By Na, Haejung
SEOUL, Jan. 15 (Xinhua) -- Amid a gradual recovery seen in the global economy, South Korea thus far has been emerging out of the global economic downturn at a faster-than-expected rate.
According to a report by the Ministry of Strategy and Finance, the nation's economy marked the 2nd highest economic growth rate during the third quarter of 2009, posting an on-quarter increase of 3.2 percent.
In addition, the economy has seen a record-high trade surplus in 2009, posting a 40.4 billion-U.S. dollar gain, a report by the Korea Customs Office said.
With its accomplishments made last year, the South Korean economy is once again expected to maintain its upward trend, experts and media at both home and abroad have said in one voice.
REASONS FOR S. KOREA'S RAPID RECOVERY IN 2009
Behind its fast growth lie multiple factors, ranging from the economy's sound fundamentals to the government's prompt, aggressive responses, the finance ministry said.
As the economy was exposed to the sub-prime mortgage, which triggered the global financial crisis, at the minimum level, with domestic financial institutions' sub-prime related investment coming in at 230 million U.S. dollars, or 0.01 percent of their total assets, negative effects from the crisis could have remained limited, according to the ministry.
The economy also benefited from its previous experience of the 1997-98 Asian Financial Crisis, during which major structural reform brought about improved soundness in the financial sector, explained the ministry.
For example, local banks excelled in various financial indices, such as BIS ratio and Tier 1 ratio, which have been adjusted and fixed at a stable level even in the wake of the crisis, at 14.2 percent and 10.8 percent, respectively.
Diversification of the nation's export market contributed to keeping the economy away from freefalling, with its export targets and targets well spread, the ministry said.
Meanwhile, the government led the recovery with timely procedures for the sake of real economy and financial markets at the same time.
In a bid to stabilize the economic sector, the government has firmly carried out various expansionary macroeconomic policies, such as endorsing a supplementary budget worth 28.4 trillion won (25.4 billion U.S. dollars) and frontloading 64.8 percent of the expenditure in the first half.
Measures have been taken to stabilize the financial markets as well, of which come currency swap agreements with the U.S., China, and Japan worth 30 billion U.S. dollars each.
The government, in order to support and stabilize the livelihood of low- or mid-income class, also focused on job creation and launched a new system of micro credit financing project
2010 ECONOMIC OUTLOOK
With the South Korean economy reportedly regaining growth momentum in 2009, it is widely expected to continue with a positive growth in 2010, beating its peer countries.
The finance ministry and the central bank both announced that the economy would make a better-than-previously-expected performance in 2010, with the finance ministry expecting a 5 percent growth and the BOK saying a 4.6 percent gain.
International organizations, such as the IMF and the OECD, also remained optimistic, saying a growth of 4.5 percent and 4.4 percent, respectively, is likely.
The forecasts come as the private sector is expected to normalize as companies start to expand investment and expenditure and domestic demand is back on track, Chang Hwa-tak, analyst at Dongbu Securities, said.
Also, private consumption and corporate investment are both expected to expand in 2010, thanks to revitalizing consumer sentiment in line with a global economic recovery, according to a report by Samsung Economic Research Institute (SERI).
While private consumption is expected to increase 3.1 percent from a year earlier in 2010, facilities investment will likely gain as much as 8.2 percent and construction investment 2.1 percent, SERI said.
Trade volume, on the other hand, is likely to contract year-on-year to mark a surplus of 20.6 billion U.S. dollars, mainly due to imports increasing faster than exports.
In line with the real economy sector expected to move briskly, financial markets will continue its 2009 trend, with stock prices gradually shooting up and the local currency gaining strength.
First, the nation's key index expected to hike during the first quarter and make a slight downturn in the second quarter, Cho Yoon-nam, analyst at Daeshin Securities, said.
The nation's benchmark index, KOSPI, may rise as high as the 1,800 level during the January-March period, according to the analyst, as the nation's major companies report their performances in 2009 and it will advance into the MSCI Developed Market index, while it may face risks of short-term price adjustments in the next quarter.
The South Korean currency may further hike against the U.S. dollar, averaging at 1,100 won per greenback in 2010.
While the dollar carry trading coming from low interest rates, fiscal deficit problem and discussion on the shift of key international currency keep weakening the U.S. dollar value, the South Korean won is expected to strengthen from its 2009 state, SERI said.
Market interest rates, on the other hand, are likely to rise slightly to 6.4 percent in 2010 mainly due to the financial authorities' quantitative tightening policy to absorb liquidity, SERI also said.
LINGERING RISKS & CONSTRAINTS
Despite optimistic views prevalent in the market, South Korea's economy still faces uncertainties as the government mulls a right time to put an exit strategy into action.
Amid some expecting an exit strategy is drawing near, real economy and the financial side both remain fragile in terms of employment and the foreign exchange rate.
Local analysts are pointing at tightened job market as a major risk to the economy, with the finance ministry and the Statistic Korea expecting the employment rate to fall to 58.5 percent, a 11-year low.
A survey by the Korea Chamber of Commerce and Industry also showed that the country's top 500 companies plan to curtail the size of employment although the South Korean government's focus on generating new jobs.
"It will still remain difficult to pull up employment rate in 2010, considering the distortion and instability of the job market," Lee Keun-tae, analyst at the LG Economic Institute, said.
"The unemployment issue hinges on how the government will support the service industry to absorb human resource from those expelled from the manufacturing sector as it may have a high employment effect," Lee added.
The stronger won poses a threat to the economy, which, together with high oil and natural resource prices, may jeopardize local exporters, which have been the economy's backbone.
If further hiking against the U.S. dollar, the local currency may draw too much overseas investment, triggering overflow of liquidity in the market and causing another trouble.
Global economic conditions also burden the South Korean economy amid global imbalances strengthening protectionism, oil price fluctuating, and lingering risks of bad loans in the U.S. and East European markets.
In light of such issues, South Korean experts are suggesting an exit strategy should be implemented only after various factors taken into account.
Local media also project that while the government should gradually kick start taking measures to normalize the economy, it should remain extra-cautious with respect to the timing for withdrawing liquidity, which is what an exit strategy is mostly about.
Editor: Fang Yang
Saturday, May 22, 2010
Thursday, May 20, 2010
WORLD FOREX: Growth-Sensitive Currencies Drop; Euro Crisis Weighs
By Bradley Davis Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The euro-zone's spreading debt crisis teamed with worse-than-expected U.S. data Thursday to lead investors strongly out of currencies closely aligned with global growth.
Worry that the euro-zone crisis will stymie the global recovery sent the commodity-backed bloc of currencies sharply lower, with the Australian dollar plummeting more than 3.5% against the greenback and the Canadian dollar dropping more than 2.5%.
The euro fell sharply against the yen, dropping to a 9.5-year low under Y110, after talk of intervention to stem the common currency's rapid decline was increasingly seen as far-fetched. A nearly 3% plunge in U.S. stocks helped speed the euro's decline, with the common currency dipping under $1.23.
The dollar and yen took most advantage of souring investor sentiment, with investors strongly favoring the perceived safe harbors over currencies considered riskier, such as emerging market currencies like the Brazilian real, against which the dollar gained more than 3% by mid-morning trading.
Adding to negative market sentiment was a disappointing reading for U.S. weekly jobless claims and a drop for the first time since March 2009 in the index of leading U.S. economic indicators.
Thursday mid-morning, the euro was at $1.2334 from $1.2391 late Wednesday, according to EBS via CQG. The dollar was at Y89.58 from Y91.54, while the euro was at Y110.47 from Y113.41. The U.K. pound was at $1.4268 from $1.4415. The dollar was at CHF1.1522 from CHF1.1517.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 86.609 from 86.276.
