The euro and the sterling rallied sharply against the dollar at the start of the week as a shift away from risk aversion proved detrimental to the greenback. The euro jumped to its highest level in over a month versus the dollar above the psychologically key 1.30-level while the pound edged up above the 1.42-handle to 1.4228. US equities were higher by afternoon trading with the Dow Jones adding onto last week’s gains, edging up by 1.8% to 7,355 and the S&P 500 advancing by 1.7% to 770.13.
The communiqué from this past weekend’s G-20 Finance Ministers meeting provided reassurance to markets that the participating governments and central banks would “continue vigorous efforts and take whatever further actions are necessary to stabilize the financial system”. The statement acknowledged “the importance of monetary policy support…and use of fiscal measures to stimulate domestic demand to rapid effect”. Although the statement provided solidarity in delivery the necessary stimulus needed to restore global growth, it was short on specifics.
Fed Chairman Bernanke reiterated his sentiment that the recession could end as early as this year if financial markets are stabilized. Bernanke deems the biggest risk to be lack of “political will” in resolving the financial crisis but expressed confidence that we’re currently beyond that now.
US economic reports released earlier in the session saw industrial production post a 1.4% decline in February versus a 1.8% drop in January. Meanwhile, capacity utilization declined to 70.9% from 72% a month earlier. The NAHB housing survey in March held steady at 9. The January overall net capital flows posted a net outflow of $148.9 bln compared with inflows of $74.0 in the previous month.
Traders will look ahead to housing reports and PPI in the session ahead. Markets are expecting housing permits in February to decline to 510k, down from 531k while housing starts are expected to fall to 450k versus 466k a month earlier.
EURUSD will find support at 1.2960, followed by 1.2930 and 1.29. Additional floors will emerge at 1.2850, backed by 1.2820 and 1.28. Gains will encounter ceilings at 1.3030, backed by 1.3065 and 1.31