Dollar Falls as G-7 Sees Economic Recovery

* The dollar fell versus most major currencies on Friday on improved risk sentiment ahead of this weekend’s G-7 summit. US durable goods orders appear stabilizing and new housing inventories fell to the lowest level since January 2002. The Dow rose 119 points to 8,076 on better-than-expected earnings and reports that the G-7 will predict an economic recovery will begin later this year. The euro rose after the better-than-anticipated Ifo German business climate index signaling the contraction may be easing. Sterling fell after Moody’s said UK finances are “deteriorating rapidly” and Q1 GDP contracted the most since 1979. The yen rose on reports Japan’s Financial Service Agency will reduce leverage on currency margin trading. The Australian and Canadian dollars advanced as commodity prices rose on improved risk appetite.

* The dollar index fell and broke the short-term diagonal support on increased risk appetite and rumors China will diversify its foreign-exchange holdings. The greenback, having been pressured by improved risk sentiment, does not seem to get any leverage from improving global recovery prospects despite that the US is likely to recover before Europe and Japan. A large head-and-shoulder formation is developing and today’s penetration of the short-term diagonal support increases the risk of further declines. The dollar index is at the 84.50-area support. If this is broken, the index may fall to the 83-area support.

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Financial and Economic News and Comments

US & Canada

* US durable goods orders fell a smaller-than-expected 0.8% m/m to a seasonally adjusted $161.19 billion in March, after a downwardly revised 2.1% m/m increase in February, data from the Commerce Department showed. Excluding transportation, orders declined a less-than-expected 0.6% m/m, following February’s downwardly revised 2.0% m/m gain. Orders were down 23.6% y/y and down 19.5% y/y excluding transportation. The largest reductions in orders were for motor vehicles/parts and primary metals. The strongest components of orders were aircraft/parts and electrical equipment/appliances. A key barometer of business equipment spending -- orders for nondefense capital goods excluding aircraft – increased 1.5% m/m in March, following a downwardly revised 4.3% m/m rise in February. March shipments for non-defense capital goods excluding aircraft, used in calculating GDP, declined 1.7% m/m, after inching 0.1% m/m higher in February.

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* US new home sales posted a small 0.6% m/m decline to a seasonally adjusted annual rate of 356,000 in March, following an upwardly revised 8.2% m/m gain to an annual rate of 358,000 in February, according to data released by the Commerce Department. The March decline was due to February’s large upward revision, not weakness in March. Sales were up in the West, unchanged in the South, and down in the Northeast and Midwest. At the end of March, there were estimated 311,000 new homes for sale, down from 328,000 at the end of February. At the current sales pace, the supply of unsold new homes declined to 10.7 months in March from 11.2 in February. The median price of a new home was $201,400 in March, down 12.2% y/y. The average price of a new home was $258,000, down 10.3% y/y.

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Europe

* Germany’s business confidence rebounded in April, with the Ifo German business climate index increasing more than expected to 83.7 from March’s 26-year-low 82.2, according to data from the Ifo Institute. The business expectations index improved to 83.9 from 81.6 and the current conditions index rose to 83.6 from 82.7.

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* The UK economy shrank a more-than-expected 1.9% q/q in Q1 2009, the most since 1979, after a 1.6% q/q decline in Q4 2008, GDP figures from the Office for National Statistics showed. The Q1 GDP contracted 4.1% y/y, also more than expected. However, retail sales unexpectedly increased 0.3% m/m in March after a downwardly revised 2.0% m/m decline in February. March retail sales advanced 1.5% y/y.

Asia-Pacific

* Japan’s all industry activity index fell 2.0% m/m, as forecast, in February, after a 1.7% m/m decline in January, indicating Japanese businesses continue to cut spending, according to the Ministry of Economy, Trade and Industry.

* Japan’s corporate service price fell a less-than-expected 2.1% y/y in March, the sixth consecutive decline, after a 2.6% y/y drop in February, data from the METI showed.

* China’s current-account surplus climbed 15% to $426 billion last year and its capital-account surplus fell 74% to $19 billion, the State Administration of Foreign Exchange said.

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 Neutral Positive Neutral Neutral Neutral Positive Positive
Outlook Neutral Positive Positive Neutral Neutral Positive Positive
Action None Buy Buy None None Buy None
Current 1.3243 97.12 1.4664 1.1397 1.2094 0.7223 128.62
Start Position N/A 97.35 1.4845 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 96.50 1.4450 N/A N/A 0.6950 N/A
Support 1.2900 97.00 1.4450 1.1100 1.2000 0.7000 125.00
1.2500 94.00 1.4000 1.0700 1.1800 0.6800 120.00
Resistance 1.3250 101.00 1.5000 1.1700 1.2800 0.7300 136.00
1.3700 103.00 1.5500 1.2000 1.3000 0.7600 139.00

Source: Hans Nilsson

24.04.2009