget deficit increases the risk that Japan will face a downgrade of its debt rating. Focus turns to next week’s release of Japan’s tankan business sentiment survey and US March unemployment report.

Next week’s Japanese economic calendar includes the March 29th release of February household spending, retail sales, unemployment and industrial output. The household spending is expected to rise by 1.4% compared to 1.7% last month. Unemployment is expected to rise by 0.1% to 5% from 4.9% last month. Retail sales are expected to fall by 1.8% compared to a 2.9% rise last month and housing starts are expected to rise by 2% compared to 5.4% rise last month. On March 31st February construction orders will be released expected 9.1% compared to 15.7% last month. On April 1st March tankan survey will be released expected -16 compared to -24 last month with CAPEX spending expected -11.5% and -13.8% last quarter.

Key technical levels to watch in USD/JPY include support at 91.75 the March 25th low with resistance at 93.80 the January 8th high.

EUR
EUR traded higher rebounding from a 10 month low versus the USD supported by short covering sparked the announcement that the EU has agreed to a plan to support Greece with help from the IMF. The details of the plan remain a bit sketchy but the bottom line is that the EU and IMF will provide a safety net for Greece should Greece find itself on the verge of a debt default. ECB President for Trichet initially said the plan was very bad. Friday Trichet reversed himself and endorsed the plan. Trichet said the plan is workable and that IMF involvement is no threat to ECB independence. The announcement that the EU and the IMF will team up to aid Greece may offer temporary relief for the EU but investors will be waiting to see how upcoming Greek bond auctions are received to determine whether there’s been any change in sentiment about the Greek fiscal outlook in light of today’s announcement of an aid plan for Greece. In addition, the EU also will face sovereign debt risks in other peripheral European nations including Spain, Portugal and Ireland. The EUR rebound may be short-lived as today’s announcement of an aid plan for Greece will do little to reduce the risk to the EU recovery from EU sovereign debt risks. Focus may shift from Greek worries to yield and growth differential. The Wall Street Journal Thursday notes that the EUR has been pressured by the Greek crisis and the EUR may experience additional selling pressure with the USD supported by the recovery in the US economy and rising US bond yields.

Next week’s EU economic calendar includes the March 29th release of March business climate expected at -0.96 compared to-0.98 last month along with German March CPI expected unchanged at 0.4%. On March 31st, German March unemployment will be released expected unchanged at 8.2% along with EU HICP for March expected at 1% compared to 0.9% last month. On April 1st EU March manufacturing PMI will be released expected 54.2.

The technical outlook for the EUR is negative as EUR trades below 1.3400. Expect EUR support at 1.3284 the March 25th low with resistance at 1.3485 the March 24th high.

GBP
GBP traded higher with gains limited by selling in cross trade to the EUR and in reaction to report that UK Q4 business investment declined at a record pace. EUR/GBP rallied with the EUR supported by today’s announcement that the EU and the IMF will team up to the aid Greece. UK Q4 revised business investment declined by 4.3%. Weaker business investment may encourage the BOE to consider expanding quantitative ease. GBP remains vulnerable to UK government debt and election uncertainty. Wednesday UK Chancellor Darling released the pre-election budget. The budget included some optimistic projections that the UK budget deficit will gradually decline and a reduction in the government’s 2011 GDP forecast. The budget announcement did little to dampen concern about the risk of a downgrade of UK AAA debt rating. The Fitch rating agency said that the UK budget did not change their view on the UK debt. Ratings agencies have indicated that if the UK does not take credible action to reduce the deficit the UK could see a downgrade in its sovereign debt rating. The upcoming May 6th general election will be key to the outlook for the UK budget deficit. UK election polls show that the race is tightening with the Conservatives lead over Labor at just 2%.The narrowing of the Conservative party’s lead may mean that neither party will gain a significant enough majority in parliament and that the UK may be facing a hung parliament. A hung parliament is unlikely to take quick action to reduce the deficit.