"Initially, the market was fearing the ramifications on [the euro] and the currency became the cleanest way to play a negative euro-zone view," Camilla Sutton, currency strategist at Scotia Bank in Toronto said of the escalating debt crisis. "However, as the situation has escalated and austerity measures increase, the fear has shifted to the ramification for global growth," she said.
Accordingly, currencies most tied to global growth, such as the Australian dollar, have come under "tremendous pressure," Sutton said.
Those growth-sensitive currencies also have been hammered by declining commodity prices and concerns that China will put an additional brake on its growing economy, which analysts worry could put the global recovery at risk.
The euro surrendered its day-earlier rally as market chatter that led some investors to believe coordinated central bank intervention could stem the euro's rapid decline was considered increasingly unlikely after comments from a euro-zone official that noted the common currency's speeding decline, but suggested intervention was off the table.
Meanwhile, investors waited to see whether other euro-zone countries would follow Germany's ban on certain types of speculative investments, with the uncertainty weighing on the euro, analysts said.
"The fact that [Germany's ban] has not been followed by other euro-zone members confirms uncoordinated policy responses to the current crisis and can only prove detrimental," said currency strategists at Brown Brothers Harriman. "In fact, throughout this crisis, the euro zone's uncoordinated and sometimes unorganized responses are as much to blame as the actual crisis situation," for the euro's nearly 15% fall since the beginning of the year.
Eurogroup Chairman and Prime Minister of Luxembourg Jean-Claude Juncker voiced concern Thursday about the euro's recent rapid decline, but acknowledged some benefits from the weaker currency and said he sees little need for European policy makers to act right away to defend it.
"I'm really concerned about the rapid (pace) of the fall of the exchange rate," he told reporters at the Japanese Ministry of Finance following a one-on-one meeting with Finance Minister Naoto Kan. But Juncker added that "I don't think that this is a matter [requiring] immediate action."
The comments may add to the view among some market participants that euro-zone authorities will tolerate a weaker euro so long as its declines are not abrupt. A weaker currency helps the region's export-driven economies at a time when austerity measures to cut debt threaten to crimp fragile recoveries.
-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com
(Takashi Nakamichi and Andrew Monahan in Tokyo contributed to this article.)
Worry that the euro-zone crisis will stymie the global recovery sent the commodity-backed bloc of currencies sharply lower, with the Australian dollar plummeting more than 3.5% against the greenback and the Canadian dollar dropping more than 2.5%.
The euro fell sharply against the yen, dropping to a 9.5-year low under Y110, after talk of intervention to stem the common currency's rapid decline was increasingly seen as far-fetched. A nearly 3% plunge in U.S. stocks helped speed the euro's decline, with the common currency dipping under $1.23.
The dollar and yen took most advantage of souring investor sentiment, with investors strongly favoring the perceived safe harbors over currencies considered riskier, such as emerging market currencies like the Brazilian real, against which the dollar gained more than 3% by mid-morning trading.
Adding to negative market sentiment was a disappointing reading for U.S. weekly jobless claims and a drop for the first time since March 2009 in the index of leading U.S. economic indicators.
Thursday mid-morning, the euro was at $1.2334 from $1.2391 late Wednesday, according to EBS via CQG. The dollar was at Y89.58 from Y91.54, while the euro was at Y110.47 from Y113.41. The U.K. pound was at $1.4268 from $1.4415. The dollar was at CHF1.1522 from CHF1.1517.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 86.609 from 86.276.
"Initially, the market was fearing the ramifications on [the euro] and the currency became the cleanest way to play a negative euro-zone view," Camilla Sutton, currency strategist at Scotia Bank in Toronto said of the escalating debt crisis. "However, as the situation has escalated and austerity measures increase, the fear has shifted to the ramification for global growth," she said.
Accordingly, currencies most tied to global growth, such as the Australian dollar, have come under "tremendous pressure," Sutton said.
Those growth-sensitive currencies also have been hammered by declining commodity prices and concerns that China will put an additional brake on its growing economy, which analysts worry could put the global recovery at risk.
The euro surrendered its day-earlier rally as market chatter that led some investors to believe coordinated central bank intervention could stem the euro's rapid decline was considered increasingly unlikely after comments from a euro-zone official that noted the common currency's speeding decline, but suggested intervention was off the table.
Meanwhile, investors waited to see whether other euro-zone countries would follow Germany's ban on certain types of speculative investments, with the uncertainty weighing on the euro, analysts said.
"The fact that [Germany's ban] has not been followed by other euro-zone members confirms uncoordinated policy responses to the current crisis and can only prove detrimental," said currency strategists at Brown Brothers Harriman. "In fact, throughout this crisis, the euro zone's uncoordinated and sometimes unorganized responses are as much to blame as the actual crisis situation," for the euro's nearly 15% fall since the beginning of the year.
Eurogroup Chairman and Prime Minister of Luxembourg Jean-Claude Juncker voiced concern Thursday about the euro's recent rapid decline, but acknowledged some benefits from the weaker currency and said he sees little need for European policy makers to act right away to defend it.
"I'm really concerned about the rapid (pace) of the fall of the exchange rate," he told reporters at the Japanese Ministry of Finance following a one-on-one meeting with Finance Minister Naoto Kan. But Juncker added that "I don't think that this is a matter [requiring] immediate action."
The comments may add to the view among some market participants that euro-zone authorities will tolerate a weaker euro so long as its declines are not abrupt. A weaker currency helps the region's export-driven economies at a time when austerity measures to cut debt threaten to crimp fragile recoveries.
-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com
(Takashi Nakamichi and Andrew Monahan in Tokyo contributed to this article.)
Daily Forex Report-USD higher, wholesale sales rise 2.4%
•USD: Higher, skepticism about the EU rescue plan, wholesale sales rise, Lacker warns on rates
•JPY: Higher, tracking stocks, Japan may seek a debt cap, Yuan revaluation speculation
•EUR: Lower, concern about slowing growth, widening deficits and potential new debt downgrades
•GBP: Lower, political uncertainty, retail sales drop, house prices rise, industrial production jumps
•CAD and AUD: AUD lower & CAD higher, weaker equity and commodity markets, China rate hike threat
Overview
The USD traded higher Tuesday supported by doubt that the $1trln EU/IMF rescue plan announced Monday will contain sovereign debt risk from spreading in Europe and in reaction to accelerating inflation in China. There are numerous concerns about the impact of the EU/IMF rescue package. In order for countries to receive aid they must adopt extreme austerity measures. The austerity measures are likely to hurt the EU recovery. There also is concern that the ECB plan to buy bonds could be inflationary. ECB officials say that bond purchases will be sterilized. The EU/IMF rescue plan may not prevent future sovereign debt ratings downgrades in peripheral European nations. EUR was also pressured by speculation that the EU sovereign debt crisis will force the ECB to maintain accommodative monetary policy. As the US economy shows signs of recovery and the Fed is likely to consider a hike before year-end, yield and growth differential are moving in favor of the USD. USD was also supported by a spike in risk aversion as equity markets trade lower and accelerating inflation in China generates the risk of further tightening of monetary conditions in China. China's inflation rate rose at its fastest pace in 18 months to 2.8%. The Shanghai index closed 1.8% lower partly on fear of tightening of monetary policy in China. The commodity currencies traded lower pressured by weaker equities and threat of tightening in China. CAD downside was limited by gains in cross trade to the EUR. GBP traded lower in volatile trade mainly pressured by UK political uncertainty as the UK political parties try to form a new coalition government. The latest report is that the Liberal Democrats and Labor Party are trying to form a coalition government. This coalition could be a negative for the UK budget outlook and may increase the risk of a downgrade in the UK sovereign debt rating. JPY traded higher supported by safe haven demand sparked by weaker equities and skepticism about the Greek rescue plan. JPY was also supported by a statement from Japan's finance minister that Japan is considering a debt cap and in reaction to the Reuters report which says China is moving closer to a decision to allow Yuan revaluation. US economic data was mixed with wholesale sales rising more than expected. USD is closely tracking risk sentiment and the direction of equities.
