• USD: Higher, concern about EU debt contagion, China slowdown, productivity slows, jobless claims drop
• JPY: Higher, supported by a spike in risk aversion as Asian equities tank
• EUR: Lower, fear of Greek contagion risk, ECB leaves rates policy unchanged, EUR/CHF tumbles
• GBP: Lower, services PMI dips, election uncertainty
• CAD and AUD: AUD & CAD lower, Australian retail sales growth slows, Shanghai index falls 4%

Overview
The dollar index traded at a new high for the year and the USD traded at a 14 month high versus the EUR supported by concern that the EU may not be able to contain the Greek debt crisis and in reaction to fear that tightening in China has slowed the Chinese economy. The Greek prime minister said that taking bailout money from the EU/IMF is Greece’s only hope to avoid a debt default. Rioting and strikes continue throughout Greece in protest of Greece’s plan to impose harsh austerity measures in return for the bailout funds. EUR was also pressured by a heavy selling of the EUR/CHF cross with the CHF  trading at a record high versus the EUR in reaction to report that the SNB pulled its intervention support bid for the EUR. EUR extended its decline after the announcement that the ECB left monetary policy unchanged. EUR staged a modest recovery in reaction to statement from ECB President Trichet that a Greek default is out of the question. Trichet also said that the ECB is not considering buying sovereign debt. EUR was back on the defensive as US stocks tank. GBP traded lower pressured by report of weaker than expected UK services PMI and UK election uncertainty. The UK election is being held today and is expected to result in a hung parliament. Asian equities traded sharply lower with the Shanghai index falling by 4%. The decline in the Shanghai index reflects concern that the Chinese economy is slowing. The decline in Asian equities contributes to risk aversion and fueled selling of commodity currencies. AUD traded lower in reaction to report of weaker than expected Australian retail sales. The CAD was pressured by report of a modest dip in Canada small business confidence with downside limited by report of the surge in Canadian building permits. JPY traded higher supported by safe haven flows and rising risk aversion. US economic data was mixed. Jobless claims declined by slightly less than market expectation.Q1 productivity slowed but came in above expectation and unit labor costs dropped by more than expected. Focus turns to Friday’s release of US April nonfarm payrolls and unemployment rate. Nonfarm payrolls are expected to post a strong rise with the unemployment rate expected unchanged at 9.7%. The Fed’s Bullard said he expects positive US Jobs growth through the summer. The Fed’s Lacker said he sees a durable recovery and that it is best for the Fed to normalize the balance sheet before hiking interest rates. He warned about complacency on inflation.

Today’s US data:
Initial jobless claims for week ending 05/01 dropped by 7k to 444k, a reading of 442k was expected. Q1 productivity rose by 3.6%, a 2.7% rise was expected. Q1 unit labor costs declined by 1.6%, a 1.1% decline was expected.

Upcoming US data:
On May 7th April nonfarm payrolls and unemployment will be released. Nonfarm payrolls are expected to rise by 190k compared to 162k last month with the unemployment rate unchanged at 9.7%. March consumer credit will also be released on May 7th expected at -2.35bln compared to -11.51bln last.

JPY
Japanese markets reopened for the first time in three days and the Nikkei dropped 3%. JPY  traded sharply higher supported by risk aversion as equity markets continue to decline in reaction to concerns about contagion risk from the Greek debt crisis. JPY was also supported by significant gains in cross trade to Europe and commodity currencies. EUR/JPY traded close to 2% lower with EUR pressured by concern that the EU has not taken enough steps to contain the Greek debt crisis. AUD/JPY traded 2% lower as investors continue deleveraging positions in equity and commodity markets because of fear the Greek debt crisis may be spreading. It’s interesting that the recent strength of the JPY has not sparked threats of intervention from Japan. A Japanese government panel recently called for the BOJ set an inflation target and targets for the JPY. Stronger JPY contributes to deflationary pressures and could slow the recent rebound in Japan’s export sales. JPY direction is expected to trade inversely to equities and risk sentiment.

On May 6th Japan’s April vehicle sales will be released.

Key technical levels to watch in USD/JPY include support at 92.40 the April 20th low with resistance at 93.98 the May 6th high.

