Overall: Most dollar based pairs traded in a wide range on Thursday as major economic reports from a number of regions and anticipation of the release of the stress test results after the market close caused increased volatility. The dollar closed the day mixed overall, strengthening against the pound, Canadian dollar and Japanese yen but weakened against the euro, and Australian dollar and trading flat against the Swiss franc. The European Central Bank lowered interest rates by 50 basis points, as expected, and said they plan to buy 60 billion euro in covered bonds. The Bank of England kept rates on hold, which was also expected, but announced it will spend an additional 50 billion pounds of new money. Equity markets moved lower on the day as traders await the results of the stress tests and on a weak auction of 30 year Treasury bonds.
The Labor Department reported this morning that initial jobless claims continued to drop last week, falling 34,000 to 601,000 from 635,000 the prior week. In addition, productivity rose and although two weeks of falling initial claims does not make a trend, coupled with yesterday’s better than expected ADP report, there is hope that tomorrow’s Non-Farm Payroll release may produce a positive surprise. U.S. consumer credit fell a record amount in March as unemployment continued to increase and consumers found it harder to get loans. Consumer credit came in at -11.1B on a monthly basis, much lower than the expected read of -4.2B.
The Euro (Eur/Usd) The euro traded in a wide 220 pip range, giving up gains during the U.S. session as traders became cautious ahead of the release of the stress tests, but closed slightly positive as conclusions were drawn among traders that the ECB’s announcement to buy 60 billion euro in covered bonds is not enough to significantly hurt the currency. The pair closed the day near the 1.3360 level.
The Pound (Gbp/Usd) Cable dropped significantly on Thursday as the pound weakened in response to the bank of England’s plan to spend an extra 50 billion pounds of new money, which they hope will boost the economy and an increase of the asset purchase program to 125 billion pounds. Cable erased more than two days of gains on the announcement, losing almost 180 pips on the day, after trading in a range of more than 250 pips.
The Aussie (Aud/Usd) Two days of better than expected economic news from Australia, employment data last night and retails sales and trade balance on Tuesday, helped the aussie hold onto gains on Thursday despite U.S. equity markets closing lower. The aussie has increased every day this week and for five straight days, breaking above the 0.7500 level and moving further above all of the major daily simple moving averages. On the day, the pair gained approximately 40 pips.
The Cad (Usd/Cad) The Canadian dollar weakened on Thursday as equity markets fell ahead of the release of the bank’s stress test results and ahead of employment data from the U.S. and Canada tomorrow morning. The cad had depreciated six out of the last seven trading days, prior to today, as positive economic news has led to speculation that the worst of the global economic crisis may be over, and traders became more risk tolerant. On the day, the pair gained almost 100 pips testing the 1.1750 level at the close.
The Swissy (Usd/Chf) The swissy traded in a wide range on Thursday as the dollar fluctuated throughout the day on economic news and ahead of the stress test results. The pair traded in a range of approximately 175 pips but closed the day lower by about 10 pips. Swiss CPI came in at 0.9% much higher than the 0.6% that was forecast. On an annual basis CPI rose to -0.3% from -0.4%.
The Yen (Usd/Jpy) The dollar strengthened against the Japanese yen on Thursday despite equity markets closing lower. The pair traded in volatile fashion, gaining 50 pips during the Asian session, giving the gains back heading into the London open and then bounced higher once again. The pair managed to break back above the 20, 50 and 200 day simple moving averages, which have converged, and will act as support