Sterling Gains on Improving Economic Data

* The dollar declined versus its rivals on Tuesday on more signs the global economy is stabilizing. Business investment in China expanded at the fastest pace since 2006, crude oil rose to a 6-month high and the UK economy showed signs of recovering. The yen rose despite rising risk appetite. US stocks closed mostly lower, but the Dow rose 50 points to 8,469. The euro tested the 1.37 handle but failed to break the resistance today. The Australian dollar gained as Australia’s home-loan approvals rose more than expected. The Canadian dollar advanced on a widening Canadian current account surplus and rising energy prices.

* The GBP/USD reached a 4-month high on optimism the UK economy may be stabilizing after better-thanexpected UK manufacturing, real estates and retail sales. After making a double bottom and breaking its downtrend, the GBP/USD has been advancing in a rising trading channel. The pair failed to break the 1.53 today, but we think the pair will move higher and test resistance, from the upper trading band and the 200-day moving average, in the 1.56 area. There is support in the 1.50 area.

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Financial and Economic News and Comments

US & Canada

* The US deficit in international trade of goods and services widened for the first time in eight months in March, growing to a smaller-than-expected $27.58 billion from February’s revised $26.13 billion, data from the Commerce Department showed. Both exports and imports declined in March. Exports fell 2.4% to $123.62 billion, the fewest since August 2006, from February’s $126.63 billion. Imports declined 1.0% to $151.20 billion, the fewest since September 2004, from February's $152.76 billion.

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* US home prices fell a record 14% y/y to $169,000 in Q1 2009, led by price declines in California and Florida, the National Association of Realtors reported. Despite the quarterly record fall in prices, the declines slowed in each of the three months. The median home price fell 12% y/y in March, slower than February’s 14% y/y decline and January’s 18% y/y decrease, NAR data showed.

* US small business optimism rose in April on the prospects for economic growth and stronger sales. The NFIB US small business optimism index rebounded to 86.8 from March’s 81.0, breaking a 4-month decline, according to a survey by the National Federation of Independent Business.

* Canada’s trade surplus rose more than expected in March to C$1.1 billion ($950 million) from February’s upwardly revised C$262 million, according to data from Statistics Canada. Imports, falling faster than exports, fell 4.4% to C$31.4 billion in March on declining volumes of energy products and machinery and equipment. Exports declined 1.8% to C$32.5 billion on falling exports to the US.

Europe

* Germany’s consumer prices remained unchanged m/m in April and the consumer-price inflation rate rose to 0.7% y/y from March’s 0.5% y/y, according to final April CPI data from the Federal Statistical Office. The harmonised consumer price index (HICP) for Germany increased 0.1% m/m in April and the HICP rose 0.8% y/y.

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* UK trade continued to show a trend of imports falling at a faster pace than exports, helping to reduce the trade deficit. The deficit in goods fell to £6.6 billion from £6.8 billion in February. The surplus in services remained at £4.1 bilion, helping to bring the overall trade deficit down to £2.5 billion from February’s £2.8 billion.

* UK unemployment rose by the most since 1981 in Q1 2009. The number of jobless based on International Labour Organization methods climbed 244,000 in the three months through March to 2.22 million, the highest level since 1996, the Office for National Statistics said. Jobless claims rose by 57,100 in April, less than expected, after rising by a revised 65,000 in March. The ILO jobless rate rose to 7.1%, the highest since August 1997. Average earnings including bonus in Q1 declined 0.4% y/y, the first decrease since comparable records began in 1991. Average earnings excluding bonuses increased 3.0% y/y, the smallest gain since comparable records started in 2001.

* The UK housing slump eased in April. The number of UK real-estate agents and surveyors saying prices declined exceeded those reporting gains by 59.9 percentage points, the smallest negative margin since January 2008, the Royal Institution of Chartered Surveyors reported.

* UK manufacturing production declined a less-than-expected 0.1% m/m in March, the least in 13 months, following February’s upwardly revised 0.3% m/m slide, data from the Office for National Statistics showed. Manufacturing production fell 12.9% y/y, also less than expected.

Asia-Pacific

* The Bank of Korea maintained its key interest rate at an all-time-low 2.00% for a third straight month.

* Australia’s home-loan approvals rose a more-than-estimated 4.9 m/m in March, the sixth straight increase, after an upwardly revised 1.2% m/m advance in February, according to data from the Australian Bureau of Statistics. The investment lending increased 4.7% m/m in March and the value of loans rose 7.3% m/m.

* Australian first-time buyers can continue to claim A$21,000 for newly built properties and A$14,000 for established homes on purchases before September 30, Treasurer Wayne Swan said in his annual budget.

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 Stopped Out Buy None None Buy None
Current 1.3643 96.39 1.5266 1.1057 1.1624 0.7644 132.43
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 96.00 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 1.5300 1.1300 1.2000 0.7700 136.00
1.3900 101.00 1.5600 1.1500 1.2200 0.7900 139.00

Source: Hans Nilsson

12.05.2009