EUR/USD Rises to Important Resistance

* The dollar and yen fell against their counterparts on Thursday as risk appetite increased despite mixed US economic data. Existing home sale declined more than expected, but inventories and prices improved. Initial jobless claims rose, but the rise may be due to difficulties in seasonally adjusting the data. Meanwhile, the 4- week moving average of new jobless claims fell for a second week. The yen was little changed against the greenback but declined in the cross trades as a late stock rally advanced the Dow 70 points to 7,957. Sterling rose on improved risk sentiment and slight improvement in UK manufacturing orders. The Canadian dollar advanced after Canada’s retail sales gained for a second consecutive month and the Bank of Canada said it does not plan to implement quantitative easing at this time. The Australian dollar was supported by firming commodity prices and forecasts that China’s economy is improving. The Swiss franc rose after Credit Suisse posted better-than-expected earnings.

* The EUR/USD rose as the eurozone services and manufacturing composite PMI contracted at the slowest rate in six months indicating the eurozone economic slump may be easing. The short-term trend for the EUR/USD is negative; however, the pair traded above the 1.30 handle and may test the diagonal 1.32-area resistance. If this resistance is broken, the chart pattern will turn bullish. Support exists in the 1.29 area.



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Financial and Economic News and Comments

US & Canada

* US initial jobless claims increased 27,000 to 640,000, as forecast, in the week ending April 18, after the prior week’s upwardly revised level of 613,000, data from the Labor Department showed. The 4-week average of new jobless claims declined 4,250 to 646,750. Continuing jobless claims in the week ending April 11 jumped 93,000 to 6,137,000, the highest level on record, following the preceding week’s upwardly revised level of 6,044,000. The 4-week moving average of those continuing claims surged 142,500 to 5,944,000. The insured unemployment rate increased to 4.6%, the highest since January 1983, from 4.5%.

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* US existing home sales declined a more-than-expected 3.0% to a 4.57 million annual rate in March following a downwardly revised 4.9% increase to a 4.71 million rate in February, according to data from the National Association of Realtors. Existing home sales fell 7.1% y/y. Sales decreased in all major regions, except for the Midwest which was unchanged. Sales declined for both single-family units and condos/co-ops. The median price of an existing home increased to $175,200 in March but fell 12.4% y/y. Inventories of previously owned homes declined 1.6% at the end of March to 3.74 million available for sale, representing a 9.8-month supply at the current sales rate following 9.7 in February.

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* Canada’s retail sales rose for a second consecutive month in February, unexpectedly rising 0.2% m/m to C$33.7 billion ($27.3 billion), after a downwardly revised 1.8% m/m gain in January, Statistics Canada reported. Retail sales less autos advanced a more-than-expected 0.6% m/m, following January’s 1.4% m/m increase.

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* The Bank of Canada made no commitment to use credit and quantitative easing, and instead laid out “principles” for their use. In the BOC April monetary policy report, the central bank said current policy is “appropriate” to revive the Canadian economy, which is forecast to contract 7.3% q/q and 2.4% y/y in Q1 2009. The report read: “Canadian real GDP is projected to decline by 3.0 per cent in 2009 and to grow by 2.5 per cent in 2010 and by 4.7 per cent in 2011. After declines in 2009, core inflation and total CPI inflation are projected to gradually return to 2 per cent in the third quarter of 2011.” BOC Governor Mark Carney said “these are difficult times,” adding that adopting new policies to deal with further economic weakness remains “a big if.”

Europe

* Eurozone industrial new orders fell a less-than-expected 0.6% m/m in February, its deepest fall since July 2008, after January’s upwardly revised 2.0% m/m decline, data from Eurostat showed. Industrial new orders dropped a record 34.5% y/y, deepening January’s downwardly revised 34.3% y/y decrease.

* The eurozone manufacturing PMI increased more than expected to 36.7 in April from 33.9 in March, while the services PMI rose more than forecast to 43.1 from 40.9, according to April advance estimates by Markit Economics. The composite PMI rose to a record-high 40.5 from March’s 38.3, indicating the eurozone manufacturing and service industries contracted at the slowest pace in six months and suggesting the economy could begin to stabilize by the end of the year.

* Germany’s manufacturing PMI rose more than anticipated to 35.0 in April from 32.4 in March, while the services PMI increased more than expected to 43.5 from 42.3, April advance data by Markit Economics showed. The composite PMI rose to a record-high 39.7, indicating Germany’s manufacturing and service industries contracted at the slowest pace in five months.

* UK manufacturing new orders improved slightly to a reading of -57 in April from -58 in March, according to the Confederation of British Industry’s industrial trends survey.

Asia-Pacific

* Bank of Japan Governor Masaaki Shirakawa said Japan’s struggle to rebuild economic growth during the socalled “lost decade” of the 1990s suggests US consumers and companies face a “painful” adjustment as the economy works out excesses created by a bubble. “This will be painful, but inescapable,” Shirakawa said in his prepared remarks to the Japan Society in New York. “In view of Japan’s decade-long experience, there are no palatable alternatives,” he said, noting that there are “remarkable similarities” between Japan’s experience in the 1990s and the US’ over the past two years.

FX Strategy Update



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

Source: Hans Nilsson

23.04.2009