Will Impending Bull Market in Stocks Benefit Dollar?

* The dollar fell against most major currencies on Wednesday as stocks held on to small gains following yesterday’s huge equity rally, which is reducing the greenback’s safe haven appeal. The USD/JPY declined to the lower band of its upward trading channel. If this is broken, a substantial correction may occur. Sterling traded modestly higher on its first day under quantitative easing but continued to fall against the euro after breaking resistance. The Canadian dollar fell modestly. Concern about the global economy pressured commodities after China’s exports plunged. Still, the Australian dollar rose on increased risk appetite, testing its resistance from the 6-month downtrend.

* The EUR/USD rose to resistance despite plummeting factory orders in Germany. The pair is supported by risk appetite as stocks gained. Above the 1.24-1.25 area support, the EUR/USD has tentatively broken its resistance from the recent downtrend. This could mean a bullish breakout from a bullish W-formation. There are strong support in the 1.24-area and strong resistance in the 1.34-area.



www.cmsfx.com

Financial and Economic News and Comments

US & Canada

* Will the bull market in US stocks benefit the dollar? Risk aversion and imploding stocks have been supporting the dollar. Frequently used to determine a turning point in an economy, a leading economic indicators index is also a good predictor of bull and bear equity markets. The Globicus LEI indicates a new bull market in US equities will begin soon and it is now the time to buy US stocks. As illustrated in the chart, a turn-up in the LEI indicates an imminent stock-market rally. This pattern goes back all the way to 1950; each time the LEI has turned higher as shown by vertical lines, the stock market has bottomed out and rallied. Therefore, we strongly recommend buying stocks now.

* Normally, rallying stocks and an expanding economy will appreciate the exchange rate and vice versa. However, the recent contraction and bear market have supported the dollar. The question is: will the impending equity bull market and a US economic recovery appreciate the dollar or will they benefit other major currencies as risk appetite increases? The greenback is at important technical levels against most major currencies. If those are broken, the old relation will be restored and the dollar will rally on good news rather than bad news.

www.cmsfx.com

* Canadian new home prices fell a more-than-expected 0.6% m/m in January after declining 0.1% m/m in December, according to Statistics Canada. New home prices fell 0.8% y/y, the first year-over-year decline since January 1997.

Europe

* German producer prices fell a more-than-expected 1.2% m/m in January, after an upwardly revised 0.8% m/m decline in December, according to PPI data from the Federal Statistical Office. The producer-price inflation rate rose less than expected at 2.0% y/y, decelerating from December’s downwardly revised 4.0% y/y.

* Germany’s factory orders fell a seasonally adjusted 8.0% m/m in January, four times as much as forecast and extending their deepest fall on record, following December’s downwardly revised 7.6% m/m decline, according to the Federal Ministry for Economics and Technology. Factory orders plunged a seasonally adjusted 35.2% y/y in January, the largest drop since records started in 1991.

www.cmsfx.com

* The UK total trade deficit widened less than expected to £3.6 billion in January, following December’s revised £3.2 billion, according to the Office for National Statistics. The visible trade deficit grew more than expected to £7.7 billion from December’s £7.2 billion. The trade deficit with EU states narrowed to £2.0 billion, down from December’s £2.9 billion, while the trade deficit with non-EU states widened more than expected to a record high £5.7 billion, up from December’s £4.3 billion.

Asia-Pacific

* Australia’s consumer confidence was little changed in March, with the Australian sentiment index slipping 0.2% m/m to 85.6, after February’s 4.6% m/m decline, according to a Westpac Banking Corp. and Melbourne Institute survey. The index has been below 100 since February 2008, indicating pessimists outnumber optimists.

* Australian home-loan approvals rose 3.5% m/m to 55,628 in January after rising an upwardly revised 6.7% m/m in December, the Australian Bureau of Statistics reported. Lending to owner-occupiers increased 2.3% m/m in January. In contrast, the value of lending to investors who plan to rent or resell homes fell 3.8% m/m.

* Japan’s machine orders declined for a fourth month in January, falling a less-than-expected 3.2% m/m, following December’s 1.7% m/m decline, according to the Cabinet Office. January machine orders plunged 39.5% y/y.

* Japan’s domestic corporate goods prices in February declined a slightly less-than-expected 1.1% y/y, following January’s downwardly revised 0.3% m/m decline, data from the Bank of Japan showed. With annual CGPI on a downward trend since September 2008, possibly indicating a leveling off in inflation levels, Japan will likely face a real threat of deflation in 2009.

* China’s urban fixed-asset investment surged 26.5% y/y in January and February combined to 1.03 trillion yuan ($150 billion) on the government stimulus, the Statistics Bureau said.
*

China’s exports plunged 25.7% y/y in February, while imports dropped 24.1% y/y, the Customs Bureau said. The February trade surplus narrowed to $4.84 billion, about an eighth of the amount in January.

www.cmsfx.com

* The Reserve Bank of New Zealand cut the official cash rate 50 basis points to 3.00%. RBNZ Governor Alan Bollard said: “As economic activity troughs, we expect the rapid easing of monetary policy to slow. Any future cuts will be much smaller than observed recently. We do not expect to see in New Zealand the near-zero policy rates of some countries….We will assess the need for further cuts in the OCR against emerging developments in the global and domestic economies and the responses to policy changes already in place.”

FX Strategy Update



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

Источник: Hans Nilsson

11.03.2009