Today's US data:
March wholesale inventories rose by 0.4%, a rise of 0.5% was expected. March wholesale sales rose by 2.4%, a rise 0.7% was expected.
Upcoming US data:
On May 12th March trade balance will be released along with the April treasury budget. The trade balance is expected to widen to -40bln from -39.7bln last month. On May 13th April import prices and jobless claims for week ending 05/08 will be released. Import prices are expected to rise by 0.8% compared to 0.7% last month. Jobless claims are expected to fall to 438k from 444k last week. On May 14th April retail sales industrial production, capacity utilization and University of Michigan sentiment will be released along with March business inventories. Retail sales are expected to rise by 0.3% compared 1.6% last month. Industrial production is expected to rise by 0.5% compared to 0.1% last month. Capacity utilization is expected at 73.6 compared to 73.2 last month. Michigan consumer sentiment is expected at 73.2 compared to 72.2 last month. Business inventories are expected to rise by 0.3% compared to 0.5% last month.
JPY
JPY traded higher supported by a spike in risk aversion as equity markets decline in reaction to doubt about the Greek rescue plan and in reaction to report of accelerating inflation in China. Euphoria about the EU/IMF Greek rescue plan has faded as investor's question how the plan will be paid for and whether the plan will contain contagion at risk from spreading. Acceleration in China's inflation rate generates concern that China will take additional measures to tighten lending conditions. This could be a drag on the global recovery. JPY was also supported by a statement from Japan's Finance Minister Kan that Japan is considering a cap on debt issuance. Ratings agencies have warned that Japan's sovereign debt rating could be cut if JGB bond issuance continues to rise. According to Kan Japan's the new fiscal year bond issuance should not top ¥44.3 trillion. This is close to the threshold that may trigger a downgrade of Japan's debt rating. The impact of Kans statement was partly diminished by a statement from Japan's PM Hatoyama that comments on limiting debt issuance is not official government policy. Reuters reports that a Chinese bank official says that China is ready for a Yuan move. The Reuters report said that this Chinese official referred to a basket of currencies in its monetary policy report which could mean China is moving closer towards allowing Yuan revaluation. JPY and other Asian currencies sometimes trade as a proxy for Yuan revaluation. JPY direction is expected to trade inversely to equities and risk sentiment.
On May 12th March leading indicators will be released expected at 1% compared to 1.2% last month. On May 13th March current account will be released expected at ¥2.15trln compared with ¥1.47trln last month. April money supply and bank lending will also be released on May 13th. Money supply is expected to rise by 0.1% compared to 0.2% last month and bank lending is expected to rise by 0.4% compared to 0.2% last month.
Key technical levels to watch in USD/JPY include support at 91.84 the May 10th low with resistance at 93.55 the May 10h high.
EUR
EUR traded lower pressured by concern that the EU/IMF bailout may fail to contain sovereign debt risk in Europe. The size of the EU/IMF plan is likely to offer a temporary respite to the cost of funding government debt in Europe. The cost of debt financing has dropped over the last few days. The drop in the cost of funding the EU sovereign debt may not be enough to boost demand for the EUR because of concern that EU deficits may continue to widen, growth is likely to slow and the ECB will be forced to maintain accommodative monetary policy. In order for the EU nations to qualify for aid governments must take significant austerity measures to reduce deficits. This will require large spending cuts and tax hikes. Spending cuts and tax hikes are seen as a drag on the EU recovery. Additionally the ECB has pledged to buy bonds. This is essentially a quantitative ease by the ECB. The ECB bond purchases generate concern about price stability and inflation risk. The ECB plans to sterilize its bond purchases but how the ECB will implement the bond purchase plan remains somewhat uncertain. Germany reported that April CPI contracted by 0.1% and wholesale prices rose 1.7%. The EU debt crisis will prevent the ECB from an early exit from liquidity measures and force the ECB to maintain accommodative monetary policy. This may raise credibility issues for the ECB as inflationary pressures may be building. The Feds Lacker today said that the US recovery is on a sustainable path and that inflation is unlikely to stay low. He warned that the Fed cannot wait too long before raising interest rates. Based on the outlook for continued accommodation by the ECB and increased pressure on the Fed to normalize monetary policy, growth and yield differential is moving in favor of the USD. Focus turns to Wednesday's release of EU Q1 GDP. The EU GDP report will give a good read of how the debt crisis has impacted the EU economy.
On the 12th EU Q1 GDP and industrial production for March will be released. GDP is expected to rise by 0.4% and industrial production is expected at 1.1% to 0.9% last month. On May 13th German Q1 GDP will be released expected at 0.3%.
The technical outlook for the EUR is mixed as EUR trades above 1.2900. Expect EUR support at 1.2586 the May 7th low with resistance at 1.3803 the May 11th high.
GBP
GBP traded lower pressured by UK political uncertainty as UK political parties struggle to form a coalition government. Monday UK PM Brown said that he will stand down and resign by September. The latest reports out of the UK suggest that the Liberal Democrats and Labor Party are moving towards the formation of a coalition government. This coalition could be a negative for GBP because the coalition may not be as aggressive as needed to reduce the UK record budget deficit. Ratings agencies have warned the UK AAA sovereign debt rating is at risk for downgrade if quick action after the election is not taken to reduce the deficit. The Labor Party has expressed concern that rapid deficit reduction could hurt the recovery. It remains to be seen whether the Conservative Party can form a coalition with the Liberal Democrats. This coalition might be a modest positive for the GBP because the Conservatives have pledged to take quick action on the deficit. UK economic data was mixed with retail sales week, house prices rising and manufacturing output strong. April BRC retail sales declined by 2.3%, April RICS house price balance improved +17 from +9 in March and March manufacturing output rose by 2.3%. Monday the BOE elected to hold monetary policy steady and the level of asset purchases unchanged. The BOE is unlikely to make any new policy changes until the political situation in the UK stabilizes. The trade will continue to monitor political news from the UK.
On May 12th March unemployment, average earnings claimant count will be released. On May 13th March trade will be released expected to widen to -7.2bln from -6.2bln in March.
The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.4475 the May 7th low with resistance at 1.5054 the May 10th high.
CAD
CAD opened lower as risk appetite falls along with weaker equity markets. Equity markets were pressured by skepticism about the EU/IMF rescue plan and threat of tightening policy in China as China's inflation accelerates. Commodity prices were mixed with gold rising and crude prices weakening. Gold benefits from concern about fallout from sovereign debt risk in Europe. Crude prices were pressured by concern that tightening in China may slow global growth and demand for commodities. CAD turned higher supported by gains in cross trade to the EUR. CAD traded higher Monday supported by a surge in commodity prices and firmer equity markets sparked by news of a mega bailout for the EU. CAD should remain well supported on breaks by BOC rate hike speculation. Last Friday Canada reported a single monthly record rise in employment growth. Canada's unemployment rate declined to 8.1% from 8.2%. Employment growth rose by a record monthly amount of 108.7k, a 25k rise was expected. The Canadian employment report confirms that the Canadian recovery is gaining momentum. Strong Canadian employment report will likely increase the odds of an earlier BOC rate hike. How the Greek debt crisis impacts global growth outlook will be an important consideration in upcoming BOC monetary policy decisions. Based on Canada's domestic growth the BOC is likely to consider a June rate hike barring any substantial new fallout from the EU sovereign debt crisis. BOC rate hike speculation and growth outlook fuels CAD gains versus EUR.EUR/CAD traded at a new low for the move. Focus turns to Wednesday's release of Canada's trade balance. The trade balance report is expected to show that strengthening of the global economy has increased demand for Canadian exports.