EUR
EUR traded at a 14 month low versus the USD pressured by ongoing worries about the Greek debt crisis and heavy selling in cross trade to the CHF. For months the SNB has intervened and threatened to intervene in support of the EUR/CHF cross. The CHF has been in demand from investors seeking safety from the Greek debt crisis. SNB officials fear that appreciation of the CHF would contribute to deflationary pressures in Switzerland. The SNB has been accumulating large amounts in EUR during its intervention and today’s decision to pull this bid may partly reflect the SNB’s decision  that it’s becoming too costly to hold so many EUR’s with the EUR declining every day. Reassuring statements from EU officials failed to support the EUR. EU commission head Barrosso said that he is certain that all European countries will approve the Greek aid package. EU’s Banier said that he does not fear the risk of contagion from Greece. The ECB left interest rates unchanged at 1%. The EUR dropped to a fresh low for the trading session in reaction to the ECB’s decision to hold rates policy steady as the ECB provided no new measures to combat the fallout from the Greek crisis. In the press conference following the ECB rate decision ECB president Trichet said that rates are appropriate, inflation expectations remain well anchored, the economic recovery may be uneven at times but he expects the economy to strengthen in the spring and risk to this outlook is broadly balanced. He went on to say that concerns remain about financial market stress. In the Q&A Trichet said that the ECB did not discuss buying EU bonds or additional quantitative easing measures. Today’s EU economic data continues to point towards firming of the recovery. German March manufacturing orders rose by 0.5%. EUR experienced a bit of stability above 1.27 after S&P announced that it was reaffirming its outlook for the Italian debt outlook as stable and  EU officials have been critical of the credit rating agencies complaining that some of the recent credit downgrades were unwarranted and exacerbate the EU sovereign debt crisis. EUR tried to stage a recovery rally in reaction to a statement from Trichet that Greek default was out of the question.  EUR remains vulnerable to fear of contagion debt risk in Europe. The Greek parliament is expected to vote on the aid package today. The Greek PM said that without the aid package there is no way that Greece could avoid default. The Greek parliament passed the austerity bill.

The technical outlook for the EUR is negative as EUR breaks 1.2800. Expect EUR support at 1.2616 the March 11th 2009 low with resistance at 1.2857 the May 6th high.

GBP
GBP traded lower pressured by disappointing UK service sector PMI report and UK election uncertainty. UK April services PMI declined to 55.3 from 56.5 last month. The unexpected decline in UK services PMI may spark concern about the strength of the UK recovery. Wednesday the UK reported that construction PMI rose to its highest level in 32 months. Today’s modest decline in services PMI should not generate too much concern about the UK recovery as recent UK data including yesterday’s construction PMI point to strengthening of the recovery and rising inflationary pressures. The UK election is taking place today and there is fear that the election will result in a hung parliament for the first time since 1974. A hung parliament may make it difficult for the UK addresses its record budget deficit. Failure to take quick action to tackle the UK budget deficit could result in downgrade UK AAA debt rating. GBP downside is currently limited by significant gains in cross trade to the EUR as investors flee the EUR because of concern that the sovereign debt risk in the EU is spreading. Investors have become more comfortable with the idea that no matter what the result of the UK election the members of the UK parliament know that it must take action to reduce the deficit. UK election outcome has become less of a negative for the GBP.

UK national election will be held on May 6th. On May 7th April PPI will be released expected at 3.8% compared to 3.6% last month. The BOE policy meeting will be delayed until May 10th because of the UK election.

The technical outlook for GBP is mixed as GBP struggles to hold above 1.5200. Expect near-term support at 1.4893 the March 29th low with resistance at 1.5265 the May 4th high.

CAD
CAD traded lower pressured by a spike in risk aversion, and weaker equity and commodity markets. CAD downside was limited by a strong Canadian builders permit report. Fear of a debt contagion from the Greek fiscal crisis has encouraged investors to the de-leverage positions in growth led and commodity-based currencies. Crude oil prices dropped below $80 a barrel Thursday. Fear that growth is slowing in China contributes to selling pressure of commodities. Sunday, China hiked its bank reserve ratio by 50bps for third time this year and Monday China reported a slowing in its manufacturing sector. The Shanghai index dropped 4% Thursday on concern about slowing growth in China. Canada’s building permits surged 12.2% in March, a 0.9% rise was expected. Strong Canadian housing data was offset by Greek debt contagion fear and report of a dip in Canadian small business confidence. Canada’s small business confidence declined to 66.4 from 69.9 last month. April Ivey PMI came in above expectations at 58.7 compared to 57.8 last month, a reading of 56.8 was expected. There was limited reaction to a statement from Canada’s Finance Minister Flaherty that he does not think the Greek crisis is a direct threat Canada but he fears it will hurt other countries. If the Greek debt contagion spreads to other countries it could eventually slow the global recovery and hurt the outlook for Canadian export sales. Focus turns to Friday’s release of US and Canadian employment data. Investors will be looking closely at the employment growth component of the Canadian report for clues to the strength of the recovery and to gauge the possible risk of an earlier BOC rate hike.

