• The dollar fell for a third day versus most major currencies on improving risk sentiment and optimism the worst of the financial crisis has passed. Bank of America said it raised $13.47 billion by selling equity and Treasury Secretary Timothy Geithner told lawmakers the financial system is beginning to heal. US stocks reversed earlier gains after the Federal Reserve predicted a deeper recession this year and slower recovery in 2010. The S&P 500 declined 4.66 points to 903.47. The dollar index fell to 81.15, the lowest level in five months. There is important support in the 80 area. If this is broken, a drop to 76 is likely. However, the dollar is getting oversold; thus, we are raising the stops on our short dollar positions to lock in profits. The yen rose as Japan's GDP declined a less-than-expected 4.0% q/q in Q1. Sterling surged through resistance on the improving banking outlook and comments by Chancellor Alistair Darling that the UK recession will be over by the end of the year. Weaker-than-expected Australian consumer sentiment limited gains for the Australian dollar.
  • The USD/CAD broke the 1.15-area support, fell for a third day and dropped to the lowest level since October 14. The pair also broke the long-term uptrend, indicating further declines. Today's Canadian reports of low inflation and slower decline in the LEI suggest that the Bank of Canada will maintain its record low interest rate policy without adopting any quantitative easing measures. The 1.15 area is now resistance, while minor supports exist in the 1.13 and 1.10 areas.


Financial and Economic News and Comments

US & Canada

  • Canada's consumer prices unexpectedly declined 0.1% m/m in April after increasing 0.2% m/m in March, according to CPI data released by Statistics Canada. The consumer-price inflation rate decelerated sharply to 0.4% y/y, the lowest since December 1994, from March's 1.2% y/y. The Bank of Canada core CPI increased 0.1% m/m in April, as forecast, after a 0.3% m/m rise in March. The Bank of Canada core rate slowed to 1.8% y/y, as expected, from March's 2.0% y/y. Overall, the April CPI figures give the Bank of Canada more scope to maintain interest rates at record lows.
  • Canada's leading economic indicators index declined for an eighth month in April, falling a slightly more-thanestimated 1.1% m/m on declines in housing and manufacturing, after March's downwardly revised 1.5% m/m decrease, LEI data from Statistics Canada showed.


  • Federal Reserve officials raised prospect of more bond purchases but agreed to hold off on such a move at the time. “Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery; all members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases,” minutes of the April 28-29 Federal Open Market Committee meeting released today showed. “Members also agreed that it would be appropriate to continue making purchases in accordance with the amounts that had previously been announced--that is, up to $1.25 trillion of agency MBS and up to $200 billion of agency debt by the end of this year, and up to $300 billion of Treasury securities by autumn,” the minutes showed.


  • Germany's producer prices unexpectedly decreased 1.4% m/m in April after declining 0.7% m/m in March, according PPI data from the Federal Statistical Office. The PPI fell a more-than-expected 2.7% y/y, the largest fall since June 1987, following March's 0.5% y/y decline.
  • The Bank of England voted 9-0 this month to maintain the bank rate at 0.50% and increase the size of asset purchases by £50 billion ($78 billion) to £125 billion. “For other members, a case could be made for the larger stimulus,” according to minutes of the May 6-7 BOE Monetary Policy Committee meeting released today. “But as the precise amount that would ultimately be required was so uncertain, there was no pressing need for the larger extension at this meeting,” the minutes said, adding that “the programme would be reviewed every month” and “the amount of assets purchased could then be increased or decreased in light of the Committee's assessment of economic developments.”


  • Japan's Q1 2009 GDP fell a less-than-expected 4.0% q/q, preliminary Q1 GDP data from the Cabinet office showed, after a downwardly revised 3.8% q/q decline in Q4 2008. The Q1 GDP contracted an annualized 15.2%, the deepest contraction on record, following Q4's downwardly revised 14.4% drop. The economy shrank 3.5% in the year ended March 31, the most since records started in 1955. The GDP deflator increased a less-than-expected 1.1% y/y in Q1 after a 0.9% y/y advance in Q4.
  • Australia's consumer confidence fell in May as consumers were unnerved by the government's rising deficit and swelling national debt. The Westpac Melbourne Institute consumer sentiment index declined 4.3% m/m to 88.8 in May after increasing 8.3% m/m to 92.7 in April, according to the Westpac - Melbourne Institute survey of consumer sentiment.
  • Australia's wage price index increased 0.8% q/q in Q1 2009, as forecast, after an upwardly revised 1.3% q/q rise in Q4 2008, according to data from the Australian Bureau of Statistics. The Q1 wage growth eased slightly to 4.2% y/y, as expected, from Q4's 4.3% y/y.

FX Strategy Update

Primary TrendNeutralNeutralNegativeNeutralNeutralNeutralNeutral
Secondary TrendPositivePositiveNeutralNeutralNegativePositivePositive
Start Position1.3149N/A1.4845N/AN/A0.6601N/A