On May 12th March trade balance will be released expected at 1.7bln compared to 1.4bln last month along with March new housing price index expected at 0.3% compared to 0.1% last month. On May 14th March manufacturing shipments and new motor vehicle sales will be released. Manufacturing shipments are expected up 0.6% compared to 0.1% last month. Motor vehicle sales are expected to rise by 3% compared to 8.1% last month.
The technical outlook for CAD is mixed as USD/CAD trades below 1.0300. Look for near-term support at 1.0101 the May 3rd low with resistance at 1.0571 May 7th high.
AUD
AUD traded lower pressured by declining commodity prices and weaker equity markets. Acceleration in China's inflation rate and skepticism about the EU/IMF rescue plan dampens risk appetite and sparked selling of commodities and equities. In addition there is a Reuter's report that China may be moving closer to allowing the Yuan to appreciate. Yuan appreciation could be used as another tool by China to try to combat inflationary pressures and slow growth. The Shanghai index closed 1.9% lower and is down 20% for the year. There were no major Australian economic reports released today. Monday, Australia reported that April NAB business conditions index declined to +8 from +13 last month and Australia's April job ads declined by 1.2%. Weaker business conditions and the drop in job ads may reflect recent tightening of monetary policy by the RBA. These reports may also contribute to speculation that the RBA will pause its tightening cycle. The RBA Monetary Policy report released Friday states that the RBA believes interest rates are near average level. This suggests that the RBA plans to soon pause in its rate hike cycle. Diminished RBA rate hike speculation is negative for the AUD. The RBA Monetary Policy statement also said that inflation pressures are rising faster than expected. This could mean that the RBA will still leave the door open for possible future rate hikes if inflationary pressures continue. AUD price direction remains closely tied to risk appetite. It remains to be seen if the EU bailout announcement will be sufficient to stop the recent deleveraging in commodities, equities and currency markets. There was little reaction to report that the Australian budget will return surplus ahead of schedule. Focus turns to Wednesday's release Australia's housing finance for March. Economic data may be overshadowed by news from Europe in regard to EU sovereign debt and the UK political landscape. USD strength versus Europe appeared to spillover into the today's AUD trade. AUD rallied from today's lows as US equities trade higher after the release of a sharp rise in US wholesale sales.
On May 12th March housing finance will be released expected at -1% compared to-1.8% last month. On May 13th April employment growth and unemployment rate would be released. Employment growth is expected at 25k compared to 19.6 K. last month. The unemployment rate is expected to fall to 5.2% from 5.3% last month.
The technical outlook for the AUD is mixed as the AUD trades above 9000. Expect AUD support at 8803 the May 7th low with resistance at 9080 the May 10th high
•JPY: Higher, tracking stocks, Japan may seek a debt cap, Yuan revaluation speculation
•EUR: Lower, concern about slowing growth, widening deficits and potential new debt downgrades
•GBP: Lower, political uncertainty, retail sales drop, house prices rise, industrial production jumps
•CAD and AUD: AUD lower & CAD higher, weaker equity and commodity markets, China rate hike threat
Overview
The USD traded higher Tuesday supported by doubt that the $1trln EU/IMF rescue plan announced Monday will contain sovereign debt risk from spreading in Europe and in reaction to accelerating inflation in China. There are numerous concerns about the impact of the EU/IMF rescue package. In order for countries to receive aid they must adopt extreme austerity measures. The austerity measures are likely to hurt the EU recovery. There also is concern that the ECB plan to buy bonds could be inflationary. ECB officials say that bond purchases will be sterilized. The EU/IMF rescue plan may not prevent future sovereign debt ratings downgrades in peripheral European nations. EUR was also pressured by speculation that the EU sovereign debt crisis will force the ECB to maintain accommodative monetary policy. As the US economy shows signs of recovery and the Fed is likely to consider a hike before year-end, yield and growth differential are moving in favor of the USD. USD was also supported by a spike in risk aversion as equity markets trade lower and accelerating inflation in China generates the risk of further tightening of monetary conditions in China. China's inflation rate rose at its fastest pace in 18 months to 2.8%. The Shanghai index closed 1.8% lower partly on fear of tightening of monetary policy in China. The commodity currencies traded lower pressured by weaker equities and threat of tightening in China. CAD downside was limited by gains in cross trade to the EUR. GBP traded lower in volatile trade mainly pressured by UK political uncertainty as the UK political parties try to form a new coalition government. The latest report is that the Liberal Democrats and Labor Party are trying to form a coalition government. This coalition could be a negative for the UK budget outlook and may increase the risk of a downgrade in the UK sovereign debt rating. JPY traded higher supported by safe haven demand sparked by weaker equities and skepticism about the Greek rescue plan. JPY was also supported by a statement from Japan's finance minister that Japan is considering a debt cap and in reaction to the Reuters report which says China is moving closer to a decision to allow Yuan revaluation. US economic data was mixed with wholesale sales rising more than expected. USD is closely tracking risk sentiment and the direction of equities.
Today's US data:
March wholesale inventories rose by 0.4%, a rise of 0.5% was expected. March wholesale sales rose by 2.4%, a rise 0.7% was expected.
Upcoming US data:
On May 12th March trade balance will be released along with the April treasury budget. The trade balance is expected to widen to -40bln from -39.7bln last month. On May 13th April import prices and jobless claims for week ending 05/08 will be released. Import prices are expected to rise by 0.8% compared to 0.7% last month. Jobless claims are expected to fall to 438k from 444k last week. On May 14th April retail sales industrial production, capacity utilization and University of Michigan sentiment will be released along with March business inventories. Retail sales are expected to rise by 0.3% compared 1.6% last month. Industrial production is expected to rise by 0.5% compared to 0.1% last month. Capacity utilization is expected at 73.6 compared to 73.2 last month. Michigan consumer sentiment is expected at 73.2 compared to 72.2 last month. Business inventories are expected to rise by 0.3% compared to 0.5% last month.
JPY
JPY traded higher supported by a spike in risk aversion as equity markets decline in reaction to doubt about the Greek rescue plan and in reaction to report of accelerating inflation in China. Euphoria about the EU/IMF Greek rescue plan has faded as investor's question how the plan will be paid for and whether the plan will contain contagion at risk from spreading. Acceleration in China's inflation rate generates concern that China will take additional measures to tighten lending conditions. This could be a drag on the global recovery. JPY was also supported by a statement from Japan's Finance Minister Kan that Japan is considering a cap on debt issuance. Ratings agencies have warned that Japan's sovereign debt rating could be cut if JGB bond issuance continues to rise. According to Kan Japan's the new fiscal year bond issuance should not top ¥44.3 trillion. This is close to the threshold that may trigger a downgrade of Japan's debt rating. The impact of Kans statement was partly diminished by a statement from Japan's PM Hatoyama that comments on limiting debt issuance is not official government policy. Reuters reports that a Chinese bank official says that China is ready for a Yuan move. The Reuters report said that this Chinese official referred to a basket of currencies in its monetary policy report which could mean China is moving closer towards allowing Yuan revaluation. JPY and other Asian currencies sometimes trade as a proxy for Yuan revaluation. JPY direction is expected to trade inversely to equities and risk sentiment.
On May 12th March leading indicators will be released expected at 1% compared to 1.2% last month. On May 13th March current account will be released expected at ¥2.15trln compared with ¥1.47trln last month. April money supply and bank lending will also be released on May 13th. Money supply is expected to rise by 0.1% compared to 0.2% last month and bank lending is expected to rise by 0.4% compared to 0.2% last month.
Key technical levels to watch in USD/JPY include support at 91.84 the May 10th low with resistance at 93.55 the May 10h high.