On May 7th April unemployment and employment growth will be released. The unemployment rate is expected at 8.1% compared to 8.2% last month with employment growth at 25k compared to 17.9k last month.

The technical outlook for CAD is negative as USD/CAD trades above 1.0200. Look for near-term support at 1.0232 the May 5th low with resistance at 1.0408 May 6th high.

AUD
AUD traded lower pressured by declining equity and commodity markets and rising risk aversion sparked by fears of debt contagion risk in Europe and slowing growth in China. Investors are liquidating holdings of stocks, commodities and high-yield currencies because of lack of confidence that EU officials can contain the spread of the Greek fiscal crisis. AUD is also weakening in reaction to concern about slower growth in China and speculation that the RBA will pause its tightening cycle. China reported that manufacturing growth slowed in March. The Shanghai index declined by 4% Thursday. China is a major export destination for Australia and slowing growth in China could hurt the Australian recovery. AUD was also pressured by report of weaker than expected Australian retail sales. Australia’s Q1 retail sales rose by 0.1%, a 0.8% rise was expected. Australia’s March trade balance narrowed -2.08bln from -2.2bln last month. The RBA hiked interest rates 25bps to 4.25% Tuesday. In a statement following the RBA rate hike, RBA Governor Stevens suggests that Australian interest rates were near the average. This statement by Stevens suggests that the RBA is considering a pause in its rate hike cycle. AUD direction is expected to continue to track equities and commodities. AUD remains vulnerable to diminished RBA rate hike speculation.

On May 7th Australia is monetary policy report would be released.

The technical outlook for the AUD is negative as the AUD breaks below 9100. Expect AUD support at 8935 the March 1st low with resistance at 9118 the May 5th high.

Source: Easy Forex

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On Tuesday, March 23rd UK February CPI will be released. The February CPI is expected at 0.5% compared to -0.2% last month. On an annualized basis UK February CPI is expected to fall to 3.1% from 3.5% last month. Despite a likely deceleration of the UK annual rate of inflation in February the inflation rate will remain above the 3% upper limit of the BOE’s inflation target. The recent rebound in GBP and rally back above 1.50 is attributed to rising UK inflation expectations, improvement in the UK labor market and diminished speculation that the BOE would extend quantitative ease. In January, UK inflation accelerated at its fastest pace in 14 months.UK February claimant count dropped by 32.3k, an 8.2k rise was expected. The February BOE policy minutes state that some board members are becoming more concerned about inflation. The BOE policy minutes state that UK CPI will remain above target in the months ahead and that there is a risk that the public’s expectations of inflation may begin to rise. The BOE inflation target is 2%. UK CPI rose to 3.5% in January. The rise in UK CPI and uncertain fiscal outlook complicates the outlook for BOE policy.

In February the BOE voted unanimously to hold rate policy unchanged at 0.5% and maintain the current level of asset purchases at £200bln. BOE officials see a mixed outlook for the UK recovery. BOE Governor King said he expects a gradual UK economic recovery. The BOE’s Sentance said he sees the risk of a double dip recession in the UK. Sentance’s statement and the mixed outlook for the UK recovery encourages speculation that the BOE may be forced expand quantitative ease. The CBI warns that the UK faces a slow and sluggish recovery. The outlook for the UK recovery is clouded by UK fiscal outlook and election uncertainty. Ratings agencies have placed the UK on notice that the UK AAA sovereign debt rating is at risk of downgrade if the government does not take credible action soon to reduce its deficit.UK net public borrowing rose by 12.4bln in February.  The UK is expected to hold a general election on May 6th. The election is seen as critical to the outlook for the UK budget deficit. The Conservative Party has pledged to take quick action to reduce the deficit. The leader of the Labor Party Brown says he is concerned that rapid action on the deficit could hurt the UK recovery. A number of UK election polls suggest that the UK election may end in a hung parliament. A hung parliament would make it difficult to gain a parliamentary consensus on budget deficit reduction. The latest UK election polls suggest that the Conservatives may gain a parliamentary majority. A Conservative majority could reduce the risk of a near-term downgrade of UK debt rating and may contribute to additional pressure on the BOE to consider expanding quantitative ease. Further expansion of quantitative ease would be a negative for the GBP.

