• USD : Mixed, equities rebound, ADP unemployment rises more than expected, manufacturing PMI rises
  • JPY : Higher, supported by rising risk aversion, business confidence falls to record low
  • EUR : Mixed, EU unemployment rises, manufacturing PMI improves
  • GBP : Higher, manufacturing PMI hits best level in five months
  • CAD and AUD : AUD higher, CAD lower, Australian building approvals surge, CAD tracks weaker oil


USD traded mixed giving back early gains that were inspired by a Bloomberg report that President Obama favors bankruptcy for GM and Chrysler. The report sparked selling of equity markets and safe haven flows to the USD and JPY. The White House denied the report, equity markets stabilized a bit and the USD drifted off of overnight highs. JPY traded higher despite report that Japan's business confidence index fell to a record low. GBP traded higher supported by report of improvement in UK manufacturing PMI. Commodity currencies were mixed with the Australia dollar supported by report of improving building approvals and a slight increase in manufacturing PMI. Weaker crude oil price, limits today's commodity currency price rise. CAD traded lower tracking weaker equities and lower price of crude oil. The trade awaits news from the G-20 meeting. UK Chancellor Brown calls for urgent action from the G-20 and President Obama, says he sees a lot of convergence at the G- 20 on the need to anticipate risk in financial markets. The G-20 is expected to announce plans to try to combat the global recession and introduce proposals for new global financial regulation. Expectations are quite low for the G-20 meeting with skepticism about whether the G-20 can accomplish significant coordination that will boost global growth. Disappointment in the G-20 communiqué could spark another round of selling in global equity markets and safe haven flows to the USD. Market focus will quickly shift to the ECB meeting Thursday and Friday's release of US unemployment. There is a great deal of uncertainty about where the economy, equities and USD are headed.

Today's US data:

Challenger and Gray say the pace of US job cuts has slowed. ADP reports job losses were 742K in March compared to a revised 706K in February. ADP expects employment to remain weak for several months. March manufacturing PMI rises to it highest level since November at 36.3, a reading of 36 was expected. The new orders component of the PMI rose to 41.2 from 33.1 last month. February Pending Home Sales Index rises to 82.1, a reading of 82 was expected. February construction spending declined a less than expected 0.9%, a reading of -1.5% was expected. US equity markets firmed and USD traded mixed in reaction to better than expected US manufacturing, construction and home sales data. EIA Petroleum Inventories for the week ending March 28th rise 2.8 Million barrels; a 2.2 Million rise was expected. Gasoline and distillate inventories were also higher than expected. Crude prices traded lower after the inventory report, approaching $48 a barrel.

Upcoming US data:

On April 2nd, initial jobless claims for week ending 3/28 are due for release expected at 650K. Factory orders for February will also be released on April 2nd expected at -1.1% compared to -1.9% last month. On April 3rd, March nfp will be released expected at -650K compared to -651K last month. March unemployment is expected to rise to 8.4% from 8.1% last month.


JPY traded higher despite report that Japan's business confidence index dropped to a record low. Japan's Tankan large manufacturing index falls to record low of -58 from -55 last quarter. CAPEX spending fell less than expected at 6.6%, the trade was looking for a 10.5% decline. JPY gains are attributed to a selloff in equities sparked by a Bloomberg report which said that President Obama believes bankruptcy is the best option for GM and Chrysler. The Bloomberg report was later denied by the White House and JPY gains were limited. JPY remained firm in US session after release of worse than expected ADP employment report supported by safe haven flows as equity markets weaken. JPY drifted lower in reaction to a recovery in US equities sparked by report of improvement in US manufacturing PMI. JPY has a fairly strong expiration seasonal in April. JPY gains should be limited by today's Tankan report and outflows at the start of Japan's new fiscal year.

Key technical levels to watch in USD/JPY include support at 97.39 the March 31st low with resistance at 99.65 and 100.00.


