Overall: The market absorbed little economic data on Monday, but was still unable to hold the dollar at bay. There were bullish overnight moves that could not hold going into Wall Street trade, and the dollar index easily found buyers as early futures momentum turned south. The week of the Easter holiday is invariably quiet as trade desks align themselves for a short week of trade.
The Euro (Eur/Usd) advanced in early trade, buoyed by a move higher in Asian markets that fizzled out as soon as equity markets started to fail in their attempts to find buyers. The Euro-area PPI shows that the pace of inflation is dropping at a sustained pace. Producer prices fell 0.5% in February, following a 1.1% (revised) drop just one month prior. Retail sales in the Euro-area declined in February, following a 0.1% increase in the previous month. From one year ago, retail sales fell 4.0% in February, being the largest drop since records first started. The Sentix improved notably in April, after hitting a new all-time low last month. The index rose 7.4 points from March, to -35.3
The Pound (Gbp/Usd) closed out a session of volatility that tried to initially ignore the impact of negative economic news, having tested TheLFB pivot point resistance 1 in early trade and support 1 later in the day. The 200 pips of movement in between were choppy and hard to read as the markets weighed momentum and sentiment on the pound. The U.K. economy might be in a much weaker state than the government has forecasted over the last few months. The Financial Times reports that Alistair Darling is preparing to acknowledge a rather huge forecasting error made by the government, cutting the outlook for 2009 to -3.0%, while projecting a whopping 10% budget deficit.
TheLFB-Forex.com Trade Team agrees that the timing to admit such an error may be a huge mistake. Over the last few weeks, the U.K. government has backed away from a second stimulus bill, while the Treasury failed its first gilt sale at auction in more than 7 years they said. If the U.K. government does actually announce such a huge deficit of 10%, it will put additional pressure on the government’s ability to borrow, since the events of the last few weeks point to a marketable weakening of the public finances. Additionally, the pound may suffer because investors will demand higher yields, forcing the central bank to print more money. As a note, the European Union has a 3% limit allowed for the fiscal budget deficit, while anything above this level triggers the excessive deficit procedure.
The Aussie (Aud/Usd) ended the session flat on the dollar and ahead of the Tuesday morning rate decision from the RBA found both buyers and sellers in equal measure. The pair was one of the majors that looked uncomfortable going lower, and may nudge itself northbound as the Asian session gets underway.
The Cad (Usd/Cad) moved in a wide range on Monday, after it found support at the bottom of the 4 hour chart channel in overnight trade, and formed a swing point that will be monitored closely this week. We are on high alert for break on cad, we will be getting trade signals from this pair it seems, the week is loaded with Canadian data that will feed through to price action. TheLFB Pivot Point support at 1.2250 was tested and held on Monday, and we may now trade within the 1.2250-2415 channel.
The Swissy (Usd/Chf) higher to test bids at the 200 day SMA support area in Asian trade, and then moving from 1.1250 to 1.1400 in U.S. futures moves that had it topped out at Friday’s high.
The Yen (Usd/Yen) traded in a tight range of 100 pips on Monday, and managed to hold easily above the 200 day SMA are at 99.25, and well above the 100.00 price point. If Asian markets can hold steady in early trade and negate the Wall Street selling the pair may make the next leg higher to possibly test the 101.70 area ahead of the Bank of Japan’s Interest rate decision.