FOREX TRADING

Singapore dollar revaluation

The government of Singapore decided on a modest revaluation of the Singapore dollar, which jumped a little over 1% vs. the US dollar and therefore to the strongest level since before the crisis hit in 2008. The move is seen as a response to stronger inflation readings in Asia as China’s commodity demand has seen prices for key commodities rise as much as 70% over the last year. The magnitude of the "revaluation" was not particularly great, but the Singapore authorities are clearly not against further appreciation of their currency as growth is expected to surge past previous expectations. The Monetary Authority of Singapore said it would seek a "modest and gradual appreciation" of the SGD against a basket of currencies. This pushed the USD a bit weaker in Asia, and commodity currencies a bit higher (is this a preview of the kneejerk reaction that awaits if the Chinese try to revalue?) but later the EURUSD was back lower, and the market must also consider the argument of whether less pressure on reserve diversification from trying to maintain currency pegs or managed floats is a Euro negative.

Risk rally

Of course, commodity currencies are stronger not just on the Singapore news, but also because risk appetite remains robust after the market liked what it saw from the key chip company Intel yesterday after the US equity markets closed. Sales, profits and guidance were all positive and Nasdaq 100 futures are trading at a new high for the cycle, having rallied almost 100 percent now from their lowest levels after the crisis, and even more remarkably, now only a little over 10% from the 2007 highs. Crude oil also survived a test of support below 84 dollars a barrel and Gold rebounded from its two-day sell-off. The kiwi was a reluctant participant in the commodity currency rally, since its retail sales numbers saw an ugly dip in February, against expectations for reasonably strong expansion.

Euro: renewed spread widening

The Greek debt spreads are at it again, and have now widened to the levels they were ate before the weekend’s bailout announcement. Perhaps worse, Portuguese spreads have also widened again and are at their widest since February. Investors are clearly beginning to second guess the situation and where it will lead. Fitch Ratings said that Greece may be forced to activate the loan packaged from the EU/IMF already this month. The director of Fitch ratings doesn’t believe that Greece wants to wait for a failure in the market place and that Greece may turn to the EU/IMF for help within a week or two. Not much evidence of pressure on the Euro in trading today, however, outside of a heavy EURGBP cross.

Disappointing US Confidence but strong US Retail Sales

It is very disappointing for the US jobs and recovery picture that the weekly ABC Confidence survey dipped back sharply lower, as it suggests the employment picture on the ground is not improving enough to dig this indicator out of the cellar. Robert Reich pointed out that we need to see +150k payroll improvements from the US every month just to track population growth in the US, so the employment picture is still very "bleak". On the other hand, the unconfident US consumer still seems willing to spend money, as the Mar. Retail Sales results came in stronger than expected and the Feb. data was revised higher as well, even ex Autos and Gas. The CPI came in lower than expected (core reading matched the lowest year-on-year reading since the mid-1960′s), and the bond market preferred to focus on the inflation data, so the bond market rally eroded support for the greenback that the retail sales might otherwise have given.

Latest Fed speak

The Fed’s Lacker said late yesterday that he would like to see the language removed that suggests the Fed will keep rates this low for a considerable period. "The recent data has made me think that it might be sooner rather than later that we would move that language. It depends on more data coming in." Mr. Lacker is not a voting member of the FOMC. Meanwhile, the Fed’s Fisher said that slack in the US economy translates into no threat of inflation for the US economy.

Looking ahead

It’s time for EURUSD to either stand or fall. Looking at the chart, one can argue that the entire sequence below the previous 1.3435 area low has effectively been rejected and that as long as we stay above there, the outlook is for a try at the 1.3800+ high at minimum and possibly even a go at the 200-day moving average way up above 1.4200. A move back below the old 1.3435 support area, on the other hand, would seem to cap the action for now and have the market focusing on whether the 1.3267 cycle low will eventually give way. We prefer a scenario in which the EURUSD remains below the 1.4000 area for now. And in the very short term here, the 55-day moving average is proving rather interesting.

Finally, the JPY response to the bond market seems to be less consistent of late: the strong bond rally in the wake of the US data would normally have been met with a kneejerk rally in the JPY – is the simultaneous equity market rally confusing the situation? This could be, since risk bulls love the combination of low inflation and positive data, the idea that the economy can grow plenty due to the slack built up in the system, without straining capacity. That’s the story the markets are trying to tell us at the moment, at least.

Up shortly, we have Bernanke testifying before Congress on the outlook for the US economy. Later we see the latest DOE crude oil inventory (massive inventories have not impressed the commodity bulls, USDCAD traders should note!) and the Fed’s Beige Book is set for release later in the day. In Asia, we’ll have a look at the Chinese growth figures for Q1 (whopping 11.7% YoY expected) and a raft of March data, data that is likely to feed the revaluation story further.

Be careful out there.

Economic Data Highlights

• US Weekly ABC Consumer Confidence out at -47 vs. -43 the previous week
• New Zealand Feb. Retail Sales out at -0.6% MoM and -0.9% MoM ex Auto vs. +0.2/+0.4% expected, respectively
• Australia Apr. Westpac Consumer Confidence out at 116.1 vs. 117.3 in Mar.
• China Mar. NDRC House Price rose 11.7% YoY vs. 11.4% expected and 10.7% in Feb.
• New Zealand Mar. Non-resident Bond Holdings fell to 63.6% from 64.2% in Feb.
• EuroZone Feb. Industrial Production rose +0.9 MoM and 4.1% YoY vs. +0.1/+2.8% expected, respectively
• US Mar. CPI out at +0.1% MoM and +2.3% YoY vs. +0.1/+2.4% expected, respectively
• US Mar. CPI ex food and Energy out at 0.0% MoM and +1.1% YoY vs. +0.1/+1.2% expected, respectively
• US Mar. Advance Retail Sales out at +1.6% MoM and +0.7% ex Auto and Gas, vs. +1.2/+0.6% expected, respectively

Upcoming Economic Calendar Highlights

• US Feb. Business Inventories (1400)
• US Fed’s Bernanke to Testify before Congress (1400)
• US Weekly DOE Crude Oil and Product Inventories (1430)
• US Fed’s Lacker to Speak (1500)
• US Fed’s Fisher to Speak on Financial Reform (1745)
• US Fed’s Beige Book (1800)
• New Zealand Mar. Business NZ PMI (2230)
• US Fed’s Sack to Speak (2300)
• UK Mar. Nationwide Consumer Confidence (2301)
• China Q1 Real GDP (0200)
• China Mar. Producer Price Index and Purchasing Price Index (0200)
• China Mar. Consumer Price Index (0200)
• China Mar. Retail Sales (0200)
• China Mar. Industrial Production (0200)

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