FOREX TRADING

USD Higher, UK Debt Woes, Uncertainty about Greek Aid

• USD: Higher, China’s manufacturing growth slows, denial of imminent Greek bailout, UK debt jitters
• JPY: Lower, government pressure on the BOJ to buy government debt to combat deflation
• EUR: Lower, pressured by spillover from collapse of the GBP, uncertainty about Greek aid
• GBP: Lower, concern about UK government debt, mortgage approvals at eight month low
• CHF: Lower, Greek bailout rumors, UK debt worries overshadow strong Swiss PMI
• CAD and AUD: AUD & CAD higher, strong Australian housing data, strong Canadian GDP

Overview

The USD traded higher Monday supported by a collapse in the GBP, weaker than expected PMI data from China and a denial from German Chancellor Merkel of report of an imminent Greek bailout. GBP was pressured by UK election polls and concern about UK government debt. China’s February PMI declined to 52, a reading of 55.4 was expected. This report suggests that manufacturing activity is slowing in China. There are numerous reports of a possible new Greek bailout plan which according to the WSJ is estimated at 30bln. According to these reports the bailout plan will require Greece to raise taxes and implement spending cuts. German Chancellor Merkel denies that there is an imminent Greek bailout plan and EUR traded lower. Stronger than expected manufacturing PMI data from the EU, UK and Switzerland were overshadowed by the UK debt jitters. Commodity currencies traded higher with the CAD supported by reported stronger than expected Canadian GDP and AUD supported by report of strong new home sales and Q4 company profits. JPY traded lower pressured by report that the Japanese government wants the BOJ to consider directly purchasing government debt and in reaction to firmer equity market trade. US economic data was mixed with personal income rising less than expected and consumption coming in higher than expected. ISM Index came in slightly weaker than expected and construction spending was in line with expectations. US equity markets extended early gains after the release of today’s data today’s data which added support to the commodity currencies but had limited impact on European currencies.

Focus turns this week’s central bank policy meetings in Australia and Canada on Tuesday and the UK and EU on Thursday and Friday’s release of US February unemployment. The BOC is expected to maintain steady rate policy, the RBA is expected to hike rates 25 bps, the ECB is expected to remain on hold and there is uncertainty about whether the BOE will maintain its current level of asset purchases. US February unemployment is expected to post a modest rise with nonfarm payrolls unchanged from last month. (more…)

U.S. Dollar Trading (USD) ended the week on the backfoot as the Euro rallied on Greece bailout talk from Germany and commodities put on a solid performance. Q4 GDP was revised higher to 5.9% from 5.7%. Of Concern though was the drop in January Existing Home Sales by -7.2% adding to the -22% drop the month before. In US stocks DJIA +4 points closing at 10325, S&P +1 points closing at 1104 and NASDAQ +4 points closing at 2238. Looking ahead, February ISM manufacturing is forecast at 57.5 vs. 58.4 previously.

The Euro (EUR) the market continued its relief rally with talk that the German and French governments were preparing the ground for a Greece Bond bailout program. Euroland Inflation was unrevised at 1.0% y/y. EUR/GBP enjoyed solid buying to push and close above 0.8900. Overall the EUR/USD traded with a low of 1.3531 and a high of 1.3683 before closing at 1.3613. Looking ahead, January Unemployment is forecast at 10.1% vs. 10.0% previously. (more…)