The debate is whether rising UK inflation risk will encourage the BOE to maintain steady policy or the uncertain outlook for the UK recovery and budget will encourage the BOE to expand quantitative ease. BOE officials indicate that CPI will guide decision on monetary policy and whether to expand asset purchases or withdraw stimulus. A higher than expected CPI report Tuesday could be a mild positive for the GBP as the data could dampen BOE ease speculation.  Despite the acceleration of UK inflation in January the BOE expects inflation to fall below 2% target over the next two years.

Ahead of the May 6th UK general election the BOE is likely to leave policy unchanged. The election result may have a greater bearing on BOE policy going forward. If the UK election produces a strong enough majority in parliament that will allow conservatives to take action to reduce the budget deficit the BOE will have to take the budget outlook into the calculus for its monetary policy. The major concern is that pressure to reduce UK budget deficit could be a drag on the UK recovery. If credible reduction of UK fiscal spending emerges the BOE may have to maintain a bias towards quantitative ease despite rising inflation expectations.

Source: Easy Forex

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UK GDP
Recent UK economic data has been mixed with the jobs claimant count posting an unexpected rise last month and mortgage lending declined to its lowest level since last July. These reports generate uncertainty about the strength of the UK recovery and have prompted a number of BOE officials including the BOE Governor King to state that quantitative ease may be extended if needed. GBP has been underperforming pressured by speculation that the BOE may be forced to expand quantitative ease. As the UK economy appears to be struggling UK inflation has been rising with January inflation approaching the high end of the BOE’s inflation target range. UK January was reported to have risen by 2.9%. Slowing of the UK recovery and the rise of UK inflation complicates the outlook for BOE policy. The BOE’s Tucker said that the BOE must monitor the rise in inflation and he warned that if stimulus is withdrawn to slowly it could increase the risk of inflation in the UK. On Friday February 26th UK revised Q4 GDP will be released. This report will be key to investor perception of the strength of the UK recovery and the outlook for BOE policy. The initial UK Q4 GDP release showed that the UK economy barely pulled out of recession with Q4 GDP reported to have risen by just 0.1%. The trade had expected UK Q4 GDP to have risen by 0.4%. Improvement in the GDP report was primarily fueled by a modest gain in the service sector along with improvements in auto and retail sales. UK GDP growth is constricted by continued tight credit market conditions, weak labor market and high household debt. The revised UK Q4 GDP is expected to come in slightly better at 0.2%. An upward revision in UK GDP could help to slow the rate of the GBP decline and dampen fears that the BOE will soon expand quantitative ease.

US GDP
Recent US economic has been disappointing with consumer confidence posting a sharp decline,   jobless claims rising more than expected and January new home sales declined by a record 11.2% in January. US consumer confidence fell to a 10 month low in February and nonfarm payrolls growth has yet to turn positive. These reports generate concern that the sharp improvement in US Q4 GDP growth may not be sustainable as high unemployment and tight credit conditions limit US consumer demand. US Q4 GDP was reported at 5.7%. The Q4 GDP report helped to fuel speculation that the US economy is growing faster than expected and that the recovery will be stronger. Most of the Q4 growth was due to inventory rebuilding and the impact of government spending and incentive plans like the cash for clunkers, tax credit for first-time homebuyers. The restocking of inventories added 3.39 points to Q4 GDP. Without the rebuilding of inventory the US economy grew by just 2.3% in the fourth quarter. Consumer spending however slowed in Q4. 70% of US GDP is made up of consumer spending.  Consumer spending is needed to fuel GDP growth along with private investment spending. The Fed raised the discount rate 25bps points to 0.75% last week. There is uncertainty about whether the discount rate hike sets the stage for earlier tightening by the Fed. US Q4 preliminary GDP will be released on Friday, February 26th. Analysts are split on whether the Q4 GDP will be revised down slightly because of weaker consumer spending or revised slightly higher supported by the adjustment of low inventories. In testimony before Congress on Wednesday Fed Chairman Bernanke said that the US recovery is not yet self-sustaining and that interest rates will remain low for extended. Any change in Fed policy will be determined by economic data. The timing of the Fed’s withdrawal of stimulus will be key to US GDP outlook. The GDP report will be key to the Fed’s policy outlook. The consensus is the US Q4 GDP will be revised to 5.6%. This would confirm the strongest US quarterly GDP growth in over three years and the report may fuel Fed rate hike speculation.