EUR
EUR traded lower pressured by concern that the EU/IMF bailout may fail to contain sovereign debt risk in Europe. The size of the EU/IMF plan is likely to offer a temporary respite to the cost of funding government debt in Europe. The cost of debt financing has dropped over the last few days. The drop in the cost of funding the EU sovereign debt may not be enough to boost demand for the EUR because of concern that EU deficits may continue to widen, growth is likely to slow and the ECB will be forced to maintain accommodative monetary policy. In order for the EU nations to qualify for aid governments must take significant austerity measures to reduce deficits. This will require large spending cuts and tax hikes. Spending cuts and tax hikes are seen as a drag on the EU recovery. Additionally the ECB has pledged to buy bonds. This is essentially a quantitative ease by the ECB. The ECB bond purchases generate concern about price stability and inflation risk. The ECB plans to sterilize its bond purchases but how the ECB will implement the bond purchase plan remains somewhat uncertain. Germany reported that April CPI contracted by 0.1% and wholesale prices rose 1.7%. The EU debt crisis will prevent the ECB from an early exit from liquidity measures and force the ECB to maintain accommodative monetary policy. This may raise credibility issues for the ECB as inflationary pressures may be building. The Feds Lacker today said that the US recovery is on a sustainable path and that inflation is unlikely to stay low. He warned that the Fed cannot wait too long before raising interest rates. Based on the outlook for continued accommodation by the ECB and increased pressure on the Fed to normalize monetary policy, growth and yield differential is moving in favor of the USD. Focus turns to Wednesday's release of EU Q1 GDP. The EU GDP report will give a good read of how the debt crisis has impacted the EU economy.
On the 12th EU Q1 GDP and industrial production for March will be released. GDP is expected to rise by 0.4% and industrial production is expected at 1.1% to 0.9% last month. On May 13th German Q1 GDP will be released expected at 0.3%.
The technical outlook for the EUR is mixed as EUR trades above 1.2900. Expect EUR support at 1.2586 the May 7th low with resistance at 1.3803 the May 11th high.
GBP
GBP traded lower pressured by UK political uncertainty as UK political parties struggle to form a coalition government. Monday UK PM Brown said that he will stand down and resign by September. The latest reports out of the UK suggest that the Liberal Democrats and Labor Party are moving towards the formation of a coalition government. This coalition could be a negative for GBP because the coalition may not be as aggressive as needed to reduce the UK record budget deficit. Ratings agencies have warned the UK AAA sovereign debt rating is at risk for downgrade if quick action after the election is not taken to reduce the deficit. The Labor Party has expressed concern that rapid deficit reduction could hurt the recovery. It remains to be seen whether the Conservative Party can form a coalition with the Liberal Democrats. This coalition might be a modest positive for the GBP because the Conservatives have pledged to take quick action on the deficit. UK economic data was mixed with retail sales week, house prices rising and manufacturing output strong. April BRC retail sales declined by 2.3%, April RICS house price balance improved +17 from +9 in March and March manufacturing output rose by 2.3%. Monday the BOE elected to hold monetary policy steady and the level of asset purchases unchanged. The BOE is unlikely to make any new policy changes until the political situation in the UK stabilizes. The trade will continue to monitor political news from the UK.
On May 12th March unemployment, average earnings claimant count will be released. On May 13th March trade will be released expected to widen to -7.2bln from -6.2bln in March.
The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.4475 the May 7th low with resistance at 1.5054 the May 10th high.
CAD
CAD opened lower as risk appetite falls along with weaker equity markets. Equity markets were pressured by skepticism about the EU/IMF rescue plan and threat of tightening policy in China as China's inflation accelerates. Commodity prices were mixed with gold rising and crude prices weakening. Gold benefits from concern about fallout from sovereign debt risk in Europe. Crude prices were pressured by concern that tightening in China may slow global growth and demand for commodities. CAD turned higher supported by gains in cross trade to the EUR. CAD traded higher Monday supported by a surge in commodity prices and firmer equity markets sparked by news of a mega bailout for the EU. CAD should remain well supported on breaks by BOC rate hike speculation. Last Friday Canada reported a single monthly record rise in employment growth. Canada's unemployment rate declined to 8.1% from 8.2%. Employment growth rose by a record monthly amount of 108.7k, a 25k rise was expected. The Canadian employment report confirms that the Canadian recovery is gaining momentum. Strong Canadian employment report will likely increase the odds of an earlier BOC rate hike. How the Greek debt crisis impacts global growth outlook will be an important consideration in upcoming BOC monetary policy decisions. Based on Canada's domestic growth the BOC is likely to consider a June rate hike barring any substantial new fallout from the EU sovereign debt crisis. BOC rate hike speculation and growth outlook fuels CAD gains versus EUR.EUR/CAD traded at a new low for the move. Focus turns to Wednesday's release of Canada's trade balance. The trade balance report is expected to show that strengthening of the global economy has increased demand for Canadian exports.
On May 12th March trade balance will be released expected at 1.7bln compared to 1.4bln last month along with March new housing price index expected at 0.3% compared to 0.1% last month. On May 14th March manufacturing shipments and new motor vehicle sales will be released. Manufacturing shipments are expected up 0.6% compared to 0.1% last month. Motor vehicle sales are expected to rise by 3% compared to 8.1% last month.
The technical outlook for CAD is mixed as USD/CAD trades below 1.0300. Look for near-term support at 1.0101 the May 3rd low with resistance at 1.0571 May 7th high.
AUD
AUD traded lower pressured by declining commodity prices and weaker equity markets. Acceleration in China's inflation rate and skepticism about the EU/IMF rescue plan dampens risk appetite and sparked selling of commodities and equities. In addition there is a Reuter's report that China may be moving closer to allowing the Yuan to appreciate. Yuan appreciation could be used as another tool by China to try to combat inflationary pressures and slow growth. The Shanghai index closed 1.9% lower and is down 20% for the year. There were no major Australian economic reports released today. Monday, Australia reported that April NAB business conditions index declined to +8 from +13 last month and Australia's April job ads declined by 1.2%. Weaker business conditions and the drop in job ads may reflect recent tightening of monetary policy by the RBA. These reports may also contribute to speculation that the RBA will pause its tightening cycle. The RBA Monetary Policy report released Friday states that the RBA believes interest rates are near average level. This suggests that the RBA plans to soon pause in its rate hike cycle. Diminished RBA rate hike speculation is negative for the AUD. The RBA Monetary Policy statement also said that inflation pressures are rising faster than expected. This could mean that the RBA will still leave the door open for possible future rate hikes if inflationary pressures continue. AUD price direction remains closely tied to risk appetite. It remains to be seen if the EU bailout announcement will be sufficient to stop the recent deleveraging in commodities, equities and currency markets. There was little reaction to report that the Australian budget will return surplus ahead of schedule. Focus turns to Wednesday's release Australia's housing finance for March. Economic data may be overshadowed by news from Europe in regard to EU sovereign debt and the UK political landscape. USD strength versus Europe appeared to spillover into the today's AUD trade. AUD rallied from today's lows as US equities trade higher after the release of a sharp rise in US wholesale sales.
On May 12th March housing finance will be released expected at -1% compared to-1.8% last month. On May 13th April employment growth and unemployment rate would be released. Employment growth is expected at 25k compared to 19.6 K. last month. The unemployment rate is expected to fall to 5.2% from 5.3% last month.
