FOREX TRADING

• USD: Lower, jobless claims post unexpected rise, continuing claims fall to lowest level since January 2009
• JPY: Higher, supported by a rising risk aversion and Yuan revaluation speculation
• EUR: Higher, cost of financing Greek debt rises, Trichet says Greek aid plan is workable
• GBP: Higher, election polls point to a hung parliament, manufacturing output and house prices rise
• CAD and AUD: AUD & CAD higher, Australian employment growth as expected, tracking equities

Overview

USD and JPY traded higher Thursday supported by a spike in risk aversion as equity markets decline. The decline in equity markets is attributed to ongoing worries about sovereign debt risk in Europe and concern that the global recovery may slow in the second half of the year. JPY was also supported by Yuan revaluation speculation. A PBOC official has called for a managed float for the Yuan and the New York Times reports that China is close shift in its currency policy. The BOE and ECB left monetary policy unchanged as expected. EUR traded lower pressured by ongoing concern about Greek debt troubles as the Greek/German 10 year bond spread widens to record level. EUR downside was limited by statement from ECB President Trichet said that the Greek aid plan is workable and that Greek debt default is not an issue. EUR traded higher into the European close. GBP outperformed supported by report of better than expected UK industrial production manufacturing output and rising UK house prices. GBP gains were limited by the latest UK election polls which show the Conservative party’s lead has narrowed increasing the risk of a hung parliament. Commodity currencies traded lower pressured by weaker commodity prices and declining equity markets with AUD downside limited by report of improving Australian employment growth. US jobless claims unexpectedly rose last week. Worries over Greece and the surprise rise in US jobless claims dampen risk appetite. USD pared overseas gains after the release of the jobless claims report. The Fed says that monetary policy decisions will be data driven and the employment outlook will be key to any change in policy. The jobless claims report suggests that the US labor market remains weak and that the Fed will continue to keep interest rates low for an extended period. Recent USD gains have partly reflected a spike in bond yields. Bond yields dipped after the release of today’s jobless claims rise.

Today’s US data:

Jobless claims for the week ending 04/03 rose by 18k to 460k, a reading of 432k was expected. Continuing claims declined to the lowest level since January 2009.

Upcoming US data:

On April 9th March wholesale inventories and sales will be released. Wholesale inventories are expected to rise by 0.3% compared to -0.2% last month. Wholesale sales are expected to rise by 0.1% compared to 1.3% last month.

JPY

JPY traded higher supported by a spike in risk aversion as equity markets decline and in reaction to Yuan revaluation speculation. The decline in equity markets appears to be related to investor concern that the global recovery will begin the slow as governments and central banks withdraw liquidity. Equities are also weakening on concern over the Greek debt crisis. Wednesday the OECD said that it expects short term growth to slow in the G-7 nations. The New York Times reports that China is close to shift in its currency policy and a PBOC official calls for managed float for the Yuan. JPY sometimes benefits as a proxy for Yuan revaluation speculation. There was limited reaction to report that Japan’s February core machinery orders fell by 5.4% and February current account surplus narrowed to ¥1.47trln a reading of ¥1.62trln was expected. JPY is benefiting from this week’s BOJ decision to leave monetary policy unchanged. Wednesday the BOJ elected to hold policy steady and kept its economic assessment unchanged. In its policy statement the BOJ said it expects the economy to pick up, noted the improvement in business sentiment and pledged to maintain accommodative policy. The BOJ reaffirmed its commitment to combat deflationary pressures in Japan. BOJ Governor Shirakawa said that he sees some signs of sustainable economic recovery. JPY direction appears to be re-linking with risk sentiment and the direction of equities. JPY pared gains as US jobless clams post a surprise rise and stocks stabilized.

Key technical levels to watch in USD/JPY include support at 92.04 the March 29th low with resistance at 94.27 the April 7th high.

EUR

EUR opened lower pressured by Greek debt concern as the cost to finance the Greek debt continues to rise. The Greek/German 10 year bond spread traded at a record level. This indicates that investors remain wary of buying Greek debt. The premium on Greek government bonds rose to 4.4 percentage points. This marked the highest level for the Greek/ German bond spread since the inception of the EUR in 1999. Greek banks have asked to have access to the EU government support package. Earlier in the week it was reported that wealthy Greek individuals and corporations were withdrawing money from Greek banks. This has exacerbated the problems facing Greece as the country tries to manage the funding of its debt. EUR was also pressured by report that EU February retail sales declined by 0.6% and in reaction to the ECB’s decision to hold monetary policy steady. In the press conference following the ECB meeting ECB President Trichet said that interest rates are appropriate and inflation expectations well anchored. He went on to say that M3 growth will likely remain weak. Trichet also said that the aid plan for Greece is workable and default is not an issue for Greece. EUR rebounded in reaction to Trichet’s comments about Greece.

The technical outlook for the EUR is negative as EUR trades below 1.3500. Expect EUR support at 1.3267 the March 25th low with resistance at 1.3409 the April 7th high.

