USD/JPY Turns Negative

* The dollar rose against the euro but fell versus the yen on Monday as risky assets consolidated recent gains on renewed bank worries. The WSJ reported that US banks had negotiated concessions and HSBC offered a downbeat outlook for the US mortgage market. The Dow fell 155.88 to 8,418.77. The European and commodity currencies consolidated strong recent gains. The euro fell ahead of Federal Reserve Chairman Ben Bernanke’s evening speech. Sterling declined on reports of more banking problems in the UK, but stayed above the 1.50 support. The Australian and Canadian dollars fell after last week’s large gains as commodity prices declined. The USD/CAD rose after failing to break support at 1.15 and the AUD/USD fell after being unable to break resistance at 0.77.

* The USD/JPY dropped below its 200-day moving average as risk aversion returned on Monday. After breaking its steep uptrend in April and failing to make a new high, the USD/JPY is forming a small head-and-shoulder. This could have a bearish implication for the pair. The correlation between the USD/JPY and equity market has recently been less pronounced; however, remaining a key determinant. The global equity market is at important resistance and a consolidation would not be a surprise. There are supports in the 97 and 94 areas and resistances in the 99 and 101. If the S&P 500 can break the 935-area resistance, the USD/JPY rally will continue.

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Financial and Economic News and Comments

US & Canada

* The Conference Board US employment trends index slipped 0.7% m/m in April to 89.5, the smallest decline since June 2008, from 90.1 in March, signaling job cuts may be abating, the Conference Board reported. The April index fell 22.0% y/y.

* The US federal budget deficit will rise to a record $1.841 trillion this fiscal year, $89 billion larger than previously expected due to the weak economy and costly financial rescue, the White House said.

* Canada’s new housing price index for March fell 0.5% m/m to 154.6, as forecast, after a 0.7% m/m decline in February, data from Statistics Canada showed. The index fell 2.4% y/y in March, the third straight year-overyear fall. New housing prices declined in Calgary and Edmonton (-1.2% m/m), Vancouver (-1.1% m/m), Victoria (-0.9% m/m), St. Catharines-Niagara (-0.9% m/m), Saskatoon (-0.7% m/m), Charlottetown (-0.4% m/m), Toronto (-0.3% m/m) and Hamilton (-0.2% m/m), while prices increased in St. John's (+0.4%), Montréal (+0.3%) and Québec (+0.1% m/m).

Europe

* France’s industrial production declined 1.4% m/m and 16.1% y/y in March and Italy’s dropped 4.6% m/m and 23.8% y/y, government data showed.

* European Central Bank President Jean-Claude Trichet said policy makers see some economic recovery signs. “As far as growth is concerned, we’re around the inflection point in the cycle, that’s the sentiment,” Trichet said at a press conference at the Bank for International Settlements in Basel, Switzerland. Recent economic data are “encouraging, but it’s no time for complacency,” he said, adding that the ECB will “do what is necessary in terms of extraordinary measures, as long as necessary.”

Asia-Pacific

* Australia’s business confidence was little changed in April, with the NAB Australian sentiment index slipping to -14 from March’s -13, according to a survey by National Australia Bank Ltd. The employment index increased to -18 in April from -29 in March, indicating the pace of job losses had slowed, while forward orders improved to -11 from -18. The business conditions index rose to -10 from -17, signaling better prospects for hiring, sales and profits.

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* China’s consumer prices fell 1.5% y/y in April, a third consecutive decline, after a 1.2% y/y decrease in March, the Statistics Bureau said. Producer prices dropped 6.6% y/y, the most since records began in 1999.

* China’s new lending was 591.8 billion yuan ($86.7 billion) in April, cooling from a record 1.89 trillion yuan in March, the People’s Bank of China said. The M2 measure of money supply climbed to a record 26.0% y/y from March’s 25.5% y/y.

FX Strategy Update

EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY
Primary Trend Neutral Neutral Negative Neutral Neutral Neutral Neutral
Secondary Trend Positive Positive Neutral Neutral Negative Positive Positive
Outlook Positive Neutral Positive Negative Negative Positive Positive
Action Buy Buy Buy None None Buy None
Current 1.3583 97.49 1.5116 1.1092 1.1657 0.7584 132.36
Start Position 1.3149 96.42 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 1.3150 96.50 1.4650 N/A N/A 0.7150 N/A
Support 1.3400 97.00 1.5000 1.1000 1.1500 0.7300 128.00
1.3000 94.00 1.4500 1.0700 1.1300 0.7000 125.00
Resistance 1.3700 99.00 1.5250 1.1300 1.2000 0.7700 136.00
1.3900 101.00 1.5500 1.1500 1.2200 0.7900 139.00

Source: Hans Nilsson

11.05.2009