The technical outlook for the AUD is mixed as the AUD trades above 9000. Expect AUD support at 8803 the May 7th low with resistance at 9080 the May 10th high
forex news
DAILY TECHNICAL OUTLOOK ON USD/JPY All times in GMT
Last Update At 20 May 2010 00:00 GMT
Trend Daily Chart Daily Indicators 21 HR EMA 55 HR EMA
Sideways Turning down 91.69 91.97
Trend Hourly Chart Hourly Indicators 13 HR RSI 14 HR DMI
Down Turning up 50 -ve
Daily Analysis
Initial recovery b4 retreat
Resistance Support
92.97 - Tuesday's high
92.69 - Hourly chart
92.15 - Y'day's high 90.95 - Y'day's low
90.63 - 1.236 ext. of 93.65-91.76 fm 92.97
90.13 - 61.8% r of 87.95-93.65
USD/JPY - 91.78.. Volatile trading was seen in the dlr y'day as despite
initial rebound fm Tokyo morning low of 91.55, renewed selling capped intra-day
rise at 92.15 as selloff in European equities prompted another wave of heavy
unwinding of yen carry trades, the pair fell to 91.05 n staged a strg bounce
back to 92.02 at NY opening, however, weakness in U.S. stocks pushed price to an
intra-day low of 89.95 b4 a modest recovery took place.
Dlr's erratic fall fm 93.65 is retracing the early rally fm 2010 low of
87.95 n as the rebound fm said y'day's low looks corrective, reckon 92.15 wud
cap intra-day gain n yield retreat, however, break of 90.95 is needed to yield
marginal weakness to 90.70, as the hourly oscillators' readings wud display
prominent bullish converging signals on next fall, reckon 'dynamic' sup at 90.13
(61.8% r of 87.95-93.65) wud remain intact n bring subsequent strg rebound.
Today, we're buying dlr on dips in anticipation of one more rise to 92.15
n if price rises there 1st, we'd sell for retreat. On the upside, a breach of
92.97 wud confirm decline fm 93.65 has ended n bring re-test of this res later.
Last Update At 20 May 2010 00:00 GMT
Trend Daily Chart Daily Indicators 21 HR EMA 55 HR EMA
Sideways Turning down 91.69 91.97
Trend Hourly Chart Hourly Indicators 13 HR RSI 14 HR DMI
Down Turning up 50 -ve
Daily Analysis
Initial recovery b4 retreat
Resistance Support
92.97 - Tuesday's high
92.69 - Hourly chart
92.15 - Y'day's high 90.95 - Y'day's low
90.63 - 1.236 ext. of 93.65-91.76 fm 92.97
90.13 - 61.8% r of 87.95-93.65
USD/JPY - 91.78.. Volatile trading was seen in the dlr y'day as despite
initial rebound fm Tokyo morning low of 91.55, renewed selling capped intra-day
rise at 92.15 as selloff in European equities prompted another wave of heavy
unwinding of yen carry trades, the pair fell to 91.05 n staged a strg bounce
back to 92.02 at NY opening, however, weakness in U.S. stocks pushed price to an
intra-day low of 89.95 b4 a modest recovery took place.
Dlr's erratic fall fm 93.65 is retracing the early rally fm 2010 low of
87.95 n as the rebound fm said y'day's low looks corrective, reckon 92.15 wud
cap intra-day gain n yield retreat, however, break of 90.95 is needed to yield
marginal weakness to 90.70, as the hourly oscillators' readings wud display
prominent bullish converging signals on next fall, reckon 'dynamic' sup at 90.13
(61.8% r of 87.95-93.65) wud remain intact n bring subsequent strg rebound.
Today, we're buying dlr on dips in anticipation of one more rise to 92.15
n if price rises there 1st, we'd sell for retreat. On the upside, a breach of
92.97 wud confirm decline fm 93.65 has ended n bring re-test of this res later.
Forex - British Pound
I'd like to take a long term view of the British Pound to help put things into perspective. In the above chart you will notice that the rally which began in January of this year has abruptly stopped dead in its tracks at the 170.00 level. What is so significant about the 170 level? Well if you look back a few years you will notice that a major low was made in Novemeber 2005. This low is now playing as resistance and is why the British pound has stopped at this level.
My personal opinion is that the British Pound will rally due to the 8 year cycle which indicates that this currency should be in an uptrend for the next several years. Having said that, I will look for buy signals to position myself in the direction of the major trend.
Posted by Kevin at 9/05/2009
My personal opinion is that the British Pound will rally due to the 8 year cycle which indicates that this currency should be in an uptrend for the next several years. Having said that, I will look for buy signals to position myself in the direction of the major trend.
Forex report: Euro falls
The question is not whether the €750 billion European loan program is big enough to steady local government bond markets, it’s really a question of what implications the deal creates ahead. The euro is once again on the back foot this morning and has fallen by over four cents from its reaction high reached after the package was announced. An IMF director addressing a conference noted that the plan was no panacea and was really a dose of morphine sufficient to stabilize the patient. Investors now fear the consequences of the stability measures will leave European monetary policy in neutral gear while disabling fiscal policy for an extended period. Such a policy mix draws attention to a possible growth rift between the U.S. and the Eurozone and at its worst, would conspire to dramatically slow the global economy
Sunday, February 21, 2010
forex report
Daily Forex Report - USD and JPY higher on concern about global growth
Written by Michael J. Malpede
Wednesday, 27 January 2010 16:51 GMT
USD: Higher, spike in risk aversion as China tightens monetary policy, US new home sales decline
JPY: Higher, supported by safe haven flows as equity markets continue to weaken
EUR: Lower, Juncker says EUR is overvalued, German CPI posts an unexpected decline
GBP: Higher, hawkish comments from BOE Sentance, retail sales weak
CAD and AUD: AUD & CAD lower, Australia's inflation rose faster than expected, Flaherty warns on growth
Overview
USD and JPY continue to trade higher supported by risk aversion and concern about the global recovery. Concern that tightening of monetary policy in China may derail global growth and uncertainty about EU fiscal outlook sparks safe haven demand for the USD and JPY. Tuesday, China announced that it would raise its reserve ratios for two major banks in an effort to curb lending. Portugal announced its latest budget plans and the announcement was met with disappointment. European currencies traded mixed with GBP supported by hawkish comments from the BOE Sentance which encouraged speculation that the BOE may pause in its asset purchase program. EUR was pressured by report of weaker than expected German CPI and a statement from Luxembourg PM Juncker that the EUR is overvalued. Juncker also warned that divergences in the EU regions may threaten the cohesion of European Monetary Union. Commodity currencies traded lower pressured by weaker commodity prices and rising risk aversion. Deleveraging of carry trades remains the dominant feature of FX trade. US new home sales posted an unexpected 7.6% decline. The USD remained bid after the release of weaker than expected US new home sales as stocks fall and the data generates concern about the strength of the US and global recovery. Focus turns to FOMC announcement and President Obama's State of the Union address. The FOMC is expected to confirm that it will hold interest rates near zero for an extended period. President Obama is expected to focus on economy, jobs and the budget deficit.
Today's US data:
December new home sales declined to 342k, a reading of 355k was expected. New home sales were down 22.9% for 2009.
Upcoming US data:
On January 28th December durable goods will be released expected 2% compared to 0.2% last month along with initial jobless claims for the week ending 01/23 expected at 450k compared to 482k last week. On January 29th advanced Q4 GDP will be released along with January Chicago PMI and final January University of Michigan. The Q4 GDP is expected to have risen by 4.5% compared to 2.2% in the third quarter. Chicago PMI's expected 57.5 compared to 58.7 last month and the University of Michigan sentiment is expected unchanged at 73.
JPY
JPY traded higher supported by safe haven demand sparked by concern about the global recovery and weaker Asian equity market trade. The Nikkei closed 78 points lower and the Shanghai index was down 1.1%. Tuesday's announcement that China plans to tighten monetary policy and threat of a downgrade of Japan's bond rating dampens investor risk appetite and sparked unwind of JPY carry trades. Escalating tensions between North and South Korea contributes to diminished risk appetite and demand for JPY. Japan's December trade surplus narrowed to ¥545.3bln with exports up by 12.1% and imports down by 5.5%. The improvement in Japan's export sales is unlikely to offset concern about weaker growth and deflationary pressures in Japan. Despite these factors the JPY continues to benefit from safe haven flows. The strengthening of the JPY will increase the risk of intervention and pressure on the BOJ to ease monetary policy. JPY price direction has re-linked to risk aversion and the direction of equities and JPY continues to find support as stocks decline.
