Dollar Mixed on Signs US Economy Is Bottoming

* The dollar traded mixed on Wednesday after better-than-expected US data on durable goods orders and new home sales reduced safe haven demand for the USD. Greenback fell versus the euro and yen after Treasury Secretary Timothy Geithner showed some openness toward China’s plan for a SDR linked reserve currency, but clarified his remarks saying that the US will take measures to keep the dollar the world’s reserve currency. The yen rose following three straight days of losses as Japan recorded its first trade surplus in five months, despite a record 49% y/y decline in exports. Imports fell a record 43% y/y. The collapsing trade indicates a deepening problem for the Japanese economy; thus, we are buying the USD/JPY. Sterling fell as UK CBI retail sales dropped sharply and today’s fixed income auction failed to attract enough bidders for the £1.75 billion of gilts despite the Bank of England’s quantitative easing policy. UK PM Gordon Brown said his government will do whatever is necessary to revive economic growth, with global deflation the main danger in the short term. The Australian and Canadian dollars were little changed, unable to push through technical levels as risky assets consolidated recent gains.

* The EUR/USD rose after better-than-expected US economic data reduced the risk of a severe US recession. Germany’s business sentiment fell to a 26-year low in March; however, the expectations index, the only leading indicator of growth in the survey, rose for a third consecutive month. The EUR/USD, consolidating last week’s huge gains, seems to establish a new trading range between resistance in the 1.37-area and support in the 1.34-area. The pair is overbought, but the trend is up. Major risks to further gains are a significant correction in the stock market and an implosion in the eastern European economies.



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Financial and Economic News and Comments

US & Canada

* US durable goods orders unexpectedly rose 3.4% m/m in February, the largest increase in more than a year and the first in seven months, after a downwardly revised 7.3% m/m decline in January, data from the Commerce Department showed. Excluding transportation equipment, durable good orders unexpectedly increased 3.9% m/m, the most since August 2005, following January’s downwardly revised 5.9% m/m decrease. Durable good orders dropped 28.9% y/y.

* Demand for non-defense capital goods excluding aircraft, a barometer for future business investment, rose 6.6% m/m in February after a 11.3% m/m drop in January. Shipments of those items, used in calculating GDP, increased 0.6% m/m in February.

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* US new home sales unexpectedly increased 4.7% m/m in February to a seasonally adjusted 337,000 annual rate after a 322,000 rate in January, according to the Commerce Department. New home sales dropped 41.1% y/y. Sales increased in the South and West, but fell in the Midwest and Northeast. The number of new homes for sale dropped to a seasonally adjusted 330,000 in February, and the supply of unsold new homes at the current sales rate declined to 12.2 months from January’s 12.9. The decline in the month’s supply was due to both an increase in the rate of sales and a continued decrease in the inventory of unsold new homes. Inventories fell to 325,000 in February, the lowest since 2002. The median price of a new home fell 18.1% y/y to $200,900, the lowest since December 2003. The average price of a new home was $251,000, down 16.7% y/y.

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Europe

* Germany’s business confidence dropped to a 26-year low in March amid an intensifying recession, with the Ifo German business climate index falling to 82.1, the lowest reading since November 1982, from February’s 82.6, the Ifo Institute reported. The current conditions index declined to 82.7 from 84.3. However, the expectations index increased to 81.6 from 80.9, signaling a gradual improvement in business prospects in Germany.

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# The CBI latest distributive trades survey of UK retailers showed a net 44% reporting lower sales in March, compared with a net 25% in February, the Confederation of British Industry reported.

Asia-Pacific

* Japan unexpectedly posted a trade surplus of ¥82.4 billion in February after posting a revised trade deficit of ¥956.9 billion, the Ministry of Finance said. Imports fell 43.0% y/y in February, while exports dropped 49.4% y/y. The seasonally-adjusted trade balance showed a ¥43.3 billion deficit, higher than expected, following January’s ¥364.9 billion deficit.

FX Strategy Update



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Source: Hans Nilsson

25.03.2009