- USD : Mixed, equities trade mixed despite report of a sharp rise in US housing starts
- JPY : Lower, BOJ may increase loans to Japanese banks, Nikkei rises 3.2%
- EUR : Lower, tracking equities, German ZEW index posts unexpected improvement
- GBP : Lower, UK expected to lose another million jobs, housing prices drop 11.5% in January
- CAD and AUD : AUD & CAD lower, RBA minutes open the door for rate cuts, Canadian manufacturing falls
Forex trade is subdued and the USD range bound. The USD traded mixed versus the EUR and rose versus the JPY in quiet trade. The Nikkei rallied over 3% and the JPY traded lower pressured by improving risk sentiment in the Asian time zone. JPY was also pressured by a report that the Bank of Japan may increase loans to Japanese banks. The BOJ is considering a plan to provide ¥1 trillion of subordinated loans to Japanese Banks. USD traded mixed as European equities decline and US housing starts post an unexpected 22% rise in February. The EUR struggled to hold early overseas gains sparked by report of an unexpected improvement in the German ZEW index with selling attributed to weaker European equity market trade. GBP traded lower tracking weaker European equity trade and pressured by report of another sharp drop in UK house prices. Commodity currencies were mixed with AUD gains limited by RBA March policy meeting minutes which indicate that the RBA left room open for further rate cuts. CAD was pressured by report of weak Canadian manufacturing shipments.
US February housing starts rise 22% to 583K and February building permits rise 3% to 547K. Permits for singlefamily homes rose 11%. This was the biggest monthly increase in single-family permits since February 1991. Multi-family housing starts rose 82%. The rise in multi-family housing starts suggests that builders are downsizing. February PPI rises 0.1% and core PPI was up 0.2%. The PPI figures came in close to market expectations and indicate the US inflationary pressures remain subdued. Focus turns to Wednesday's FOMC meeting.
The FOMC meet on March 18th and are expected to leave interest rates unchanged. The FOMC meeting is unlikely to have much market impact but the trade will be looking to see if the Fed is any closer to announcing the purchase of US treasuries. On March 18th, February CPI will be released expected unchanged at 0.3%. Q4 current account will also be released on March 18th expected at -136.7 Billon compared to -174.1 Billion last quarter. On March 19th, initial jobs claims for week ending 3/14 will be released expected at 645K. February leading economic indicators will also be released on February 19th expected at -0.2% compared to 0.4% last month. USD has traded firm in 2009 despite negative US economic data tracking the direction of equities and risk sentiment. US economic data may become a more important market driver for the USD as the trade tries to determine whether the US equity market recovery is more than a rally in a bear market.
JPY traded lower pressured by improving risk sentiment as the Nikkei rallies 3.2%. Japan's January tertiary index rises 0.4%, a 0.5% decline was expected. JPY traded to the day's lows after the release of much better than expected US February housing starts. JPY was also pressured in cross trade to the EUR with the EUR supported by report of an unexpected improvement in German business confidence. The BOJ meet on March 18th and are expected to keep monetary policy unchanged. Trade will be looking for possible announcement that the BOJ will increase purchase of JGB's. Japanese press reports that the BOJ is considering increasing its purchase of JGB's to try and lower Japanese bond yields and boost growth. The Nikkei rally may discourage the Bank of Japan from taking immediate action to increase purchase of JGB's. JPY was also pressured by report that the Bank of Japan may increase loans to Japanese banks. The BOJ may provide ¥1 trillion of subordinated loans to Japanese banks. The loans would increase the supply of JPY on the market. On March 18th, January leading indicators will be released expected at -2.9% compared to -2.7% last month. The Bank of Japan monthly report is also due for release on March 18th. On March 19th, January all industry activity will be released expected at -2% compared to -2.7% last month. These reports are expected to confirm continuing deteriorating outlook for Japan's economy.
The technical outlook for JPY is turned mixed with last week's failure to take out psychological resistance at 100.00. Key technical levels to watch in USD/JPY include support at 97.15 the March 13th low, with resistance at 99.67 the March 5th high and 100.55 the November 4th high.
EUR traded above 1.30 in overseas trade supported by report of an unexpected rise in German March business confidence. The German March ZEW index improved to -3.5 from -5.8 last month. The trade was looking for a reading of -7.4 for the March ZEW index. ZEW officials indicated that the German economic outlook remains weak but also that they see potential signs of improvement. EUR gains were limited by weaker European equity market trade and comments from ZEW officials discussing the need for more ECB rate cuts and an unconventional monetary policy from the ECB. EUR direction remains closely correlated to the direction of equities at risk sentiment. The trade showed limited reaction to hawkish comments from the ECB's Stark. Stark said that there is limited room for the ECB to lower and that quantitatively should not be pursued at this time. In addition ECB's Mersch said that he sees no evidence of a credit crunch in Europe. The comments by Stark and Mersch suggest that the ECB may be reluctant to lower interest rates. EUR drifted lower after the release of much better than expected US February housing starts report.