On January 28th December retail sales will be released expected to rise by 0.3% compared to 0.2% last month. On January 29th of December CPI will be released expected unchanged at -0.2%. December household spending, unemployment, industrial output housing starts and construction orders will also be released on January 29th. The unemployment rate is expected to rise by 0.1% to 5.3%. Industrial output is expected to rise by 2.5% compared to 2.2% last month. Housing starts are expected to rise by 2% compared to 4.7% last month. Construction orders are expected to fall by 24% compared to 11.6% last month.
Key technical levels to watch in USD/JPY include support at 88.35 the December 3rd low with resistance at 91.88 the January 21st high.
EUR
EUR traded at a six month low pressured by report of an unexpected decline in German CPI and comments from Luxembourg PM Juncker. German CPI declined by 0.4% as compared to a 0.9% rise in December. A 1% rise was expected for German CPI .Despite the weakness in the German CPI report the ECB's Weber interest rates are appropriate and that the ECB may take steps to further normalize monetary policy as the economy improves. EUR downside was limited by Weber's comments which suggest that the ECB will continue to unwind emergency liquidity measures. Juncker said that EUR is overvalued and he is concerned about the imbalances in the EU may threaten the cohesion of European Monetary Union. Juncker's comments have increased the debate over whether there could be a breakup of European Monetary Union. EUR was also pressured by concerns about budget deficits in Greece and Portugal. Juncker says that he does not expect Greece to default on its debt. Portugal announced its new budget and it was seen as a disappointment. The next major focus for EUR trade will be the February 4th ECB policy meeting. The ECB is expected to hold monetary policy unchanged and continue to gradually withdraw liquidity.
On January 28th German December unemployment will be released expected at 8.2% compared to 8.1% last month along with EU January business climate expected at -1.1 compared to -1.2 last month. On January 29th EU December M3 will be released expected at -0.5 and 0.2% last month along with January CPI expected at 1.2% compared to 0.9% last month.
The technical outlook for the EUR is negative as the EUR trades below 1.4100. Expect EUR support at 1.4007 the July 29th low with resistance at 1.4195 the January 26th high.
GBP
GBP traded higher supported by hawkish comments from the BOE's Sentance with gains limited by report of weaker than expected UK CBI retail sales. Sentance said that may be difficult for the BOE to maintain its inflation target and that the UK economic recovery was stronger then the Q4 GDP report suggests. Tuesday, the UK reported that Q4 GDP rose by just 0.1%. The UK Q4 GDP report confirms that the UK recession has ended but suggests that the recovery will be weak. Sentance went on to say that he believes that the UK will avoid a double dip recession and that tightening of monetary policy depends on the strength of the recovery. Some investors have read into Sentances comments that the BOE may be moving closer towards a pause in its asset purchase plan. GBP was also supported by report of demand from quarterly dividend payments by a UK oil company. UK CBI retail sales were quite weak, reported at -8 compared to +13 last month. GBP outperformed last week partly in reaction to report of higher than expected December consumer price index. The GBP outperformance was impressive in light of the weakness in global equity markets late last week. The CPI rise may bring the timeframe for the end of BOE asset purchase plan forward. UK December CPI was reported at 2.9% and the CPI is approaching the high end of the BOE's inflation target range. The BOE's inflation target is 2%. Earlier in the month of BOE Sentance indicated that the BOE may need to pause its asset purchase plan consider the possibility of hiking rates this year. Sentance today indicated that there may be less spare capacity in the UK economy and this could increase upward pressure on inflation.
On January 29th, January Nationwide home price index will be released.
The technical outlook for GBP is mixed as GBP holds above 1.5900. Expect near-term support at 1.5900 the January 7th low with resistance at 1.6370 the January 20th high.
CAD
CAD traded lower pressured by weaker equity market trade, concern about the global recovery and deleveraging of carry trades. Concern that tightening of monetary policy in China may derail the global recovery and weaker commodity prices are the main negatives for CAD. Concern about global growth sparked selling of Asian equities and a spike in risk aversion. The weaker equity market trade and spike in risk aversion sparked unwind of growth led and high-yield currencies like the CAD. There has been little fresh economic news from Canada to drive CAD price action and the recent weakness in crude oil prices and concern that China's efforts to slow growth will hurt the global recovery are the main negatives for the CAD. There was little reaction to a report Market Watch that a consensus of analysts expects the CAD to trade at parity with the USD this year. These analysts are positive the CAD because Canada's economy is seen as stronger than the US and countries like Russia are looking to diversify some USD reserves to CAD. These analysts note that the CAD is vulnerable to swings in commodity prices and slower growth should tightening in China reduce demand for commodities. CAD has also been underperforming because of diminished speculation that BOC will move the timeframe for its tightening cycle forward. The BOC elected to hold monetary policy steady last week and monetary policy is likely to remain on hold as Canada reports a larger than expected decline in inflation. There were no major Canadian economic reports released in today's trade. CAD price direction remains tied to the outlook for commodities and equities. The trade will be watching closely whether China takes additional steps to reduce liquidity. Focus turns to Canada's GDP due for release later in the week. Canada's Finance Minister Flaherty warned about being overly optimistic about swift economic recoveries and he said he did not favor imposing new taxes on Canadian financial institutions or limits on executive compensation according to a report on Reuters.
This week's Canadian economic calendar includes Friday's release of December producer price index and GDP. December IPPI is expected at 0.4% and RMPI is expected at 1.2%. November GDP is expected unchanged at 0.2%.
The technical outlook for CAD is negative as USD/CAD trades above 1.0600. Look for near-term support at 1.0438 the January 21st low with resistance at 1.0700 the December 21st high.
AUD
AUD traded lower pressured by a spike in risk aversion and weaker equity market trade. AUD price action has been closely tracking the Shanghai index which was down 1.5% today. AUD decline was somewhat of a surprise in light of the fact that Australia reported faster than expected CPI growth in Q4. Australia's Q4 CPI rose by 0.6% and 3.2% y/y. In addition Australia's Westpac leading economic index rose by 7.6%. The rise in Australia's inflation and stronger economic index may increase pressure on the RBA to hike rates at next week's policy meeting. RBA watcher in McCrann says that the CPI report will determine whether the RBA hikes rates at the February 2nd Policy meeting. AUD traded lower last week pressured by a spike in risk aversion as global equity markets weakened in reaction to China's tightening of liquidity, uncertainty about Bernanke's job tenure and President Obama's proposal of new US bank regulations. AUD price direction remains tied to commodities and equities but RBA rate hike speculation should limit AUD downside. Financial markets are forecasting that the RBA will hike rates 25 bps next week.
This week's Australian economic calendar includes a January the 27th release of Q4 CPI expected at 0.4% compared to 1% last quarter. On January 29th December private sector credit will be released expected at 1.1% compared to0.8% last month.
The technical outlook for the AUD is mixed as the AUD holds above 8800. Expect AUD support at 8902 the December 30th low with resistance at 9093 the January 22nd high.
