FOREX TRADING

US equities are currently up 0.3% after falling into the red around the weak NY Fed manufacturing survey, reports of corporate activity later offering support. The market is closely watching the S&P500′s pivotal 1130 level. The CRB commodities index, too, is at level which has been tough to break. It slipped 0.4%, oil falling 1.3% on Canada-US pipeline restoration, copper unchanged. Worth noting is the turn lower in the Baltic shipping cost indices. NZ milk powder rose 1.4% at Fonterra’s fortnightly global auction. US 10yr treasury yields rose 3bp, partly undoing the rumour-fuelled rally yesterday. The Fed bought $3.9bn of treasuries of approximately 5yrs maturity.

The US dollar index stabilised around 81.50. EUR also consolidated between 1.2950 and 1.3040, preserving the large gains of the previous two days. GBP outperformed the majors, rising to 1.5652, a one-month high. After yesterday’s BoJ intervention, USD/JPY fi nally came to a rest at 85.78 during late Europe, forming a bullish key day reversal pattern. Expectations the Fed may continue the intervention as an agent proved unfounded.

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European finance ministers have today backed Estonia’s bid to become a member of the eurozone. Estonia will become the 17th member of the euro area on 1 January 2011. The positive decision was made despite the ECB’s concerns that the inflation criterion is not sustainable. The ECB said on 12 May that in its opinion the current low inflation rates in Estonia reflect mainly temporary factors and once output growth resumes, it will be very difficult to maintain low inflation rates, especially given the limited room for manoeuvre for monetary policy.

Estonian euro adoption is, in our view, primarily a political decision rather than an economic one and we would stress that the euro is not a panacea for all economic diseases and euro membership will bring challenges as well as benefits. Ultimately, this will increase confidence in the Estonian economy, but it is also clear that it will not solve the structural economic problems. Estonia should continue with implementation of structural reform and maintaining fiscal discipline, the latter would preserve financial stability in the country and avoid imbalances. As already mentioned, there remain significant upside risks to inflation, which could adversely affect the country’s international competitiveness.

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FX Highlights

• The USD is trading mixed with GBP supported by report of a narrowing of the UK trade deficit as exports rise 9.5%, the EUR is trading flat supported by good demand for today’s Greek T-bill auction, EUR gains were limited by ongoing concern about the Greek rescue package and profit taking after the Greek auction, AUD trades higher supported by report that NAB business conditions rose to their highest level since January 2008, JPY edged higher supported by report of a modest rise in Japan’s corporate good prices and speculation the BOJ will revise up its CPI forecast
• Focus turns to today’s release of US import prices and trade balance and Canada’s trade balance
• UK exports rose 9.5% in February, the February trade balance narrows to -6.17bln from -8.06bln last month, March BRC retail sales rose by 4.4% and RICS house price balance declined to its lowest level since July of 2009,GBP higher
• Japan’s March domestic corporate prices rose by 0.2%, Nikkei reports that the BOJ may raise its CPI forecast for next fiscal year in its April 30th economic outlook report, a panel for Japan’s ruling party said Japan should try to keep USD/JPY around 120, JPY higher as stocks slide
• Australia’s March NAB business conditions index +5 points +13,AUD higher
• Today’s Greek T-bill auction was oversubscribed, the reception for the Greek auction is seen as an endorsement of yesterday’s announcement an IMF/EU rescue package for Greece, EUR steady
• US posted a 65.4bln deficit for March, much lower than 191.1bln deficit last March, the smaller deficit reflects an increase in tax receipts and lower costs for the TARP bailout plan
• NBER says it premature to declare the end date of the US recession
• NFIB small business confidence index falls 1.2 points to 86.8
• US equity markets set to open lower, European equities 0.25% lower, Nikkei closed 90 points lower

Upcoming Events

• US- Tuesday, March import prices will be released expected at 0.1% compared to 0.9% along with February trade balance expected at -38.5bln compared to -37.3bln last month
• CAN-Tuesday, February trade balance will be released expected at 0.6bln compared to 0.799bln last month

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.

US Data Mixed, Dollar Slips

The dollar traded softer against the majors amid increased risk-appetite ahead of key reports on the US labor market starting on Wednesday. The greenback relinquished the 1.51-handle versus the British pound and the 1.35-mark against the euro earlier in the session before recovering slightly in the New York afternoon. The US equity markets were marginally higher after a mixed bag of economic reports.