Source: Easy Forex

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• USD: Higher, house prices fall less than expected, consumer confidence falls sharply, stocks decline
• JPY: Higher, supported by spike in risk aversion and gains in cross trade
• EUR: Lower, IFO unexpectedly declines, German growth may have contracted in Q1, Greek bank downgrade
• GBP: Lower, weak mortgage approvals, BOE’s King says QE may be expanded
• CAD and AUD: AUD & CAD lower, crude oil prices drop, hawkish comments from the RBA deputy governor

Overview
The USD traded higher Tuesday in reaction to weaker economic data from Europe and a sharp drop in US consumer confidence. The EUR was pressured by report of an unexpected drop in German IFO and ongoing concern about the outlook for sovereign debt risk in Greece. EUR was also pressured by report that Fitch has downgraded Greek banks. GBP was pressured by report of weaker than expected UK mortgage lending and comments from a number of BOE officials which suggest that the BOE may have to expand quantitative ease if the UK economic outlook weakens. There was active trade in the EUR/CHF cross with the CHF trading near two week low versus the EUR pressured by rumors of SNB intervention. Commodity currencies traded lower in reaction to a sharp drop in the price of crude and weaker equity market trade. AUD downside was limited by hawkish comments from the RBA deputy governor that strong AUD is helping contain inflation. US economic data was mixed with the Case Shiller home price index coming in near market expectation and consumer confidence posted a sharp decline. USD and JPY rallied to the day’s highs after the release of the weak US consumer confidence supported by weaker equity market trade and a spike in risk aversion. Focus turns to Fed Chairman Bernanke’s testimony before Congress Wednesday and the release of US home sales. The trade expects Bernanke to downplay the risk of an imminent tightening by the Fed. Late Monday the Fed’s Yellen said the US economy still needs low interest rates. New home sales are expected to post a modest gain.

Today’s US data:
December case Shiller HPI came in at -3.1%, a reading of -3.8% was expected. February consumer confidence declined to 46 from 56.5 in January, a reading of 56 was expected.

Upcoming US data:
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 sharply higher supported by concern over Greece, speculation that US interest rates will remain low and by Yuan revaluation speculation. JPY rallied in cross trade to Europe supported by spike in risk aversion as the EU has yet to confirm a plan to aid Greece and in reaction to weaker than expected economic data from Europe and the US.  German IFO posted an unexpected decline and UK mortgage approvals came in weaker than expected. Fed Chairman Bernanke will testify before Congress Wednesday. The trade expects Bernanke to downplay the risk of an imminent tightening by the Fed. Last week the Fed surprised the markets and hiked the discount rate by 25bps. Fed officials indicated that the rate hike was technical. Investors will be monitoring Bernanke’s testimony for his explanation of why the Fed hiked the discount rate. Pimco’s EL-Erian joins the recent chorus of a number of analysts predicting that China will soon allow Yuan appreciation. JPY sometimes benefits as a proxy for Yuan revaluation. There was limited reaction to the release of the BOJ policy minutes for January 25th-26th meeting. The minutes state that the economic outlook in Japan was more balanced but weak consumption points to a slow recovery. The government’s overall economic assessment for last month was unchanged but the government expressed concern about deflation and worsening employment outlook in Japan. JPY price direction appears to have re-linked with risk sentiment. JPY traded to the day’s highs after the release of a sharp drop in US consumer confidence. The drop in consumer confidence may temper Fed rate hike fears and sparked safe haven demand for the JPY.

