Dollar and Yen Fall as Risky Assets Rally

The dollar and yen fell as risk appetite improved, global equity markets rallied and the G-20 pledged more than $1 trillion in emergency aid to combat the global recession. The Dow rose 216.48 points to 7,978.08 on optimism the worst of the world recession may be ending and accounting regulators relaxed mark-to-market rules. The yen fell versus all major currencies on improved risk sentiment. The USD/JPY rose to the highest level since November but failed to break resistance at 100. The euro rose after the European Central Bank surprised markets by cutting the benchmark rate only by 25 basis points and said the eurozone economic outlook is “broadly balanced.” Sterling gained after the UK construction PMI and house prices unexpectedly rose in March. The Canadian dollar advanced as oil rose the most in three weeks.

The AUD/USD broke the 0.70-area resistance and rallied on Thursday as Australia’s February trade surplus unexpectedly widened and risk appetite increased. The positive Australian trade data added to optimism the worst of the world recession may be abating. After breaking its downtrend, the AUD/USD is trading in a positive trading channel. There is resistance around the January 7 high of 0.7268 and from the upper trading band in the 0.75 area. Supports exist in the 0.70 area and the 0.68. We are long the pair and moved up the stop to 0.6775. US & Canada

US initial jobless claims in the week ending March 28 unexpectedly rose 12,000 to 669,000, the highest level since October 1982, following the previous week’s upwardly revised 657,000, data from to the Labor Department showed. The 4-week average of new jobless claims increased 6,500 to 656,750, the highest since the 1982 recession. Continuing jobless claims in the week ending March 21 jumped 161,000 to 5.728 million, more than expected and the highest level since records began in 1967, following the prior week’s upwardly revised 5.567 million. The insured unemployment rate rose to 4.3%, the highest since May 1983, from 4.2%.
US factory orders rose a more-than-expected 1.8% m/m in February, the first increase since July, after a downwardly revised 3.5% m/m decline in January, according to the Commerce Department. Excluding transportation orders, February factory orders rose 1.6% m/m, following January’s 2.4% m/m decrease. Factory orders dropped 23.7% y/y in February and fell 19.6% y/y excluding transportation.
Europe

UK house prices unexpectedly increased 0.9% m/m in March to £150,946 ($218,000), the first rise since October 2007, after February’s downwardly revised 1.9% m/m decline, Nationwide Building Society said. House prices dropped a less-than-expected 15.7% y/y, following February’s 17.6% y/y decrease.
The CIPS UK construction PMI unexpectedly increased to 30.9 in March from 27.8 in February, still indicating a contraction in UK construction, according to the Chartered Institute of Purchasing and Supply Chartered Institute of Purchasing and Supply.

The European Central Bank cut its main refinancing operations rate by 25 basis points to a record low of 1.25%; however, market expectations were for a larger 50-basis-point cut. The ECB also lowered the marginal lending facility by 25 basis points to 2.25% and the deposit facility by 25 basis points to 0.25%. ECB President Jean-Claude Trichet, signaling a further rate cut in May, said the ECB will decide on any new “non-standard measures” and that the key rate may be decreased further “in a very measured way.”
Asia-Pacific

Australia’s trade surplus unexpectedly widened to A$2.11 billion ($1.47 billion) in February, led by a rise in gold exports and a decline in consumer goods imports, following a downwardly revised A$926 million in January, according to the Australian Bureau of Statistics. Exports increased 4.0% to A$24.9 billion in February, driven by a 55.0% surge in gold exports. Imports declined 1.0% to A$22.8 billion, led by a 13.0% drop in consumer goods imports.

China’s PMI increased to a seasonally adjusted 52.4 in March from 49.0 in February, indicating the Chinese manufacturing expanded for the first time in six months, the Federation of Logistics and Purchasing said.
FX Strategy Update
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Source: Hans Nilsson

02.04.2009