Home prices continued to struggle with the Case-Shiller index, declining by 0.7% on an annualized basis versus a slide of 3.1% in the previous year and down by 0.4% on a monthly basis from a decline of 0.2% in the prior month. The Conference Board’s consumer confidence survey beat consensus estimates in March, rising to 52.5 from an upwardly revised February reading of 46.4.

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Greek Bond Sale Successful

Despite ripping higher on the Asian open, EURUSD has spent the rest of the day consolidating between 1.3409 and 1.3508, with the DXY in slightly negative territory overall (DXY -0.35%). German regional and composite CPI data released in the morning was higher than expected with the EU harmonized HICP +0.6% MoM, +1.3% YoY (+0.3% MoM, +0.9% YoY expected). The effect on the currency space has been limited, with the key inflation measure for the Eurozone as a whole due on Wednesday. The only other significant release of the morning was Swedish Retail Sales which was extremely disappointing at -1.0% MoM, +2.3% YoY compared to median forecasts looking for +0.3% MoM, 4.2% YoY. The unexpected plunge in retail activity has understandably caused EURSEK to rally from 9.7400 levels prior to the release all the way up to 9.8000 levels shortly after.

The afternoon has been somewhat subdued with US PCE and Personal Income data coming out broadly in line with forecasts, and US equity markets modestly higher. The Greek sale of 7 year debt has proceeded without incident, with the head of the Public Debt Management Agency quoted as saying that they have now successfully “pre-funded the whole of April”.

Tomorrow’s main releases will be Norway’s Retail Sales, the final estimate of UK Q4 GDP, and US Consumer Confidence.

AC Markets
http://www.ac-markets.com

Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

Deflation Continues In Japan

Japan’s core CPI rate has declined for 11 straight months. The core CPI declined by 1.3% in January. The decline in January CPI confirms that deflationary pressures continue in Japan. The Bank of Japan (BOJ) has been under intense pressure from the Japanese government to take action to combat deflation and boost growth. At an emergency meeting in December the BOJ elected to ease monetary policy. The BOJ increased its lending operation to ¥10trln offering fixed rate loans to commercial banks at 0.1%. Last week the BOJ elected to ease monetary policy again and double its short-term lending operation to ¥20trln. The increase in the lending operation is unlikely to have any major impact on deflationary pressures in Japan. The Japanese government has called on the BOJ to do more to combat deflation and would like to see the BOJ buy Japanese bonds. BOJ purchase of Japanese bonds would effectively be printing of money and could boost the money supply and slow deflationary pressures. BOJ officials have rejected the government’s call for the purchase of more bonds. The BOJ policy board was split at last week’s meeting and the split decision to expand lending operations reflects concern by some of the BOJ board members that it’s more difficult to justify easing monetary policy as Japan’s economy shows signs of improvement. Recent Japanese economic data shows that exports posted the third biggest monthly gain on record last month and imports rose for the first time in 15 months. Japan’s manufacturing and business confidence has been rising and unemployment posted a modest decline. Q4 GDP however rose at a slower pace reported at 3.8% compared to 4.6% in the preliminary report. Japans quarterly tankan business sentiment will be released on April 1st. The tankan report is expected to confirm improvement in Japan’s business sentiment for the fourth straight quarter.

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Consumer Prices in United Kingdom Unexpectedly Decline

Today, we have full support that inflation is indeed inline with the Bank of England expectations as Governor of the central bank, Mervyn King stated before that the rise in inflation rates is temporarily and a result of APF program, higher energy prices and the reversal of the VAT.

CPI for the year ending in February today we saw ease from the 14-month high of 3.5% to 3.0% which is lower than the projected 3.1% while on the month rose to 0.4% from the prior decline of 0.2%, which is worse than the expected 0.5%.

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FOMC: Less Dovish, but Hikes Remain Distant

• No change to policy measures. Hoenig repeats his lone dissent.
• Growth language slightly more optimistic but no change to inflation outlook
• ‘Extended period’ retained indicating continued commitment to low rates
• Further asset purchases highly unlikely
• No change to our outlook expecting unchanged rates until late this year

Details

The assessment of activity was slightly more upbeat than in the previous statement. As expected the FOMC turned more optimistic on the labour market while on the other hand noting recent very weak housing data. Generally, the committee still expects a moderate recovery including a gradual return to higher resource utilisation. As a result, the outlook remains 3-3.5% growth, a relatively moderate rate historically.

