Mid-Day Report: Dollar Rebounds on FDIC Rumor

 @ibtimes on April 30 2009 2:39 PM

Dollar strikes back in early US session, rebounding sharply from today's low against most major currencies. Markets are speculating that FDIC may offer investors financing to buy toxic assets without the requirement to share an equity stake with Treasury. Investors may be concerned that with Treasury putting in equity, the government may attempt to impose restrictions on the investments and returns. The speculated plan will likely increase the attractiveness to hedge funds and investors by removing the restrictions. Nevertheless, no decision has been made yet and it remains in a speculation level. In other news, Chrysler may proceed with Chapter 11 bankruptcy filing today after the lender talks break off.

Economic data from US saw personal income and spending dropped more than expected by -0.3% and -0.2% in March. Core PCE rose 0.2% mom 1.8% yoy while headline PCE rose 0.6% in March. Initial jobless claims dropped from 645k to 631k but continuing claims made another record high of 6.27M, the 13th straight week the figure has set a record. Canadian GDP dropped -0.1% mom in Feb, better than expectation of -0.2%. RMPI rose more than expected by 12.1% mom in March while IPPI rose 0.3% mom.

Technically speaking, the dollar remains mixed. Just after the break of 84.46 support in dollar index triggered the bearish view the decline from 89.62 is resuming, the strong rebound from today's low of 83.89 is again dampening such bearish view. We're still favoring the downside for the moment as long as 86.01 resistance holds. But would like to mention that a break of 86.01 will leave the fall from 86.87 in three wave corrective structure which in turn indicates that markets remains indecisive.

Dollar

Released earlier, Eurozone flash CPI stayed at +0.6% yoy in April, less than consensus of +0.7% and the lowest since the data were first compiled in 1996. This should prompt the ECB to speed up rate cut and possibly QE policies at the meeting next week. The 16-nation regions' unemployment rate rose to 8.9% in March (consensus: 8.7%, February: 8.5%), the highest level since November 2005. Spain recorded the highest rate of 17.4%in the region. In Germany, unemployment rate also surged for a 6th straight month to 8.3% in April, more than market expectation of 8.2% and 8.1% a month ago as 58K more positions were slashed during the period.

UK's Gfk consumer confidence improved for the 4th month to -27 in April, better than consensus of -28 and -30 in the previous month. Nationwide house price dropped -0.4% mom, better than expectation of -1.2%.

Japan's manufacturing PMI rose to 41.4 in April from 33.8 in March as slowdown in deterioration in overseas economies helped the nation's exports. However, the reading remained below 50 suggests contraction is still haunting the manufacturing sector and strength in Japanese may damp recovery. Industrial production rose to +1.6% mom in March (consensus: +0.8%) from -9.4% a month ago. On annual basis, the gauge declined -34.2%, also better than market expectation of -34.7% and -38.4% in February. Housing starts dropped -20.7% yoy in March.

Australia's NAB business confidence improved to -24 in 1Q09 from -42 but the 12-month expectations for business conditions are 'the worst ever reported by the survey, including the 1990 recession'.

RBNZ announced to cut its policy rate by 50 bps to 2.5% and stated that interest rates will stay at or below the current level until late 2010. In the accompanying statement Governor Alan Bollard said that 'developments since March point to lower medium-term inflation than previously projected' due to 'weaker global growth, and an unwarranted tightening in financial conditions via both higher long-term interest rates and a stronger exchange rate than expected'. NZD plunged after the news because its yield differential from other currencies evaporates as the central bank continues to slash rates.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4646; (P) 1.4730; (R1) 1.4852; More

GBP/USD falls sharply in early US session and the break of 1.4734 minor support turns intraday outlook first. Break of 1.4515 will indicate that rebound from 1.4395 has completed at 1.4945 already. The corrective three wave structure will then be consistent with the view that GBP/USD has topped out at 1.5066 and fall from there is still in progress. Below 1.4395 will target 1.4109. On the upside, note that above 1.4945 will bring another rise. But after all, we'd expect strong resistance between 1.5066 and 100% projection of 1.3503 to 1.4984 from 1.3654 at 1.5135 and bring reversal.

In the bigger picture, price actions from 1.3503 are treated as consolidation to the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Such consolidation might have completed with three waves up to 1.5066. Even in case of another rise, we're still expecting GBP/USD to top out at 100% projection of 1.3503 to 1.4984 from 1.3654 at 1.5135. Below 1.4395 support will be another sign of topping while break of 1.4109 will confirm this bearish case. However, firm break of 1.5135 fibo target will dampen this view and set the stage for stronger rally towards resistance zone of 1.5722 and 38.2% retracement of 2.0158 to 1.3503 at 1.6045.

GBP/USD

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