Better Bank Earnings May Benefit Sterling

* The dollar and yen fell as risk sentiment improved in light and technical trade on Monday. Europe still celebrated the Easter holiday and few economic reports were released. The yen rose against the dollar but declined versus most other key currencies on increased deflationary fears as wholesale prices fell. The greenback was pressured by concerns that China will reduce its purchase of US debts. The Dow fell 26 points to 8058. The euro rose to a 4-day high as risk appetite improved as China’s industrial output and lending rose. Despite Canada’s weak business outlook surveys, the Canadian dollar rose to important technical resistance. The Australian dollar climbed to the highest level since October 7.

* The GBP/USD rose to just below the important 1.49-area resistance. The outlook has improved for global banks, and Goldman Sach reported better-than-expected earnings and wants to return the TARP money. The UK is particularly exposed to international banks so better bank earnings will likely support the pound. The GBP/USD has broken its downtrend and established a bottom. If the 1.49-1.50 resistance is broken, the pair may rally to 1.60. We buy the GBP/USD with stop at 1.4450.



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Financial and Economic News and Comments

US & Canada

* Canada’s credit conditions and sales prospects remained near the worst on record in Q1 2009, according to surveys by the Bank of Canada. In the BOC Senior Loan Officer Survey, loan officers saying credit was harder to access outnumbered those saying it was easier by 60 percentage points, trailing only the previous result of 76% in records dating back to 1999. In the BOC Business Outlook Survey, 52% of executives said sales growth will slow over the next year, while 30% forecast an increase; that imbalance of 22 points trailed only the prior survey’s 34 points since records began in 1998.

Europe

* No major economic data today.

Asia-Pacific

* Japan’s domestic corporate goods price index was down 0.2% m/m in March after a downwardly revised 0.5% m/m decline in February, the Bank of Japan said. March DCGPI fell 2.2% y/y, the largest drop since May 2002, following February’s downwardly revised 1.6% y/y decrease. The declining DCGPI adds to signs of deflation in Japan.

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* Property prices in 70 major cities in China declined a record 1.3% y/y in March, the most since records started in 2005, and new construction by floor area dropped 16.2% in Q1 2009, the National Bureau of Statistics said.

FX Strategy Update



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Source: Hans Nilsson

13.04.2009