Next week’s UK economic calendar includes the March 29th release of February consumer credit expected at 0.9bln compared to 0.5bln along with February money supply expected at 0.3% compared to 0.2% last month and February mortgage applications expected at 48k. February mortgage lending will also be released on March 29th expected at 1.35bln compared to 1.52bln last month. On April 1st March CIPS manufacturing PMI will be released expected at 56.8 compared to 56.6 last month.

The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.4781 the March 1st low with resistance at 1.5038 the March 24th high.

CAD
CAD traded lower despite firmer equities and higher commodity prices. CAD was pressured by selling in cross trade to the EUR.EUR/CAD traded higher in reaction to the announcement of an EU/IMF aid plan for Greece. CAD is expected to remain well supported on breaks by speculation that the BOC may hike interest rates as early as June and in reaction to the improving Canadian domestic economy. CAD traded higher Thursday supported by hawkish comments from BOC Governor Carney. Carney said that the Canadian recovery was faster than expected and he suggested that he was open to consideration of possible rate hike as early as June 1st. The BOC has pledged to maintain low yields through June of 2010 conditional on inflation remaining in check. Canada’s core inflation rate rose to its highest level in 16 months. 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. Carney suggested that the higher than expected inflation was result of transitory factors and underlying economic strength. He went on to state that BOC plan to hold interest rates low was conditional. CAD has been outperforming supported by improving Canadian domestic economic outlook and speculation that rising Canadian inflation will encourage the BOC to make an earlier rate hike. CAD should remain well supported on breaks by speculation that the BOC will hike rates before the Fed. Focus turns to next week’s release of Canada’s GDP. Trade will be looking to the GDP for confirmation that the Canadian recovery is gaining momentum.

Next week’s Canadian economic calendar includes the March 30th release of February IPPI and RMPI. On March 31st January GDP will be released.

The technical outlook for CAD is positive as USD/CAD trades below 1.0100. Look for near-term support at 1.0170 the March 25th low with resistance at 1.0323 the March 11th high.

AUD
AUD traded lower despite hawkish rhetoric from the RBA Governor Stevens. AUD decline is attributed to selling pressure in cross to the EUR sparked by news of an EU/IMF deal to create a safety net for Greece. RBA Governor Stevens said that he sees stronger growth in Asia. His comments follow a statement from the RBA assistant governor Lowe Thursday that interest rates will continue to rise towards normal and that waiting for improving global outlook to raise rates would be too late. The Stevens and Lowe comments increase the odds that the RBA will hike interest rates at the April policy meeting. Although AUD has been relatively stable the AUD has failed to gain much upside momentum from fresh RBA rate hike speculation. Rising US bond yields and threat of additional tightening in China offset the impact of RBA rate hike speculation. The RBA is seen as moving closer to the end of its tightening cycle and the US and China are in the early stages of withdrawing liquidity. In addition there is uncertainty about the outlook for RBA policy. The trade is debating whether the RBA will pause in its rate hike cycle next month. Arguments in favor of an RBA pause include tightening of credit conditions in China and uncertainty about the threat of a US China trade war. Arguments in favor of an RBA rate hike include recent Australian data that confirm to the domestic economy is strengthening and if the RBA delays normalization of monetary policy it could risk the creation of speculative bubbles in real estate and other markets. The RBA is expected to hike rates from the current 4% level to 5% by year-end. Focus may begin to shift away from Greece to US China tensions and rising US bond yields. AUD appears to be carving out a short-term top.

Next week’s Australian economic calendar includes the March 31st release of February building approvals expected at 3.5% compared to -7% last month along with February retail sales expected at 0.8% compared to 1.2% last month and February private sector credit expected unchanged at 0.4%. On April 1st February trade balance will be released expected at -1.63bln compared to -1.18bln last month. Next RBA policy meeting will be held on April 6th.

The technical outlook for the AUD is mixed as the AUD holds above 9000. Expect AUD support at 8985 the March 5th low with resistance at 9116 the March 26th high.

Source: Easy Forex

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Posted on Sunday, March 28, 2010 by admin in Financial News | Leave a Comment  
Tags: Commodities