USD/JPY at Resistance

* The dollar and yen rose on Tuesday, benefiting from safe haven flows as US stocks declined for a second day. The Dow fell 186 points to 7790 ahead of the upcoming earnings season. The euro dropped versus the pound as eurozone Q4 2008 GDP was revised lower. Sterling declined modestly versus other key currencies on increased risk aversion and a record drop in UK industrial production. The Australian dollar fell after the Reserve Bank of Australia lowered the cash rate by 25 basis points to 3.00% and said the Australian economy is likely to contract further. The Canadian dollar was little changed as metal prices rose and oil prices fell.

* The USD/JPY fell from its highest level in over 5 months. International stocks declined after Financial Times reported the International Monetary Fund has increased its estimate of global toxic assets to approximately $4 trillion. The Bank of Japan left its key interest rate unchanged at 0.10% and said it will provide more funds to commercial banks by broadening the range of collateral it accepts. The Japanese economy is in its worst economic slump for decades so the new BOJ measures may not help much. Since making a double bottom in late-January, the USD/JPY has rallied on improved risk appetite and the evaporation of carry-trade unwinding. The pair is overbought and approaching the resistance from the long-term downtrend on the weekly chart. We expect the pair to finally penetrate this resistance after some consolidation. There are resistance in the 102 area and support in the 99 area.



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Financial and Economic News and Comments

US & Canada

* US consumer credit fell $7.48 billion to $2.56 trillion in February after increasing a revised larger $8.14 billion in January, the Federal Reserve said.

* The Business Roundtable CEO economic outlook index fell to -5.0 in Q1 2009 from 16.5 in Q4 2008 and 78.8 in Q3 2008, indicating the CEOs of US leading companies anticipate declines in sales, capital expenditures and employment for the next six months, Business Roundtable reported.

Europe

* Eurozone GDP contracted 1.6% q/q in Q4 2008, the most in at least 13 years, according to Eurostat final data, revised down from a preliminary estimated 1.5% q/q contraction, after Q3’s 0.2% q/q decline. The economy contracted 1.5% y/y in Q4, revised down from a preliminary reported 1.3% y/y decline, following Q3’s 0.6% y/y expansion.

* UK industrial production was down a slightly less-than-expected 1.0% m/m in February after a downwardly revised 2.7% m/m decline in January, data from the Office for National Statistics showed. Industrial production fell a record 12.5% y/y, as forecast, following January’s downwardly revised 11.6% y/y decrease. Manufacturing production declined a less-than-expected 0.9% m/m in February after a downwardly revised 3.0% m/m fall in January. Manufacturing production dropped 13.8% y/y, extending January’s downwardly revised 12.9% y/y fall.

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* The net balance of UK services companies saying orders deteriorated was -23 in Q1 2009 versus -31 in Q4 2008, indicating UK service industry sales declined at a slower rate, data from the British Chambers of Commerce showed. The factory sales measure dropped to -55, the lowest since records began in 1989.

Asia-Pacific

* The Bank of Japan maintained its key interest rate at 0.10%, as forecast. The central bank, in an effort to expand the range of eligible collateral to facilitate money market operations, decided to “expand the range of eligible collateral for loans on deeds to the government and those with government guarantees” and “accept loans on deeds to municipal governments as eligible collateral,” the BOJ said in a statement.

* The Reserve Bank of Australia cut the cash rate by 25 basis points to a 49-year low of 3.00%, as forecast. The RBA signaled the contracting Australian economy is facing its first recession since 1991. RBA Governor Glenn Stevens said in a statement: “The Australian economy is contracting, though by less than those of its trading partners. Capacity utilisation has fallen from its peak, and will decline further over the rest of the year. With demand for labour weakening, growth in labour costs will probably also fall. Hence inflation over the medium term is likely to be lower than it has been over the past two years. Demand for credit is weak overall, though credit for owner occupied housing is picking up.”

* The AiG performance of construction index increased to 30.4 in March from 29.5 in February, still below 50 indicating Australia’s construction sector has remained in its contractionary condition since March 2008, the Australian Industry Group reported.

FX Strategy Update



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Source: Hans Nilsson

07.04.2009