EUR/USD Likely to Test Resistance

* The dollar traded mixed on Tuesday as concerns over the spread of swine flu and US bank fears balanced optimism of more signs the US economy is stabilizing. US home prices fell at a lower rate and consumer expectations rose to the highest level since September 2008. The yen advanced on reports Citibank and Bank of America may need more capital. The Dow recovered early losses but closed 8.05 points lower to 8,016.95. Sterling fell despite a better-than-expected UK retail sales report. The Australian dollar was pressured by Reserve Bank of Australia rate-cut speculations. The Canadian dollar rose modestly on improving risk sentiment.

* The EUR/USD recovered partly from yesterday’s step losses following European Central Bank Governing Council member Ewald Nowotny’s comment that the ECB is prepared to expand its range of policy tools if necessary to ease the flow of credit through the economy. The EUR/USD short-term trend is negative; however, another test of the diagonal 1.32-area resistance is possible. If this resistance is broken, the chart pattern will turn bullish. Support exists in the 1.29 area. We buy one USD/JPY and one EUR/USD.

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Financial and Economic News and Comments

US & Canada

* Home prices in 20 US cities fell a less-than-expected 18.6% y/y in February after a record 19.0% y/y drop in January, indicating the decline in 20-city home prices eased for the first time since 2007, according to the S&P/Case-Shiller composite-20 house price index. The index has declined every month since January 2007, and year-on-year records started in 2001. Home prices in 10 US cities dropped 18.8% y/y in February, a slight improvement from January’s 19.4% y/y decrease, according to the S&P/Case-Shiller composite-10 house price index. Overall, the moderating declines suggest some stabilization in the US housing market.

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* The Conference Board US consumer confidence index rose more than expected to 39.2 in April, indicating US consumer confidence jumped to the highest level since November, from an upwardly revised 26.9 in March, data from the Conference Board showed. The present conditions index rose to 23.7 in April from 21.9 in March. The expectations index jumped to 49.5, the highest level since September, from 30.2.

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* The Richmond Fed manufacturing index increased more than anticipated to -9 in April from -20 in March, indicating manufacturing activity in the central Atlantic region contracted at a markedly diminished rate, the latest survey by the Federal Reserve Bank of Richmond showed. Business prospects for the next six months showed improved optimism, the Richmond Fed said.

Europe

* Germany’s consumer prices remained unchanged m/m in April after a 0.1% m/m decline in March, according to preliminary April CPI data from the Federal Statistical Office. The consumer-price inflation rate accelerated slightly less than expected to 0.7% y/y from March’s 0.5% y/y. In EU harmonized terms, April consumer prices remained unchanged m/m after a 0.2% m/m decline in March. The inflation rate rose slightly less than expected to 0.7% y/y from March’s 0.4% y/y.

* According to the Confederation of British Industry’s April Distributive Trades Survey, 44% of retailers reported an improvement in year-on-year sales volumes in the first half of April, while 41% said sales volumes fell. The resulting balance of +3% for April was the highest level since January 2008 and a big improvement from March’s -44% resulting balance, but retailers foresee falling sales (-15%) in May, the CBI reported.

Asia-Pacific

* Japan’s retail sales in March declined a less-than-expected 3.9% y/y after February’s 5.7% y/y steepest decrease since February 2002, according to data from the Ministry of Economy, Trade and Industry. Large retailers’ sales fell a more-than-expected 8.1% y/y in March, matching February’s steepest fall in 11 years.

* Japanese small business confidence increased less than expected to 30.8 in April from 30.4 in March, a Shoko Chukin Bank report showed. A reading below 50 suggests pessimists outnumber optimists.

FX Strategy Update

Source: Hans Nilsson

28.04.2009