The EUR traded mixed in quiet trade awaiting news from G-20 and Thursday's ECB policy meeting. EU economic data was mixed with unemployment rising to near three year high of 8.5% from 8.3% last month. EU March manufacturing index edged higher to 33.9 from 33.4 last month. The PMI data may be the first sign that the European economy is stabilizing and the rate of decline in manufacturing output has slowed. German retail spending fell 0.2% in February. EUR was also pressured by weaker EUR/JPY. Selling of EUR/JPY was attributed to the return of risk aversion sparked by reports that President Obama favors bankruptcy for GM and Chrysler. The report on bankruptcy for Chrysler and GM was denied by the White House Chrysler but US equity markets traded lower generating spike in risk aversion. Uncertainty about the fate of US carmakers and weaker equity markets supported the USD in Wednesday's trade. The bankruptcy action for US carmakers would likely hurt risk sentiment. Focus turns to Thursday's ECB policy meeting. In light of today's report of higher than expected EU unemployment and Tuesday's report that EU inflation plunged all-time low, the trade expects the ECB to take action and lower interest rates to combat the speed of economic slowdown in the EU.

The ECB is expected to cut interest rates 50 bps to a record low 1% in reaction to falling EU inflation and deteriorating EU economy. The ECB has cut interest rates 275 bps since last October. The ECB is also expected to cut its refinance rate 25 bps and lengthen the maturity of ECB refinancing operations to up to twelve months. The ECB may also announce a plan to buy private sector bonds. The purchase of private sector bonds would bring the ECB closer to quantitative ease. The ECB has been reluctant to implement quantitative ease choosing to focus on the bank lending. The ECB ‘s reluctance to implement quantitative ease reflects the ECB's concern about the difficulty in assessing the impact of quantitative ease, it could be inflationary and countries like Japan who have tried quantitative ease have not been very successful in boosting liquidity and growth. The jury is still out on how effective quantitative ease by the Fed, SNB and BOE may be. In addition, the EU does not have a unified or deep bond market and banks play a bigger role in providing credit then security firms. Hence the ECB prefers to rely on the refinance rate to try and boost lending activity. The initial reaction to the BOE, SNB and Fed's quantitative ease was selloff of the GBP, CHF and USD. The initial sell off in these currencies was short lived and we suspect the reaction will be similar for the EUR. EUR price direction has been re-linked to the direction of equity markets and risk sentiment. The trade will be monitoring Thursday's G-20 meeting. EU officials have rejected pressure to commit to greater fiscal stimulus. It's not clear whether the G-20 will convince European officials to join in the coordinated effort to inject more fiscal stimulus into the global economy. There are reports that the French PM Zarkozy is threatening to walk out of the G-20 meeting if the G-20 does not agree on global financial regulation.

The ECB meet on April 2nd and are expected to cut interest rates 50 basis points to 1%. The trade will be watching the press conference following the ECB meeting for details of whether ECB plans unconventional measures to boost EU economic growth including ECB discussions of possible quantitative ease.

The technical outlook for the EUR is mixed with EUR holding support at 1.3200 and trading in the middle of this year's range. Expect key EUR support at 1.3090 with resistance at 1.3480. A break of 1.3090 could set up for a test of March 18th low of 1.2985. Note in the graph below the EUR may be forming a bull flag formation and is holding above key support at 13095 which is 50% of the 1.2460-1.3775 Q1 09 range.


GBP traded higher supported by report of improving UK manufacturing PMI. UK March manufacturing PMI surged to five month high of 39.1 from 34.9 last month. The improvement in the UK manufacturing PMI indicates that the UK economy may be stabilizing. The reading remains below 50 which suggest that UK manufacturing sector still remains weak. The improving UK manufacturing PMI follows Monday's report of better than expected rise in UK consumer confidence. GBP was also supported by a statement from the OECD that the UK will escape the worst of the world recession. There was little reaction to a Daily Telegraph report which says that former BOE board member Blanchflower expects UK unemployment to get worse. There did not seem to be much market reaction to the report of large numbers of protesters jamming downtown London ahead of the G- 20 meeting. GBP price direction will continue to be closely correlated to the direction of equity markets and investor reaction to the BOE's effort to try to stimulate growth through quantitative ease. GBP gains were limited by weaker US equity market trade. GBP price direction will also key on G-20 efforts to coordinate fiscal spending to boost global growth. On April 2nd, March nationwide house price index is due for release expected at -18.9% compared to -17.7% last month.

