Yen Falls on Better Risk Sentiment

* The dollar was mixed in light pre-holiday trading. Investor risk sentiment improved, pushing global equity and commodity markets higher. The Dow surged 246 points to 8083. The US trade deficit narrowed dramatically as imports plunged and exports rose for the first month since July 2008. The narrowing trade deficit supported the greenback and will help US GDP growth in Q1 2009. The euro fell on weak German industrial production and increased speculation the European Central Bank will ease monetary policy. Sterling declined after the Bank of England kept its benchmark interest rate unchanged and said it will keep buying government bonds. The Australian and Canadian dollars rose on better risk appetite and rising commodity prices despite reports of worse-than-expected Australian and Canadian labor markets.

* The USD/JPY rose on surging stock markets and improving risk appetite. Japan’s machinery orders unexpectedly rose and Japan announced a larger-than-expected stimulus plan. The Nikkei rallied 3.7% on a report that the government may use some of the new stimulus package to buy stocks. After breaking last year’s downtrend, the USD/JPY is currently in a strong uptrend and an upward sloping trading channel. The pair found support from its lower band today. 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

* The US trade deficit in goods and services in February fell more than expected to $26.0 billion, the lowest level since 1999, data from the Commerce Department showed. Exports rose $2.0 billion in February but fell 16.9% y/y. The rise in exports in February was driven by pharmaceuticals. Imports fell $8.2 billion in February and dropped 28.8% y/y. The fall in imports in February was widespread, but led by petroleum, autos/parts, toys, and drilling equipment. Adjusted for inflation, the trade deficit in goods was $35.6 billion in February, $15.7 billion smaller than last year. Without adjusting for inflation, the trade deficit for goods and services was $35.9 billion smaller than last year.

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* US initial jobless claims declined by 20,000 to 654,000 in the week ending April 4, exceeding 600,000 for a 10th consecutive week, following the prior week’s upwardly revised 674,000, the highest since 1982, the Labor Department said. Continuing claims surged to a record 5.84 million in the week ending March 28.

* US import prices advanced 0.5% m/m in March, the first increase in eight months, while export prices declined 0.6% m/m, the Labor Department said.

* Canada’s unemployment rate rose to a 7-year high of 8.0% in March from 7.7% in February after employers cut a net 61,300 workers, Statistics Canada said.

* Canada unexpectedly posted a trade surplus of C$126 million ($102 million) in February, following a revised deficit of C$1.15 billion in January, Statistics Canada reported.

* Canadian new housing prices fell a more-than-expected 0.7% m/m in February after declining 0.6% m/m in January, according to Statistics Canada.

Europe

* Germany’s consumer-price inflation decelerated to its lowest level in nearly 10 years in March, final data from the Federal Statistical Office confirmed. March CPI declined 0.1% m/m but increased 0.5% y/y, in line with preliminary data, after rising 0.6% m/m and 1.0% y/y in February. March HICP declined 0.2% m/m but advanced 0.4% y/y, as previously reported, after rising 0.7% m/m and 1.0% y/y in February.

* Germany’s industrial production declined a slightly less-than-expected 2.9% m/m in February after an upwardly revised 6.1% m/m decline in January, according to data from the Federal Statistical Office. Industrial production contracted a less-than-expected 20.6% y/y, following January’s upwardly revised 17.9% y/y drop.

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* UK PPI output increased 0.1% m/m in March, as forecast, after February’s flat reading, according to data from the Office for National Statistics (ONS). The PPI output inflation rate was at 2.0% y/y, slightly less than expected and below February’s downwardly revised 3.0% y/y. Core PPI output increased a slightly more-thanexpected 0.2% m/m in March, after a downwardly revised 0.1% m/m decline in February. The core PPI inflation rate was at 3.3% y/y, higher than expected, following February’s 3.7% y/y. Meanwhile, PPI input advanced a slightly more-than-estimated 1.0% m/m in March after an upwardly revised 0.9% m/m increase in February. PPI input declined a less-than-expected 0.4% y/y, following February’s upwardly revised 1.0% y/y advance.

* The UK’s deficit on trade in goods and services widened to £3.2 billion in February from £3.1 billion in January, while the deficit on trade in goods narrowed to £7.3 billion from £7.8 billion, the ONS reported. The deficit with EU countries widened to £3.4 billion in February from £2.2 billion in January, while the deficit with non-EU countries narrowed to £4.0 billion from £5.6 billion.

* The Bank of England maintained its key interest rate at 0.50%, as forecast, and said it will continue purchasing government bonds to combat the deepening UK recession.

Asia-Pacific

* Australia’s unemployment rate jumped more than expected to 5.7% in March, the most since the 1991 recession, from 5.2% in April, according to the Australian Bureau of Statistics. Employment decreased a morethan- expected 34,700 to 10,771,800 in March after increasing a downwardly revised 1,100 in February. Fulltime employment fell 38,900 to 7,621,300 while part-time employment increased 4,200 to 3,150,500. The participation rate remained steady at 65.5%.

* Japan’s machinery orders unexpectedly increased 1.4% m/m in February, the first gain in five months, after a 3.2% m/m decline in January, the Cabinet Office said. Machinery orders fell a less-than-expected 30.1% y/y, following January’s 39.5% y/y drop.

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* Japanese machine tool orders dropped 84.5% y/y in March, preliminary data from the Japan Machine Tool Builders’ Association showed, deepening February’s 84.4% y/y contraction.

FX Strategy Update



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

Source: Hans Nilsson

09.04.2009