FOREX TRADING

• USD: Higher, FOMC may sell assets, new home sales rise 26.9%, durable goods rise ex. transports
• JPY: Lower, widening yield differential, improving risk sentiment, concern about Japan’s debt
• EUR: Higher, Greece seeks to activate EU/ IMF aid, German IFO rose by more than forecast
• GBP: Lower, Q1 GDP comes in below expectation, BOE seen on hold
• CAD and AUD: AUD & CAD lower, dovish RBA comments, weaker Canadian inflation and retail sales

Overview

A report that Greece seeks to activate the EU/IMF aid package and a surge in the German IFO business sentiment index sparked a short covering rally in the EUR. The EU commission said that Greek aid will be as soon as possible. The cost of financing the Greek debt dropped after the announcement that Greece seeks aid. USD traded mainly higher versus the majors with GBP pressured by report of weaker than expected UK Q1 GDP, AUD pressured by dovish comments from RBA Governor Stevens and CAD pressured by report of weaker than expected Canadian inflation and retail sales. Lower Canadian inflation may ease BOC rate hike pressure. USD was also supported by a CNBC report which says that a growing bloc of the Fed board members favor selling of assets. The selling of assets by the Fed would signal the beginning of withdrawal of monetary stimulus. JPY traded to a two-week low versus the USD in reaction to strong US economic data and Thursday’s warning from Fitch that the Japanese sovereign debt rating is at risk of downgrade because of the rising Japanese budget deficit. US economic data was positive with durable goods posting solid gain ex. transportation and new home sales surged. Today’s US economic reports follow yesterday’s report of stronger than expected existing home sales and drop in jobless claims. These data fuel hope that the US recovery is gaining momentum. Focus turns to next week’s FOMC policy meeting with investors looking for confirmation that the Fed is seeking to start its exit strategy.

(more…)

News and Events:

Today Greece will attempt to issue €1.2bn of short term 6 and 12 month t-bills and will be a critical test of the markets’ faith in the EU / IMF rescue plan. This will be the first test of the markets appetite since the EU formally layout the terms of aid, should Greece request emergency funding. Initially, the markets were very optimistic on the agreement, with the EURUSD climbing to 1.3692, while Greek CDS are sharply lower, now trading below Iceland’s. However, further examination of the Greek bailout plan has produced more questions than answers, causing erosion in confidence. One point is the proposal that Greece will be charged ‘around 5%’ which is clearly below market’s rates. Given that any bailout will need a unanimous EU vote, it’s unknown whether Germany will provide the necessary parliamentary votes given the subsidized rate. The closer Germany gets to Election Day the more likely politicians will use the public’s well publicized resentment towards helping any fiscally irresponsible neighbors as a campaign tool, decreasing the probability of a positive vote. Another concern is if Greece will be able to adhere to it strict austerity plan. And if Greece and other fiscally troubled EU nation actually do adhere to their austerity plans, the overall effect on EU growth will be negative. Another issue will be the speed which the funds could be released. Will an EU summit need to take place or just permission from all countries Finance Minister (the former will trigger a German parliamentary vote)? Our overall feeling is this is still a historical moment for the EU and baring some ironing out, it will be in the short-term EUR positive. (more…)

The euro rallied against the dollar and other key currencies after a €45 billion aid plan for Greece calmed investor fear of a Greek default. The S&P 500 was up 2.11 to 1,196.48. The Dow Jones Industrial Average rose 8.62 to 11,005.97, its first close above 11,000 since September 2008. The yen fell versus the dollar. Bank of Japan policy makers Tadao Noda and Miyako Suda opposed bolstering a lending program last month because it could not be justified given Japan’s improving economic conditions, minutes of the March 16-17 BOJ policy meeting released today showed. Yuan appreciation speculation eased following a government report that China posted its first monthly trade deficit since 2004. Sterling pared gains on renewed worries of a hung UK parliament. Unable to penetrate the important 0.94-area resistance, the Australian dollar reversed earlier gains on a deeper-than-expected decrease in Australian home-loan approvals. Hovering around parity for a sixth straight day, the Canadian dollar slipped as Canada’s housing starts unexpectedly declined. (more…)

• USD: Mixed, EU/ IMF Greek bailout plan calms investor fears
• JPY: Lower, diminished Yuan revaluation speculation as China posts its first trade deficit in six years
• EUR: Higher, trades at a three week high in reaction to IMF/EU Greek aid plan
• CHF: Lower, threat of SNB invention limits gains, consumer prices rise
• GBP: Lower, election polls point to no majority in the UK Parliament
• CAD and AUD: AUD lower & CAD higher, diminished RBA hike speculation, Canada’s housing starts slow

Overview

The initial euphoria generated by report of an IMF/EU $45bln aid plan for Greece gave way to uncertainty as German officials indicate that summit may be required to activate the aid plan. EUR initially rallied 1% in reaction to the announcement of the IMF/EU Greek aid plan but EUR gains were limited by uncertainty about how the plan will be activated. Uncertainty about the activation and lack of details of how the aid plan for Greece may be implemented sparked fresh selling of the EUR and USD demand. USD was also supported by report that China posted its first trade deficit in six years. The Chinese trade deficit may dampen Yuan revaluation speculation and raise concern about the strength of the global recovery. GBP traded lower pressured by the latest UK election polls which show that the Conservatives are unlikely to reach a majority in parliament increasing the risk of a hung of Parliament. AUD traded lower pressured by report of weaker than expected Australian housing finance data and in reaction to a statement from the RBA’s Debelle that interest rates are close to normal levels. CAD traded mixed initially pressured by report of weaker than expected Canadian housing starts. Focus turns to this week’s release of US retail sales, industrial production, housing starts and consumer sentiment to gauge the strength of the US recovery and developments in regard to the Greek aid plan.

(more…)