GBP

GBP traded higher with gains limited by the latest UK election polls which suggest that the election will result in a hung parliament. The UK general election will be held on May 6th and the latest UK election polls show that the Conservatives lead over Labor has narrowed to six points. A conservative lead of 10 points or more is needed to ensure a majority in parliament. A hung parliament will reduce the potential for quick action from the UK to reduce the government deficit. Failure to reduce the UK budget deficit could lead to a downgrade of the UK AAA sovereign debt rating. The BOE elected to leave monetary policy and its asset purchase plan unchanged as expected. The BOE was not expected to make any significant policy changes ahead of the UK election. GBP downside was limited by report of improving UK manufacturing and house price data. UK February manufacturing output rose by 1.3% and industrial output rose by 1%. Halifax house price index rose by 1.1%. These reports suggest that the UK recovery is gaining momentum. The UK economic recovery remains uneven as Wednesday the UK reported an unexpected decline in its March service sector PMI. The service sector is the largest sector accounting for 70% of the UK economy. The decline in the service PMI suggests that the UK recovery may be at risk.

The technical outlook for GBP is mixed as GBP trades above 1.5200. Expect near-term support at 1.5043 the March 31st low with resistance at 1.5320 the April 5th high.

CAD

CAD traded mixed initially pressured by weaker equity and commodity prices and in reaction to a statement from Canada’s PM Harper expressing concern about CAD strength. Greek fiscal worries and report of an unexpected rise in US jobless claims generates concern about the strength of the global recovery. There is concern is that if Greece defaults on its debt it could hurt the EU recovery. The rise in US jobless claims suggests the US labor market is stagnant. PM Harper repeated earlier comments that the BOC has expressed concern that the CAD rise may slow the recovery. Harper’s comments may inject fresh risk of intervention by the BOC to try to slow the rate of the CAD rise. CAD traded at parity with the USD earlier in the week for the first time since July of 2008 but the move failed to spark additional demand for the CAD.CAD turned higher as stocks reverse early losses. CAD has been supported by improving economic outlook in Canada and BOC rate hike speculation. The combination of improving Canadian domestic economy and rising Canadian inflation generates speculation that the BOC will hike interest rates ahead of the Fed. According to a Bloomberg survey the BOC is expected to raise its overnight rate by 2 percentage points to 2.25% by the middle of 2011. Focus turns to this Friday’s release of Canadian unemployment. Canada is expected to have created over 25k new jobs last month. This would mark the third straight month of job creation in Canada. The employment component of the Ivey manufacturing survey released Wednesday jumped to 51.6 from 41.3 in the prior month. A strong Canadian employment report will add additional fuel to BOC rate hike speculation.

On April 9th March unemployment rate and employment growth will be released. The unemployment rate is expected to fall by 0.1% to 8.1% with employment growth at 29K compared to 20.9k last month.

The technical outlook for CAD is positive as USD/CAD trades below 1.0000. Look for near-term support at 0.9975 the July 15th low with resistance at 1.0230 the March 30th high.

AUD

AUD initially traded lower tracking a spike in risk aversion as global equity markets and commodity prices weaken. The main catalyst for today’s spike in risk aversion is worry about Greek debt and uncertainty about China’s currency policy. As noted above, the cost of financing the Greek debt has risen to a record high. The rising cost of financing the Greek debt increases the risk of a Greek debt default. ECB President Trichet expressed optimism about Greece and said that default is not a concern. His comments helped to soothe investor jitters about Greece and the USD pared early gains. The New York Times says that China is close to shift in its currency policy and a PBOC official calls for a managed float for the Yuan. Yuan revaluation is generally thought to be a positive for redressing global trade imbalance but it also could contribute to slower export growth in China which in turn could be a drag on the global recovery. Australia’s unemployment data was generally positive with March employment growth reported at 19.6k, a reading of 20k was expected. The March unemployment rate was unchanged at 5.3%.AUD turned higher midsession supported by a rebound in stocks and the EUR. AUD traded at a 19 month high versus the USD earlier in the week supported by a 25bps RBA rate hike and improving risk sentiment as global equity markets trade near 18 month highs. The AUD rally may begin to slow with pressure sparked by uncertainty about the global recovery and speculation and the RBA will be in no hurry to hike rates again. RBA watcher McCrann Wednesday said that the RBA will be in no rush to hike rates further. McCrann went on to say that the RBA will eventually move towards normality in monetary policy. The normal average for Australian overnight rate is seen at 4.25% to 5%. In addition the long side of the AUD is getting crowded and this may make the AUD vulnerable to a technical correction. According to a Bloomberg report investors are the most bullish the AUD since 2000.

The technical outlook for the AUD is positive as the AUD rallies above 9200. Expect AUD support at 9165 the April 6th low with resistance at 9300.

By Michael J. Malpede

Easy Forex

Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst.

Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.