Greenback Decline Continues

* The dollar extended losses on Thursday following massive monetary-policy easing by the Federal Reserve on Wednesday. The Fed is using its balance sheet in an attempt to unclog the financial system and reflate the US economy. The Fed’s announcement has removed the dollar’s safe haven appeal as investors are willing to take on more risk. US long-term inflationary expectations and the risk to the dollar have also increased as the Fed monetized its purchases. The yen rallied for a second day. The euro touched its highest level since January 10 and the pound reached its highest level since February 25. Rising commodity prices led by precious metals and energy costs rallied the commodity currencies. The Australian dollar rose for an eight consecutive day.

* The USD/CAD fell on increased risk appetite and surging commodity prices. The pair was also pressured as Canada’s consumer-price inflation rose more than expected, making the inflation-targeting Bank of Canada less likely to ease more aggressively. Since late-October, the USD/CAD had failed four times to penetrate the 1.30-area resistance. The pair broke the diagonal support yesterday and pared losses after touching the 1.22-area support. We believe the decline will likely continue and sell the pair with stop at 1.2850.



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Financial and Economic News and Comments

US & Canada

* US initial jobless claims in the week ending March 14 declined 12,000 to 646,000, lower than the 655,000 forecast, data from the Labor Department showed. Continuing claims in the week ending March 7 swelled to a record 5.47 million.

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* The Conference Board US leading economic indicators index, measuring the economy’s direction over the next three to six months, declined a less-than-expected 0.4% in February after a downwardly revised 0.1% increase in January, according to the Conference Board. The coincident index, measuring the economy’s current condition, declined 0.4% following January’s 0.6% fall.

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* The Philadelphia Fed business index increased to -35.0 in March from -41.3 in February, indicating manufacturing in the Philadelphia region contracted for the 15th time in the last 16 months, the Federal Reserve Bank of Philadelphia reported.

* Canada’s consumer prices increased a more-than-expected 0.7% m/m in February after a 0.3% m/m decline in January, according to Statistics Canada. The CPI rose a more-than-expected 1.4% y/y following January’s 1.1% y/y increase. The Bank of Canada’s core CPI increased a more-than-estimated 0.5% m/m in February after a 0.4% m/m decline in January. The core CPI rose a faster-than-expected 1.9% y/y, matching January’s 1.9% y/y pace.

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Europe

* According to the Confederation of British Industry’s March industrial trends survey, more than half of respondents said their total order book levels were below normal, bringing the resulting balance down to -58%, marking the weakest demand for UK manufactured goods since January 1992, following February’s -56%. UK manufacturers expect output volumes over the next three months to fall with the resulting balance of -48%, equaling September 1980’s record low, following last month’s -44%.

* UK public sector net borrowing rose to a record-high £9.0 billion in February from an upwardly revised -£2.6 billion in January, while public sector net cash requirement increased to £4.4 billion from January’s upwardly revised -£24.9 billion, the Office for National Statistics reported.

* The Bank of England said it will buy investment-grade corporate debt in portions of as much as £5 million at auctions held four days a week from March 25. The purchases are part of the UK government’s quantitative easing strategy to spur lending amid the recession.

* Switzerland’s trade surplus fell to CHF 0.73 billion in February from CHF 1.99 billion in January, the Swiss National Bank reported. Exports declined 3.7% m/m to CHF 14.4 billion in February after January’s upwardly revised 7.3% m/m gain. Imports rose 2.1% m/m to CHF 13.6 billion following January’s upwardly revised 1.6% m/m increase.

Asia-Pacific

* Japan’s all-industry activity index declined a less-than-expected 1.7% m/m in January after falling 2.7% m/m in December, according to the Ministry of Economy, Trade and Industry. The decline was led by an 11.3% m/m drop in the industrial production index. The services sector index increased 0.4% m/m.

* Japan’s nationwide department store sales dropped 11.5% y/y in February to ¥469.6 billion after declining 9.1% y/y in January, the Japan Department Store Association reported. Tokyo department store sales dropped 11.7% y/y after January’s 9.6% y/y decrease.

* Australia’s dwelling starts in Q4 2008 fell 9.9% q/q after Q3’s upwardly revised 8.9% q/q decline, the Australian Bureau of Statistics reported. Starts dropped 19.5% y/y.

FX Strategy Update



©2004-2008 Globicus International, Inc. and Capital Market Services, L.L.C.

Source: Hans Nilsson

19.03.2009