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Markets Brace For FOMC Decision – USD Firmer

Asian equity markets were mixed after a late session rally leveled off a lackluster day in the US with the Dow up 17.46 points, closing at 10642.15. Financials rallied late in the day after Senator Dodd’s proposed financial regulatory overhaul gained some momentum. Traders are cautious ahead of the FOMC rate decision at 2:15pm in New York today. Although no change is expected, analysts will be once again paying close attention to the language used in the Fed’s statement as well as the number of dissenters. Investors are looking for assurances that rates will remain ‘exceptionally low’ for an ‘extended period.’ We do not see this language changing so long as the labor market continues to deteriorate.

Euro Loses Steam

European finance ministers agreed on a rescue mechanism for Greece in Brussels yesterday, but offered little information on details of what the bailout package may look like. The lack of clarity will continue to weigh heavily on the euro which has softened in the last 2 sessions. Indeed EU officials are being careful not to make a precedent of the Greek situation as other Eurozone countries in financial distress will be keeping a close eye with regards to the structure that is chosen for the rescue package.

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According to a Treasury Department report released Tuesday China sold a record amount of US debt in December. The Treasury said that China sold $34bln of US Treasuries in December. China owns $755.5bln of US government debt. After the December sale of US Treasuries China slipped to number two behind Japan as the largest holder of US treasuries. Japan’s holdings of US debt rose 1.5% in December to $768.8bln. Japan is now the largest US creditor. China’s sale of US debt reflects concern about the USD. The US announced a record 1trln budget deficit for 2010 and deficits in the US are expected to remain in excess of $1trln for a number of years to come Chinese officials are becoming wary of holding US long-term debt as a weaker USD would reduce the value of Chinas US debt. China’s PBOC Deputy Governor Min said that USD will decline because of concern about rising US debt. China’s December sales of US Treasuries may also reflect the fact that China and US are in disputes over the value of the Yuan, trade imbalances and human rights violations in China.

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Traders used the twin excuses of lingering concerns over the public finances of Greece and a sour investor confidence reading to beat down the euro on Tuesday to challenge its weakest point so far in 2010 ahead of the return from a long U.S weekend. Further detracting from risk appetite ahead of the onset of earnings season to full swing are ongoing fears that Chinese monetary tightening will negatively impact global growth, and the eventual bankruptcy filing of Japan Airlines. And while these events played into the hands of the dollar this morning, the one bright spot appears to be the British pound where a sweetened deal from Kraft for Cadbury’s is putting currency flows under the spotlight. As we conclude our daily report, the U.S. dollar is trampling on competing currencies sending the dollar index 0.6% higher to begin the week.

Euro – The stresses and strains of the Eurozone are very much for real at the moment, and if you ask your local finance minister he’ll probably point his finger at Athens. EU commissioner for economic and monetary affairs, Joaquin Almunia said that while the plan drawn up by the government of Greece was adequate, it was comprised of what her called “ambitious” spending cuts.

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USD Mixed, JPY Weakens, Commodity Currencies Rally

• USD: Mixed, ADP employment falls more than expected, non-manufacturing ISM confirms expansion
• JPY: Lower, pressured by political and fiscal uncertainty as Japan’s finance minister resigns, carry trade
• EUR: Higher, ECB’s Stark says EU may not bail Greece out of its deficit problems, services PMI and PPI rise
• GBP: Higher, consumer confidence unexpectedly drops, shop prices rise at fastest rate in 13 months
• CAD and AUD: AUD & CAD higher, Australia reports strong building approvals and vehicle sales

Overview

USD traded mixed Wednesday gaining versus the JPY and European currencies and weakening versus the commodity currencies. JPY experienced significant volatility and traded lower in reaction to report that Japan’s Finance Minister Fujii has resigned because of health concerns. His resignation generates uncertainty about Japan’s fiscal outlook. JPY has recently weakened pressured by concern about a possible downgrade of Japan’s sovereign debt rating if Japan does not reduce its deficit. EUR traded lower in reaction to a statement from the ECB’s Stark that the EU may not bail Greece out of its deficit problems. EU downside was limited by report of improving EU service PMI and an uptick in EU inflation. GBP was pressured by report of an unexpected decline in UK consumer confidence which posted its sharpest monthly drop for the year. (more…)