On March 19th, EU January industrial production will be released expected at -1.3% compared to -2.6% last month. On March 20th, EU current account and foreign trade balance for January will be released. EU January current account is expected at 1.9 Billion compared to 1.4 Billion last month. January foreign trade is expected at - 1Billion compared to-0.7 Billion last month.
The technical outlook for the EUR has improved with EUR trading above 1.3000 but the EUR rally stalled and lacked follow-through above 1.30. Expect key EUR support at 1.2835 the March 16th low, with resistance at 1.3070 the March 16th high and 1.3180 the January 29th high. Look for EUR/USD to range 1.2835-1.3180. Next key EUR resistance is at 1.3225 the January 28th high.
GBP traded lower pressured by weaker European equity markets and a Financial Times report which says the UK is expected to lose another 1 Million jobs. GBP price direction remains closely correlated to the direction of equities. GBP was also pressured by the impact of the BOE's implementation of quantitative ease purchase of UK gilts. The BOE is expected to buy 3 Billion of Gilts Wednesday. The BOE gilt purchase adds additional supply of GBP to the UK money markets. GBP traded lower pressured by selling in cross trade to the EUR sparked by report that better than expected German March business confidence and report their UK house prices dropped 11.5% in January. This week's main focus will be on Wednesday's release of UK employment in MPC minutes for the March policy meeting. On March 18th, January unemployment and February public-sector borrowing will be released along with the Bank of England policy minutes for the March 4/5 meeting. January unemployment is expected to rise to 6.5% from 6.3% with claimant count at 85K. February public sector borrowing is expected at -4 Billion compared to -3.3 Billion last month. The trade will look to the MPC minutes for clues to whether the Bank of England has any additional plans to implement quantitative ease.
The technical outlook for GBP is turning mixed with the GBP failure to hold above 1.4000. Look for key GBP support at 1.3865 the March13th low with resistance at 1.4305 the March 6th high.
CAD drifted lower pressured by report of weak Canadian manufacturing shipments and weaker equity markets. Canada's January manufacturing shipments declined 5.4% with inventories at -1.2% and new orders down 6.7%. Q4 productivity falls 0.5% with unit labor costs rising 1.6%. These reports point to continuing deterioration in the Canadian economy. CAD price direction continues to track equities and risk sentiment. CAD downside was limited by a rally in the price of crude above $48 and a rise in US equities.
On March 18th, January wholesale sales will be released. January wholesale sales are expected at -2.4% compared to 3.4% last month. The key Canadian economic report for this week's trade will be Friday's release of the February CPI. The CPI report is expected to confirm decreasing inflationary pressure. Weaker Canadian CPI may open the door for the BOC to consider quantitative ease. Canada's January net foreign investment will also be released on March 19th. February CPI is expected at -0.2% compared to -0.3% last month. January net foreign investment is expected at -3.1 Billion compared to -2.8 Billion last month. On March 20th, January retail sales are due for release. January retail sales are expected at 0.7% compared to -5.4% last month. With BOC interest rates near zero and equity markets rebounding Canadian economic data may have limited impact on CAD trade.
The technical outlook for you as CAD is mixed. The failure to maintain price levels above 130 suggests that CAD will trade higher. Look for near-term resistance at 1.2844 the March13th high and 1.3064 the March 9th high with support 1.2520 the February 27th low.
AUD traded mixed in tight range trade with upside limited by dovish RBA minutes and weaker equity markets. The RBA minutes state that the RBA had considered a March rate cut and that the RBA remains flexible in future policy meetings. The RBA expects weaker Q1 growth. The RBA minutes are slightly dovish and open the door for future rate cuts. AUD downside was limited by gains in cross trade to the JPY with JPY pressured by report that the Bank of Japan may issue subordinated loans to Japanese banks.
This week's Australian economic calendar is light. The only data on the Australian economic calendar this week is the March 19th release of Q4 dwelling unit commencements and new car sales for February. Q4 dwelling unit commencements are expected at -7% compared to -10.7% last month. February new car sales are expected at - 8% compared to -1.1% last month. AUD continues to closely track the direction of equities and the EUR. The fundamental outlook for the AUD continues to improve as commodity currencies try to carve out a bottom supported by speculation that the global economy will begin to recover in the midyear.
The technical outlook for the AUD has improved as well with last week's break above 6560. Look for key AUD support at 6545 with resistance at 6640 the February 13th high and 6800 the February 10th high. AUD trade above 6640 could spark a move to 6800.