USD higher, OECD says G-7 growth to slow in short term

Here are the latest Financial News:

• USD: Higher, growth slows in Europe, Greek debt troubles, stocks slide
• JPY: Mixed, BOJ held rate policy steady, leaves economic assessment unchanged
• EUR: Lower, Q4 GDP revised lower, cost of financing Greek debt rises
• GBP: Lower, service PMI disappoints, election uncertainty
• CAD and AUD: AUD & CAD mixed, RBA not in a hurry to hike rates again, OECD expects slower G-7 growth

Overview
USD traded higher Wednesday with the EUR pressured by Greek debt woes and in reaction to a downward revision in EU Q4 GDP. The cost to finance Greek debt continues to rise generating fear that the EU/IMF aid plan for Greece will fail. GBP was pressured by report of weaker UK service PMI and UK election uncertainty. Commodity currencies were mixed with AUD gains limited by a statement from RBA watcher McCrann that the RBA will not be in a hurry to raise rates further. CAD traded mixed as the price of crude drops and gold rises to a two-month high. Commodity currencies continue to outperform supported by optimism about the strength of the Asian economic recovery. The World Bank upgraded its GDP forecast for developing Asia and China. Concern about the recovery in the G-7 nation’s pressured stocks and supports the USD as the OECD says it expects a short term slow down in G-7 nations growth. JPY traded mixed initially pressured by the BOJ decision to hold rate policy steady and leave its economic assessment unchanged. Focus turns to BOE and ECB meetings Thursday. The ECB and BOE are expected to remain on hold.

Today’s US data:
February consumer credit will be released after this report is posted.

Upcoming US data:
On April 7th February consumer credit will be released expected 2.8bln compared to 5bln last month. On April 8th initial jobless claims for week ending 04/03 will be released expected at 432k compared to 439k last week. On April 9th March wholesale inventories and sales will be released. Wholesale inventories are expected to rise by 0.3% compared to -0.2% last month. Wholesale sales are expected to rise by 0.1% compared to 1.3% last month.

JPY
JPY traded mixed Wednesday supported by gains in cross trade and in reaction to weaker equity market trade. JPY gains were limited by BOJ decision to hold policy steady and maintain its current economic assessment. European and US equities traded lower in reaction to an OECD report that G-7 short term growth is expected to slow. JPY gains versus Europe are attributed to a report of a downward revision of EU Q4 GDP and disappointing UK service PMI. The BOJ elected to hold policy steady and kept its economic assessment unchanged. In its policy statement the BOJ said it expects the economy to pick up, noted the improvement in business sentiment and pledged to maintain accommodative policy. The BOJ reaffirmed its commitment to combat deflationary pressures in Japan. BOJ Governor Shirakawa said that he sees some signs of sustainable economic recovery. Shirakawa’s comments are unlikely to prevent Japanese government pressure for additional BOJ policy ease. The BOJ is likely to come under renewed pressure from the Japanese government to ease if deflationary pressures continue and the JPY strengthens. The only economic data released in Japan today was report that March foreign reserves rose to ¥1.045trln.

On April 8th February current account will be released expected at ¥1.62trln compared to ¥0.90. On April 9th February machinery orders will be released expected at 3.7% compared to -3.7% last month.

Key technical levels to watch in USD/JPY include support at 93.28 the April 1st low with resistance at 94.78 the April 5th high.

EUR
EUR traded lower pressured by Greek debt concern and in reaction to report that EU growth ground to a halt in Q4.The cost of financing Greek debt continues to rise on investor uncertainty about whether the EU/IMF plan to aid Greece will work. There was a report Tuesday that Greece may seek to amend the aid plan and bypass the IMF because the IMF loan conditions are too stringent. The OECD says it is confident that Greece can deal with the debt crisis. The OECD statement had limited impact and the EUR traded lower. The Greek PM says that EU support deal is a great success. His comments may have helped limit the EUR downside. EU Q4 GDP was revised down by 0.1% to flat. German industrial orders were flat. Although EU Q1 growth is improving, the ECB is not expected to change policy because of Greek debt troubles and the uneven nature of the EU recovery. Report that March service PMI improved to 54.1 from 51.8 last month had limited impact on today’s EUR trade. February PPI rose by 0.1%. EUR remains vulnerable to skepticism about the efficacy of the Greek aid plan and steady ECB policy. Focus turns to ECB policy meeting Thursday. No policy change is expected.

On April 8th EU February retail sales will be released expected at -0.2% compared to -1.3% last month along with February German industrial production and trade balance. The German industrial production is expected to rise by 0.7% and the trade balance is expected to narrow to 8bln from 8.7bln last month. ECB meet on April 8th .No policy change is expected.

The technical outlook for the EUR is negative as EUR trades below 1.3500. Expect EUR support at 1.3267 the March 25th low with resistance at 1.3467 the April 6th high.

