• The dollar was mixed in light pre-Passover and Easter holidays trading. US wholesale inventories fell at the steepest rate since records started in 1992, indicating the recession is easing and companies will increase production. The Dow rose 48 points to 7837 despite downbeat minutes of the FOMC March 17-18 meeting. The Fed worried the US economy might enter a vicious cycle with rising unemployment and slumping business and consumer spending, making credit tighter and weakening the financial system. However, recent developments are more optimistic and our leading economic indicator signals a US recovery as early as July (see our March 9 report). The dollar fell versus the yen as Japan announced a ¥37 trillion stimulus plan but rose against other key currencies. The euro dropped after Germany's factory orders posted a sixth consecutive decline and exports dropped for a fifth month. Sterling fell as the NIESR predicted the UK economy contracted 1.5% in Q1 2009. The Canadian dollar was little changed ahead of Thursday's employment report.

  • The AUD/USD fell for a third day despite reports showing Australian home-loan approvals rose for a fifth month and consumer confidence rose over 8% increasing the probability that the Reserve Bank of Australia's rate-cut cycle is ending. Yesterday the RBA cut the cash rate to 3.00% and said the scope for further cuts is limited. Australia's yield advantage is likely to support the AUD/USD as the global economy recovers. The pair, having established a bottom, is in an upward sloping trading channel. There is support from the short-term uptrend in the 0.70 area. This is unlikely to be broken unless global equity markets have a significant correction. Resistance exists in the 0.73 area. We believe this resistance will be broken; thus, expecting a test of the resistance from the upper trading band in the 0.75 area.

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Financial and Economic News and Comments

US & Canada

  • US wholesale inventories fell a more-than-expected 1.5% m/m, the biggest drop since records began in 1992, to a seasonally adjusted $419.34 billion in February, after a downwardly revised 0.9% m/m decline in January, data from the Commerce Department showed. Wholesale sales increased 0.6% m/m to a seasonally adjusted $319.73 billion in February, a promising sign for an economic recovery, following January's upwardly revised 2.4% m/m decline. The inventory-to-sales ratio declined to 1.31 from January's 1.34, suggesting wholesalers are working off an overhang of inventories. Wholesale inventories fell 1.7% y/y; sales dropped 14.3% y/y.

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  • The seasonally adjusted annual rate of Canadian housing starts unexpectedly rose to 154,700 units in March, the first gain in seven months led by higher multiple starts in Ontario and Quebec, following a more than 8-year low of 136,100 units in February, data from Canada Mortgage and Housing Corporation showed.

Europe

  • German exports fell for a fifth month in February, declining a less-than-expected 0.7% m/m, after a downwardly revised 7.4% m/m decrease in January, according to data from the Federal Statistical Office. Imports fell a more-than-expected 4.2% m/m, following January's downwardly revised 1.8% m/m decline. The trade surplus widened to €8.7 billion in February from a downwardly revised €7.0 billion in January. The current account surplus rose to €5.6 billion from January's downwardly revised €2.3 billion.

  • German factory orders declined a more-than-expected 3.5% m/m in February, the sixth straight drop, after an 8.0% m/m decrease in January, according to data from the Ministry of Economics and Technology. Factory orders plunged a record 38.2% y/y, following January's 37.9% y/y fall.

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  • The BRC shop price index showed UK inflation rose to 2.0% y/y in March, the fourth consecutive rise, from 1.9% y/y in February, the British Retail Consortium reported. The index increased 0.4% m/m.

  • The UK consumer confidence index unexpectedly declined to 41 in March, matching January's 4-year low, from 43 in February, Nationwide reported.

Asia-Pacific

  • The Bank of Japan maintained its downbeat assessment on the Japanese economy in its April monthly report, saying “Japan's economic conditions have deteriorated significantly” and are “likely to continue deteriorating for the time being.” Domestic corporate goods prices will likely continue its decline, the BOJ said, adding that “financial conditions in Japan have remained tight.”

  • According to the Cabinet Office's economy watchers survey, individuals in the survey saw some improvement in current and future economic conditions in Japan. The current conditions index rose more than expected to 28.4 in March from 19.4 in February. The outlook index increased to 35.8 from February's 26.5.

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  • Japan's current-account surplus narrowed 55.6% y/y to ¥1.117 trillion ($11 billion) in February, after a ¥172.8 billion deficit in January, its first in 13 years, the Ministry of Finance said. Exports plunged 50.4% y/y, the largest since comparable data were made available in January 1985. Imports dropped 44.9% y/y, also the largest. The seasonally adjusted current-account surplus widened to ¥673.4 billion in February from ¥258.0 billion in January.

  • Australia's home-loan approvals increased for a fifth month in February, advancing a less-than-expected 0.4% m/m to 56,235, after an upwardly revised 4.3% m/m rise in January, according to data from the Australian Bureau of Statistics. Lending to owner-occupiers increased 2.7% m/m in February. The value of lending to investors who plan to rent or resell homes fell 2.8% m/m.

  • The Westpac Australian sentiment index rose 8.3% m/m in April, indicating Australian consumer confidence climbed by the most in eight months, after declining 0.2% m/m in March, Westpac Banking Corp. and Melbourne Institute reported.

FX Strategy Update

EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY
Primary Trend Negative Negative Negative Positive Positive Negative Negative
Secondary Trend Positive Positive Neutral Neutral Neutral Positive Positive
Outlook Neutral Positive Neutral Neutral Neutral Positive Positive
Action None Buy None None None Buy None
Current 1.3265 99.76 1.4698 1.1471 1.2360 0.7098 132.40
Start Position N/A 97.35 N/A N/A N/A 0.6601 N/A
Objective N/A N/A N/A N/A N/A N/A N/A
Stop N/A 94.00 N/A N/A N/A 0.6775 N/A
Support 1.3200 99.00 1.4500 1.1100 1.2200 0.7000 127.00
1.3000 94.00 1.4000 1.0700 1.1800 0.6800 124.00
Resistance 1.3750 102.00 1.4850 1.1500 1.2800 0.7300 136.00
1.4000 103.00 1.5000 1.2000 1.3000 0.7500 139.00