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 traded lower erasing early overseas gains pressured by report of an unexpected decline in German IFO and ongoing concern about EU sovereign debt risk. EUR traded to new lows for the day after the release of weaker than expected US consumer confidence. The decline in US consumer confidence sparked selling of equities and a spike in risk aversion. German February IFO declined to 95.2 from 95.8 last month. IFO officials state that the German economy may have contracted in Q1. The trade ignored the future expectations component of the IFO which rose slightly to 100.9 from 100.6. Weaker than expected growth outlook in Germany adds to concern that deficit cuts in peripheral Europe will lead to a protracted economic recovery. The German economic minister said that the German recovery may not yet be self-sustaining. Concern about the outlook for Greek sovereign debt continues to pressure the EUR. German Chancellor Merkel said the EU must do everything necessary to ensure Greece reduces its deficit and that the stability of the EUR is at stake. ECB’s Bini Smaghi said that any aid to Greece will be lower than earlier reports. Yesterday German press reported that the EU plans a 25bln bailout for Greece. This bailout report was denied by the German finance minister. Analysts at Goldman cut their target for EUR citing concern that the Greek deficit troubles have sapped confidence in the EU and permanently increased the risk of holding the single currency. According to Goldman the current sovereign debt crisis is the most threatening since the EUR came in existence and the crisis exposes the problems of coordinating fiscal policy with currency union. EUR was also pressured by concern about Spain’s debt outlook. ECB’s Ordonez said that bad loans will continue to rise in Spain as the labor market deteriorates and Spain must take aggressive action to reduce its deficit. EUR remains vulnerable to concern about EU sovereign debt risk and speculation that the US economy will recover faster than the EU.

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. Expect EUR support at 1.3425 the May 18th low with resistance at 1.3692 the February 23rd high.

GBP
GBP traded lower pressured by report of weaker than expected UK mortgage approvals and revived speculation that the BOE may expand quantitative ease. GBP decline accelerated after the release of weaker than expected US consumer confidence. UK mortgage lending rose by 2.7bln in January, this marks the lowest level since last July. The housing sector has been one of the main bright spots in the UK recovery and today’s disappointing mortgage approvals report generates concern about the strength of the housing market recovery. A number of BOE officials testified before UK Parliament today. The BOE’s Miles said that quantitative ease may be expanded if the economy weakens and the BOE Governor King said it may be necessary to expand quantitative ease. The BOE’s Tucker however expressed concern about the recent rise in UK CPI and warned that if stimulus is withdrawn to slowly it will increase the risk of inflation in the UK. Tucker said that the BOE cannot ignore the rising risk of UK inflation. UK January inflation was reported to have risen by 2.9%. The rise in January inflation is near the high end of the BOE 1 to 3% inflation target range. Tucker’s comments helped to limit the GBP downside. 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 1.500. Expect near-term support at 1.5345 the February 19th low with resistance at 1.5683 the February 18th high.

CAD
CAD traded lower with selling pressure attributed to a decline in the price of crude oil and a spike in risk aversion as global equity markets decline in reaction report of weaker than expected US consumer confidence. Crude prices traded about one dollar lower. Equity markets weakened in reaction to ongoing impact of sovereign debt risk in Europe and uncertainty about Fed policy outlook. 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 and gains in cross trade to Europe. 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 as long as inflation remains in check. The next BOC policy meeting will be held on March 2nd. The trade will be looking to see if the BOC makes any adjustments in its 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 traded both sides of settlement with early overseas gains giving way to a sharp selloff sparked by weaker commodity and equity prices. AUD downside was initially limited by hawkish comments from RBA Deputy Governor Battellino. Battellino said that a strong AUD helps to contain inflationary pressures. His comments are seen as an endorsement of recent tightening of RBA monetary policy. Tighter RBA monetary policy helps to generate demand for the AUD and high-yield currencies continue to outperform gaining against the European currencies and the USD. AUD turned sharply lower after the release of an unexpected sharp drop in US consumer confidence with selling attributed to weaker equity market trade and a spike in risk aversion. AUD was also pressured by selling in cross trade to the JPY. AUD/JPY cross this traded almost 2% higher gaining against all the majors supported by safe haven demand. 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 8879 the February 19th low with resistance at 9093 the January 22nd high.

Source: Easy Forex

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• 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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