GBP
GBP traded lower pressured by a disappointing UK service PMI and election uncertainty. UK March service PMI dropped to 56.5 compared to 58.4 last month, a reading of 58 was expected. Service sector output declined by 0.7%. The service sector is the largest sector accounting for 70% of the UK economy. The decline in the service PMI suggests that the UK recovery may be slowing. Despite the weaker growth outlook the BOE is expected to maintain steady policy ahead of the May 6th general election. The latest UK election polls point to increased risk of a hung parliament with neither the Conservative nor the Labor party gaining a majority. The Conservatives lead is down 8 points from 10. A hung parliament will reduce the potential for quick action from the UK to reduce the government deficit. Failure to reduce the UK budget deficit could lead to a downgrade of the UK AAA sovereign debt rating. Focus turns to Thursday’s BOE policy meeting. The BOE is unlikely to make any significant policy changes that could rock the boat before the UK election. Investors will be closely monitoring whether the BOE leaves the door open for future asset purchases or signals that improvement in the economy will reduce the need for more asset purchases by the BOE. The former appears to be the most likely outcome from Thursday’s BOE policy meeting. GBP may weaken in reaction to a dovish BOE policy bias.

On April 8th February industrial production will be released expected at -0.1%compared to -0.4% last month. BOE meet on April 8th.No policy change is expected. On April 10th March PPI will be released expected at 0.5% % compared to 0.3′% last month.

The technical outlook for GBP is mixed as GBP traded below 1.5200. Expect near-term support at 1.5043 the March 31st low with resistance at 1.5320 the April 5th high.

CAD
CAD traded mixed to higher supported by demand in cross trade to the EUR and in reaction to the World Bank upgrade of its developing Asia and China GDP forecast. The World Bank raised its developing Asia GDP forecast to 8.7% from 7.8% and China forecast to 9.5% from 8.7%.The OECD however says it expects short term G-7 growth to slow. Interesting to note the difference in today’s OECD forecast that the G-7 nation’s growth is likely to slow in contrast to the World Bank’s forecast of stronger growth in developing Asia and China. The growth led currencies like the CAD continue to outperform supported by optimism about demand for exports from Asia. Asia continues to lead the global recovery. There was a similar contrast to price action in commodities today with gold prices surging and crude prices weaker. Gold traded at two month high. Crude prices declined by 1%. CAD direction is closely correlated to the price of crude. The divergence in the price action in gold and crude contributes to range trade for CAD. Canada’s economic data was mixed with February building permits reported to have declined by 0.5%, the trade expected a 1.9% rise. March Ivey PMI came in at 57.8, a reading of 57 was expected. CAD traded at parity to the USD for the first time since July 2008 Tuesday supported by rising price of crude and BOC rate hike speculation. The combination of improving Canadian domestic economy and rising Canadian inflation generates speculation that the BOC will hike interest rates ahead of the Fed. According to a Bloomberg survey the BOC is expected to raise its overnight rate by 2 percentage points to 2.25% by the middle of 2011. Focus turns to this Friday’s release of Canadian unemployment. Canada is expected to have created over 25k new jobs last month. This would mark the third straight month of job creation in Canada. A strong Canadian employment report will add additional fuel to BOC rate hike speculation.

On April 9th March unemployment rate and employment growth will be released. The unemployment rate is expected to fall by 0.1% to 8.1% with employment growth at 29K compared to 20.9k last month.

The technical outlook for CAD is positive as USD/CAD trades below 1.0000. Look for near-term support at 0.9975 the July 15th low with resistance at 1.0230 the March 30th high.

AUD
AUD traded mixed consolidating near a 19 month high versus the USD.AUD traded at a 19 month high versus the USD Tuesday supported by report that the RBA hiked rates 25 basis points to 4.25%.The RBA left the door open for future rate hikes. AUD was also supported by report that March vehicle sales rose by a record amount of 15.2% and March PSI rose by 0.1 to 48.4. AUD gains were limited by comments from RBA watcher McCrann. The McCrann said that the RBA will be in no rush to hike rates further. McCrann went on to say that the RBA will eventually move towards normality in monetary policy. The normal average for Australian overnight rate is seen at 4.25% to 5%. As noted above, the World Bank upgraded its forecast for developing Asia and China GDP. Stronger GDP outlook in developing Asia and China is positive for Australian exports and the AUD. PIMCO management company says that it favors the growth linked currencies like the AUD because of attractive yields and anticipation of slower growth in the US and Europe. The OECD said that it expects short-term growth to slow in the G7 nations. According to a Bloomberg report investors are the most bullish the AUD since 2000.Focus turns to Thursday’s Australian unemployment report.

On April 8th March employment will be released expected unchanged at 5.3% with employment growth expected at 30k compared to 20k last month.

The technical outlook for the AUD is positive as the AUD rallies above 9200. Expect AUD support at 9165 the April 6th low with resistance at 9378 the November 17th high.

Source: Easy Forex

My recommended Forex Broker is Forex Yard.

Posted on Wednesday, April 7, 2010 by admin in Financial News | Leave a Comment  
Tags: Forex, Unemployment