European Market Update

Continental bourses hit 2009 highs – “it’s the most wonderful time of the year”

(GE) German Nov Import Price Index M/M: 0.4% v 0.3%e Y/Y: -5.0% v -5.2%e

(FR) French Nov Consumer Spending M/M:-0.1% v 0.5%e Y/Y: 3.2% v 3.3%e

(SP) Spanish Nov Producer Prices M/M: 0.0% v 0.1%e , Y/Y: -1.8% v -1.7%e

(NV) Netherlands Q3 Final GDP Q/Q: 0.5% v 0.4%e Y/Y: -3.7% v -3.7%e

(IT) Italian Consumer Confidence: 113.7 v 112.7e

(PD) Poland Nov Unemployment Rate: 11.4% v 11.5%e

(NO) Norwegian Oct Unemployment Rate (AKU): 3.2% v 3.2%e

(IT) Italian Oct Retail Sales M/M: 0.0% v 0.1%e, Y/Y: 0.5% v -1.8%e

(UK) BoE Mninutes: Unanimous vote to keep rates and QE on hold in Dec

(UK) BBA Loans for House Purchase: 44.7K v 43Ke

(SP) Spain Oct Total Housing Permits M/M: 14.8% v 59.7% prior, Y/Y: -36.1% v -41.7% prior

In equities: In the last full day of trading ahead of the Christmas Holidays, equity markets in Europe are looking to continue a two day positive run. In trading today, both the DAX and CAC40 set new 2009 calendar year highs. This rotation followed the S&P closing Tuesday at a new year high and strong closes across Asia (ex Japan that was closed for Emperor’s day holiday). As expected, trading in Europe has been light with the FTSE volume down as much as 60% from its average. All sectors on the EuroStoxx50 were in positive territory on little specific corporate news, but broader macro flows as the USD maintained its strength against the GBP, but eased in relation to the EUR. Commodity strength pushed resource names higher in a move that was furthered by commentary from ArcellorMittal [MT.NV] that it planned to acquire further iron ore mine assets in 2010 as it expected prices to continue rising. Tech names also showed outperformance, with Infineon [IFX.GE] continuing to trade higher after its surprise upside guidance in yesterdays session.

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Dollar Rally Continues

U.S. Dollar Trading (USD) the new dollar trend extended gains in quiet holiday trading. Not even a solid performance from US stocks could induce Dollar weakness in a dangerous sign for the bears still out there. Little Economic data was released and traders took their cue from a sharp drop in Gold Prices. DJIA +85 points closing at 10328, S&P +11 points closing at 1114 and NASDAQ +25 points closing at 2237. Looking ahead, Q3 GDP is forecast to be unrevised at 2.8% and November Existing Home Sales are forecast to increase to 6.25mln vs. 6.1mln previously.

The Euro (EUR) bounced around the 1.4300 level but was ultimately under pressure for most of the day and finished near multi-month lows. Some ECB members did little to help with Stark commenting he expects further European Bank Write downs and Orphanides comment that it was unthinkable that Greece would default. Overall the EUR/USD traded with a low of 1.4264 and a high of 1.4375 before closing at 1.4270. Looking ahead, October Industrial Orders forecast at -1.1% vs. 1.5% previously.

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Danske Daily

Today’s Key Points

• Asian stocks are mixed this morning with Nikkei higher and the Chinese market trading in red.
• The strong December rebound in the dollar continued on Friday taking EUR/USD to a 1.4262 low. EUR/CHF saw another sharp dip overnight.
• Japanese exports recovered further in November, but remain well below pre-crisis levels.
• US treasuries fell on Friday with yields rising the most in the long end of the curve.
• The Copenhagen climate conference ended with a limited accord

Markets Overnight

Equity markets are mixed in Asia this morning with the Japanese market higher, supported by better-than-expected export data, while the main Chinese indices have been trading in red. US equity market futures are marginally higher following minor gains in Friday’s trading. The S&P500 index closed 0.6% higher in a generally difficult week for risky assets.

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