FOREX TRADING

The AUDUSD headed for a second week of gains trading near a 12 week high at 0.9283 in early morning trade, having gained 1% this week after the nation’s interest-rate advantage over the US widened to near the most since 2008 with extra yield offered by two-year Australian debt over similar maturity Treasuries rose to 398 basis points on April 7, the most since July 2008. NZDUSD was also poised for a second weekly advance trading at 0.7077 as easing concern Greece will default on its debt boosted demand for higher-yielding assets. The two currencies were boosted after ECB President Trichet said he doesn’t expect Greece to default on its debt and it probably won’t need aid from the EU. The EURJPY rose for a second day to 124.94 while the USDJPY rose to 93.51 as signs the global economy is improving and speculation Greece will avoid a default damped demand for the safety of JPY. The JPY weakened against all 16 of its major counterparts before reports today that economists said will show German exports rose 4 percent (prev. -6.4%) in February and U.K. producer prices rose an annual 4.4 percent (prev. 4.1%) in March the most since December 2008.

USDCAD also headed for a second weekly decline trading at 1.0015 after trading at parity for the first time since July 2008 amid signs Canada’s economic recovery is gaining traction. Employment in Canada is expected to rise by 26,000 in March, a third month of gains, and the jobless rate falling to 8.1% in March, the least since April 2009.

ACM FOREX

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• 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.

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USD Higher, Consumer Prices Flat, Continuing Claims Rise

• USD: Higher, Greek fiscal worries and tensions with China over Yuan revaluation, Philly Fed rises
• JPY: Mixed, manufacturing sentiment improves, gains limited as US equities rally
• EUR: Lower, Greece may seek IMF aid as EU aid to Greece appears less likely
• GBP: Lower, February budget deficit smaller than expected, CBI orders decline
• CAD and AUD: AUD & CAD lower, Canadian net foreign investment flows rise

Overview

The USD traded higher Thursday supported by concern about the Greek fiscal outlook and in reaction to increasing tensions between the US and China over the value of the Yuan. EUR was pressured by a Dow Jones report that Greece may seek IMF aid as aid from the EU seems less likely. Greek PM says it will give the EU one month to decide on an aid plan. US officials tell China that the value of the Yuan is a real concern. There is a movement in U.S. Congress to name China as a currency manipulator. Chinese officials continue to push back against pressure to revalue the Yuan and state that a rise in the Yuan would be a disaster for Chinese exports. US and Chinese rift over the Yuan dampens risk appetite and sparked selling of the commodity currencies. CAD outperformed supported by report of strong net foreign investment flows to Canada and diminished threat of BOC intervention. JPY traded higher in reaction to today’s drop in risk appetite and by report of improving manufacturing sentiment in Japan. GBP traded lower in reaction to a decline in UK CBI orders with downside limited by report of smaller than expected UK February budget deficit. Today’s US economic data was mixed with February CPI unchanged and jobless claims came in slightly higher than expected. Continuing claims unexpectedly rose by 12k. The US current account deficit widened by less than expected in the fourth quarter. LEI was reported a bit weaker than expected and the Philly Fed came in above expectation. Today’s US economic data points to a slow US recovery with low inflation and USD consolidated early gains.

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Risk-Aversion Drags Euro Lower

The dollar and yen were higher in early Thursday trading amid speculation that Greece may seek help from the IMF — sparking fears that next week’s EU Summit meeting will provide little support to the sovereign-debt crisis. Heightened risk aversion pushed the euro lower, relinquishing the 1.37-handle against the dollar and sliding beneath the 123-level versus the yen. Gains in crude oil stalled in the overnight session, drifting back toward the $82-per barrel level and lower by almost 1% to $82.16.

Data from the US will remain in focus in the New York session with the calendar consisting of several key gauges on the economy. The reports include February consumer prices, weekly jobless claims, the Q4 current account deficit, the March Philadelphia Fed survey and the February index of leading economic indicators.

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Currency Crosses Pairs Analysis

EUR/GBP

Current level – 0.9054

Longer term bias remains neutral to bullish for the pair, closing above both bearish trendlines confirms some upside for the week ahead.

Intraday: Yesterdays brake below the trendline isnt confirming a retrace yet. Although the cross is making an effective pullback its loosing bullish momentum and we dont discard a further retrace to 0,8980-0,9000 support zone

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The FOMC will hold a one-day policy meeting on Tuesday, March 16th. This will be the first scheduled single day policy meeting for the Federal Reserve since the start of the financial crisis in September 2008. In February the Fed raised the discount rate 50bps to 0.75% and stated that the discount rate hike was not a signal of tightening of monetary policy. According to the Fed the discount rate hike will encourage financial institutions to rely more on money markets than on the Fed for short-term borrowing. The discount rate hike has encouraged speculation over whether the Fed is nearing the end of its accommodative monetary policy. Investors want to know if the Fed will soon hint that the end of easy money is near.

The key focus of Tuesday’s FOMC meeting is whether Fed maintains in its policy statement the language, keeping interest rates at exceptionally low level for an "extended period". Recent statements from Fed officials suggest that the weak labor market, uncertainty about the sustainability of the US recovery and subdued inflation will encourage the Fed to hold policy steady at Tuesday’s meeting.

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