Untitled Document

  • USD: Lower, tracking risk sentiment, reverses early gains as US equities rebound
  • JPY: Higher, supported by risk aversion, exports continue to fall, BOJ expected to cut Japans growth forecast
  • EUR: Higher, gaining in cross trade to GBP, ECB's Weber sees marginal room for more rate cuts
  • GBP: Lower, unemployment rises to a 12 year high, UK government to issue GBP 220 bln in gilts
  • CAD and AUD: AUD and CAD higher, Australian CPI falls more than expected, Canada's leading index weak


With no major US economic data due today uncertainty about US bank stress tests and risk aversion sparked early demand for USD and JPY. USD and JPY pared gains tracking a midday rebound in equities. Worse then expected earnings from Morgan Stanley sparked selling of stocks and safe haven demand for JPY. JPY traded higher despite another sharp drop in Japanese exports during March and a report that the BOJ may cut Japan's growth outlook to -5% from the original forecast of -3%. EUR traded higher rebounding from early selling pressure with support in cross trade to the GBP. GBP traded lower pressured by the announcement of the UK 2009 budget which forecasted weaker UK growth outlook and higher than expected UK public borrowing. The UK government will issue GBP 220 bln in gilts, raise taxes on high-income earners and the UK GDP debt ratio will top 12%. AUD and CAD initially traded lower pressured by the return of risk aversion. The AUD was also pressured by report of weaker than expected Australian Q1 CPI. CAD initially traded lower as Canada's leading index falls 1.3% in March. The BOC cut interest rates Tuesday and is expected to outline details of possible quantitative ease Thursday. AUD, CAD and EUR turned higher, GBP pared losses and JPY weakened as equities rebound midsession. Risk appetite remains the key driver for FX trade. The trade showed limited reaction to report that China's PBOC expects economic recovery this year and Goldman Sachs raised its forecast for China's 2009 GDP to 8.3% from 6%. The IMF cuts its forecast for the global economy to -1.3% in 2009, this is down from the original growth forecast of a 0.5% rise. The IMF sees deeper and a more prolonged global recession.

Today's US data:

No major US economic data was released in today's trade. February Federal Housing Finance Agency's home price index rose 0.7% compared to 1% in January.

Upcoming US data:

On April 23rd, initial jobless claims for week ending in 4/18 is expected at 600K compared to 610K. Existing home sales will also be released on April 23rd expected at 4670K compared to 4720K last month. On April 24th, March durable goods will be released expected at 1.5% compared to 3.5% last month.


JPY traded higher supported by rising risk aversion sparked by uncertainty about the outlook for US bank stress tests and weaker than expected earnings at Morgan Stanley. JPY was also supported by gains in cross trade. JPY upside was limited by a rebound in US equities. GBP/JPY traded 1.5% lower with GBP pressured by the announcement of the UK budget. EUR/JPY traded higher tracking equities and AUD/JPY traded 0.25% lower with AUD pressured by the report of weaker than expected Australian CPI. JPY cross gains were much greater in overseas trade. JPY traded higher despite report of another sharp drop in Japan's exports during March. Japan's exports dropped to the lowest level in six months. The drop in Japan's March exports was not as great as February, falling 45.6% compared to 49.4 in February. Some analysts suggest that today's JPY rally reflect slowing rate of decline in Japan's exports. A Nikkei report that the BOJ may cut Japan's 2009 growth outlook to - 5% from original forecast of -3% was ignored by the trade. JPY price direction has re-linked to risk sentiment and the direction of equity markets.

On April 24th, all industry activity is due for release expected unchanged at -2.1%.

Key technical levels to watch in USD/JPY include support at 97.20 the March 30th low with resistance at 99.40 the April 20th high.


EUR traded higher mainly supported by gains in cross trade to the GBP as EUR/GBP surged after the announcement of a larger than expected UK 2009 budget. EUR/GBP traded almost 2% higher with GBP pressured by deteriorating fiscal outlook in the UK. The UK budget included a forecast of weaker 2009 growth and much larger than expected deficit spending. EUR was also supported by a rebound in equities and buy stops above 1.3000 sparked technical buying of the EUR. EUR traded lower in overseas trade pressured by uncertainty about ECB policy outlook and concern about deteriorating EU growth outlook. ECB's Weber says that he sees only marginal room for rate cuts. Weber's comments suggest that the ECB remains reluctant to adopt aggressive measures to boost EU growth. The German Finance Minister Steinbrueck said he expects German GDP forecast to be revised sharply down. There are mixed opinions in Europe about the need for aggressive ECB monetary policy action and the outlook for EU growth. Tuesday, Germany reported a surprise improvement in April business confidence. The trade will be looking at the April 24th release of German IFO for further indication of German economic outlook. Global equity markets may continue to weaken pressured by concern about this week's US earnings reports and upcoming US bank stress tests. The preferred strategy is to sell the EUR on rallies to 1.3100.

On April 23rd, EU April Manufacturing and Services PMI will be released. Manufacturing PMI is expected to show modest improvements to 34.4 from 33.9 last month. The Services PMI is expected to show slight improvement to 41.2 from 40 last month. February industrial orders will also be released on April 23rd expected to fall 2% compared to -3.4% last month. On April 24th, April German IFO index is due for release expected at 82.4 compared to 82.1 last month.