On April 3rd, March services PMI will be released expected at 43.3 compared to 43.2 last month.

The technical outlook for GBP is turning mixed as GBP holds above Monday's low of 1.4110. Look for key GBP support at 1.4110 March 30th low with resistance at 1.4495 the March 27th high.


CAD traded lower pressured by weaker equities and the lower price of crude oil. Equity markets were pressured by uncertainty about the fate of US automakers. Crude oil traded lower in reaction to concern about weak global demand and speculation that the EIA petroleum inventories report would show a sharp buildup of crude inventories. EIA crude inventories came higher than expected at 2.8 Million barrels and crude prices remained lower. In addition, CAD was pressured by report that US ADP posted a bigger than expected rise in unemployment during March. This ADP unemployment points to a potentially weaker than expected US employment report Friday. CAD remains vulnerable to continued weak US economic outlook. Friday's US unemployment report will be key to market risk sentiment and the direction of US equities. CAD stabilized as US equity markets rebounded in reaction to improving US manufacturing PMI and better than expected construction spending report. A report that Canada would consider additional fiscal had limited impact on CAD trade. Earlier this year Canada announced a C$ 40 Billion stimulus plan. Canada's PM Harper says Canada is focused on implementing the existing stimulus plan.

Tuesday Canada reported that January GDP declined 0.7%.Canada's GDP has declined for six months in a row. The GDP drop is attributed to falling auto production and slowing construction activity. The weak Canadian GDP suggests that the Canadian economy is continuing to contract. The GDP report may encourage the Bank of Canada to take further easing measures. The BOC meet on April 21st .The BOC cut interest rates to a record low 0.5% in early March and said that it will consider quantitative ease. Short-term price moves for the CAD remain closely correlated to the direction of equities, commodities and risk sentiment. CAD has been firming during March supported by optimism about global economic rebound and rising crude prices. This optimism has given way to fresh concerns about global growth outlook as the IMF says the global economy will contract at its fastest pace since 1945.

The technical outlook for CAD is mixed to negative with USD/CAD holding above support at 1.2505. Look for near-term resistance at 1.2790 the March 16th high with support at 1.2505.


AUD traded mixed to firm in a narrow range consolidating yesterday's sharp gains. Australian economic data was mixed with February retail sales falling more than expected and February building approvals rising more than expected. February retail sales declined 2%, 0.5% drop was expected. February building approvals rise 7.8%, a 1.8% rise was expected. In addition, March PMI posted a moderate 1.7 rise to 33.4. These reports are likely to encourage the RBA to hold monetary policy steady at next week's RBA policy meeting. The RBA's Battellino said Tuesday that the RBA will be making only minor adjustments to monetary policy going forward. Most of the AUD price action was generated by weaker Japanese tankan report and reports that the Obama administration favors bankruptcy for GM and Chrysler. The impact of the bankruptcy report quickly faded as the White House denied the report that Obama favors bankruptcy for GM and Chrysler. AUD firmed in US session tracking a rebound in US equities sparked by report of improving US manufacturing.

Focus turns to Thursday's release of Australia's February trade balance. The trade balance will be looked to gauge whether the global slowdown continues to hurt demand for Australian exports. February trade surplus is expected to narrow to 700 Million from 970 Million last month.

AUD has been one of the primary beneficiaries of the recent improvement in risk sentiment and recovery in the global equity markets and CRB. Further AUD gains may be limited by uncertainty about the global economy. AUD is expected to continue to track risk appetite and global equity markets.

The technical outlook for the AUD is turning mixed with AUD holding above support at 6800. Look for AUD support at 6725 the March 19th low with resistance at 7050 the March 25th high. If AUD breaks 7025 look for a possible test of 7300.

By Michael J. Malpede