The technical outlook for the EUR is turning negative with Monday's breakout below 1.3000. Expect key EUR support at 1.2886 the April 22nd low with resistance at 1.3049 the April 20th high and 1.3120. Look for major EUR downside support at 1.2730 the January 12th low.


GBP traded at a three week low versus USD and weakened in cross trade to JPY and EUR pressured by the release of UK 2009 budget. The UK budget forecasts a 3.5% contraction in UK 2009 growth and increased borrowing to 175 Billion pounds. The net public-sector barring amounts to 12.4% of GDP. This is well above the high end estimates with market expectations looking for UK government borrowing to equate to 11% of GDP. High-end estimates for UK net public borrowing were in the range of GBP 150 Billion. The larger than expected UK government borrowing announcement sparked selling of the GBP. UK 2009 budget includes a provision to raise income tax rate to 50% on earners making more than GBP 150 K a year and UK government plans to issue GBP 220bln in gilts during 09/10. The size of the UK gilt issuance is well above market expectation of 200bln. UK Chancellor Darling said that weak sterling may help UK competitiveness. Darling also presented some very optimistic growth forecasts for the out years expecting 1.25% GDP expansion in 2010 and 3.5% growth in 2011. The IMF looks for UK growth to contract by 4.1% this year and fall by 0.4% in 2010. GBP was also pressured by report that UK unemployment rose to its highest level in 12 years and the March public-sector borrowing was sharply higher. UK jobless claims came in better than expected at 73.7 K, the trade was looking for a rise of over 100K for the claimant count. The deterioration in UK budget outlook and continued concern about UK economic outlook may increase selling pressure of the GBP. GBP downside was limited by a rebound in US equities. Focus turns to Friday's release of UK Q1 GDP. UK Q1 GDP is expected to fall 1.4%. The GDP report will be important to investor perception of whether recent actions taken by the UK government and Bank of England to boost UK growth are having any impact.

The technical outlook for GBP is turning negative as GBP breaks support at 1.4450 the April 2nd low. Today's break of 1.4450 could set up a test of the March 31st low of 1.4220. Expect near-term support at the 1.4240 the March 31st low with resistance at 1.4660.


CAD initially traded lower pressured by rising risk aversion and report of weaker than expected Canadian leading economic indicator. The spike in risk aversion was sparked by uncertainty about the outlook for US bank stress tests and weaker than expected earnings at Morgan Stanley. Canada's March leading indicator declined 1.3%, the trade was looking for a 0.9% drop. The leading indicator report is another indication that the Canadian economy is deteriorating faster than expected. The BOC expects the Canadian economy to contract by 3% in 2009. CAD rallied midsession tracking a rebound in equities. CAD traded sharply lower Tuesday after the announcement that the BOC cut interest rates which caused a decline to 1.2550 before recovering and trading back to 1.2350. CAD traded back to 1.2350 in Wednesday's trade supported by a rebound in US equities and position squaring in front of Thursday's BOC monetary policy report. CAD price action remains choppy and focus will turn to Thursday's release of the Bank of Canada's Monetary Policy Report. The Monetary Policy Report is expected to outline details of a series of measures to boost Canadian growth and achieve the BOC's inflation target. The trade will look to whether the Bank of Canada is planning to adopt quantitative ease and when the BOC plan might implement quantitative ease. It's difficult to predict how the CAD may trade if the BOC announces a plan to implement quantitative ease. Investors may see BOC action as a step in the right direction towards boosting Canadian growth and buying of the CAD.

On April 23rd February retail sales are due for release expected at 1.1% compared to 1.9% last month. Thursday the BOC will announce its quarterly policy statement. The BOC's quarterly policy statement may address the issue of quantitative ease.

The technical outlook for CAD is turning mixed. Look for near-term resistance at 1.2650 with support at 1.2340 the April 21st low and 1.2120 the April 20th.


AUD traded mixed initially pressured by rising risk aversion, selling in cross trade to JPY and in reaction to weaker than expected Australian CPI. The rally over the past six weeks in equities has stalled and as equity market rally stalls risk appetite has declined. AUD is seen as a high yield risky asset and risk sentiment is key to the direction of AUD. JPY is reemerging as a safe haven destination of choice and AUD weakened in cross trade to JPY. Australia's Q1 CPI rises 0.1% and 2.5% y/y. The trade was looking for a 0.5% quarterly CPI rise and an annual rise of 2.8%. Today's Australian CPI report clouds the outlook for RBA policy. The combination of lower inflation and weakening Australian economic data may encourage the RBA to cut rates but underlying CPI inflation remains relatively high. Australia's weighted CPI rose 1.2% and 4.4% y/y. The higher weighted CPI figure may encourage the RBA to remain on hold. Tuesday RBA Governor Stevens said he expects a sharp drop in the CAPEX spending and slower growth in the short run. Stevens, however, was optimistic about the long-range economic outlook in Australia. RBA minutes for the April 7th policy meeting indicated that there is room for more rate cuts, that economic outlook was weaker than thought and growth will continue to deteriorate this year and improve in 2010.

On April 23rd, March new car sales are due for release expected at -3% compared to -18.6% last month.

The technical outlook is mixed as AUD fails to break above resistance at 7130. Look for AUD support at 6950 the April 20th low with resistance at 7130 the April 21st high and 7240 the April 20th high.