Written by Michael J. Malpede
Wednesday, 27 January 2010 16:51 GMT
USD: Higher, spike in risk aversion as China tightens monetary policy, US new home sales decline
JPY: Higher, supported by safe haven flows as equity markets continue to weaken
EUR: Lower, Juncker says EUR is overvalued, German CPI posts an unexpected decline
GBP: Higher, hawkish comments from BOE Sentance, retail sales weak
CAD and AUD: AUD & CAD lower, Australia's inflation rose faster than expected, Flaherty warns on growth
Overview
USD and JPY continue to trade higher supported by risk aversion and concern about the global recovery. Concern that tightening of monetary policy in China may derail global growth and uncertainty about EU fiscal outlook sparks safe haven demand for the USD and JPY. Tuesday, China announced that it would raise its reserve ratios for two major banks in an effort to curb lending. Portugal announced its latest budget plans and the announcement was met with disappointment. European currencies traded mixed with GBP supported by hawkish comments from the BOE Sentance which encouraged speculation that the BOE may pause in its asset purchase program. EUR was pressured by report of weaker than expected German CPI and a statement from Luxembourg PM Juncker that the EUR is overvalued. Juncker also warned that divergences in the EU regions may threaten the cohesion of European Monetary Union. Commodity currencies traded lower pressured by weaker commodity prices and rising risk aversion. Deleveraging of carry trades remains the dominant feature of FX trade. US new home sales posted an unexpected 7.6% decline. The USD remained bid after the release of weaker than expected US new home sales as stocks fall and the data generates concern about the strength of the US and global recovery. Focus turns to FOMC announcement and President Obama's State of the Union address. The FOMC is expected to confirm that it will hold interest rates near zero for an extended period. President Obama is expected to focus on economy, jobs and the budget deficit.
Today's US data:
December new home sales declined to 342k, a reading of 355k was expected. New home sales were down 22.9% for 2009.
Upcoming US data:
On January 28th December durable goods will be released expected 2% compared to 0.2% last month along with initial jobless claims for the week ending 01/23 expected at 450k compared to 482k last week. On January 29th advanced Q4 GDP will be released along with January Chicago PMI and final January University of Michigan. The Q4 GDP is expected to have risen by 4.5% compared to 2.2% in the third quarter. Chicago PMI's expected 57.5 compared to 58.7 last month and the University of Michigan sentiment is expected unchanged at 73.
JPY
JPY traded higher supported by safe haven demand sparked by concern about the global recovery and weaker Asian equity market trade. The Nikkei closed 78 points lower and the Shanghai index was down 1.1%. Tuesday's announcement that China plans to tighten monetary policy and threat of a downgrade of Japan's bond rating dampens investor risk appetite and sparked unwind of JPY carry trades. Escalating tensions between North and South Korea contributes to diminished risk appetite and demand for JPY. Japan's December trade surplus narrowed to ¥545.3bln with exports up by 12.1% and imports down by 5.5%. The improvement in Japan's export sales is unlikely to offset concern about weaker growth and deflationary pressures in Japan. Despite these factors the JPY continues to benefit from safe haven flows. The strengthening of the JPY will increase the risk of intervention and pressure on the BOJ to ease monetary policy. JPY price direction has re-linked to risk aversion and the direction of equities and JPY continues to find support as stocks decline.
On January 28th December retail sales will be released expected to rise by 0.3% compared to 0.2% last month. On January 29th of December CPI will be released expected unchanged at -0.2%. December household spending, unemployment, industrial output housing starts and construction orders will also be released on January 29th. The unemployment rate is expected to rise by 0.1% to 5.3%. Industrial output is expected to rise by 2.5% compared to 2.2% last month. Housing starts are expected to rise by 2% compared to 4.7% last month. Construction orders are expected to fall by 24% compared to 11.6% last month.
Key technical levels to watch in USD/JPY include support at 88.35 the December 3rd low with resistance at 91.88 the January 21st high.
EUR
EUR traded at a six month low pressured by report of an unexpected decline in German CPI and comments from Luxembourg PM Juncker. German CPI declined by 0.4% as compared to a 0.9% rise in December. A 1% rise was expected for German CPI .Despite the weakness in the German CPI report the ECB's Weber interest rates are appropriate and that the ECB may take steps to further normalize monetary policy as the economy improves. EUR downside was limited by Weber's comments which suggest that the ECB will continue to unwind emergency liquidity measures. Juncker said that EUR is overvalued and he is concerned about the imbalances in the EU may threaten the cohesion of European Monetary Union. Juncker's comments have increased the debate over whether there could be a breakup of European Monetary Union. EUR was also pressured by concerns about budget deficits in Greece and Portugal. Juncker says that he does not expect Greece to default on its debt. Portugal announced its new budget and it was seen as a disappointment. The next major focus for EUR trade will be the February 4th ECB policy meeting. The ECB is expected to hold monetary policy unchanged and continue to gradually withdraw liquidity.
On January 28th German December unemployment will be released expected at 8.2% compared to 8.1% last month along with EU January business climate expected at -1.1 compared to -1.2 last month. On January 29th EU December M3 will be released expected at -0.5 and 0.2% last month along with January CPI expected at 1.2% compared to 0.9% last month.
The technical outlook for the EUR is negative as the EUR trades below 1.4100. Expect EUR support at 1.4007 the July 29th low with resistance at 1.4195 the January 26th high.
GBP
GBP traded higher supported by hawkish comments from the BOE's Sentance with gains limited by report of weaker than expected UK CBI retail sales. Sentance said that may be difficult for the BOE to maintain its inflation target and that the UK economic recovery was stronger then the Q4 GDP report suggests. Tuesday, the UK reported that Q4 GDP rose by just 0.1%. The UK Q4 GDP report confirms that the UK recession has ended but suggests that the recovery will be weak. Sentance went on to say that he believes that the UK will avoid a double dip recession and that tightening of monetary policy depends on the strength of the recovery. Some investors have read into Sentances comments that the BOE may be moving closer towards a pause in its asset purchase plan. GBP was also supported by report of demand from quarterly dividend payments by a UK oil company. UK CBI retail sales were quite weak, reported at -8 compared to +13 last month. GBP outperformed last week partly in reaction to report of higher than expected December consumer price index. The GBP outperformance was impressive in light of the weakness in global equity markets late last week. The CPI rise may bring the timeframe for the end of BOE asset purchase plan forward. UK December CPI was reported at 2.9% and the CPI is approaching the high end of the BOE's inflation target range. The BOE's inflation target is 2%. Earlier in the month of BOE Sentance indicated that the BOE may need to pause its asset purchase plan consider the possibility of hiking rates this year. Sentance today indicated that there may be less spare capacity in the UK economy and this could increase upward pressure on inflation.
On January 29th, January Nationwide home price index will be released.
The technical outlook for GBP is mixed as GBP holds above 1.5900. Expect near-term support at 1.5900 the January 7th low with resistance at 1.6370 the January 20th high.
CAD
CAD traded lower pressured by weaker equity market trade, concern about the global recovery and deleveraging of carry trades. Concern that tightening of monetary policy in China may derail the global recovery and weaker commodity prices are the main negatives for CAD. Concern about global growth sparked selling of Asian equities and a spike in risk aversion. The weaker equity market trade and spike in risk aversion sparked unwind of growth led and high-yield currencies like the CAD. There has been little fresh economic news from Canada to drive CAD price action and the recent weakness in crude oil prices and concern that China's efforts to slow growth will hurt the global recovery are the main negatives for the CAD. There was little reaction to a report Market Watch that a consensus of analysts expects the CAD to trade at parity with the USD this year. These analysts are positive the CAD because Canada's economy is seen as stronger than the US and countries like Russia are looking to diversify some USD reserves to CAD. These analysts note that the CAD is vulnerable to swings in commodity prices and slower growth should tightening in China reduce demand for commodities. CAD has also been underperforming because of diminished speculation that BOC will move the timeframe for its tightening cycle forward. The BOC elected to hold monetary policy steady last week and monetary policy is likely to remain on hold as Canada reports a larger than expected decline in inflation. There were no major Canadian economic reports released in today's trade. CAD price direction remains tied to the outlook for commodities and equities. The trade will be watching closely whether China takes additional steps to reduce liquidity. Focus turns to Canada's GDP due for release later in the week. Canada's Finance Minister Flaherty warned about being overly optimistic about swift economic recoveries and he said he did not favor imposing new taxes on Canadian financial institutions or limits on executive compensation according to a report on Reuters.
This week's Canadian economic calendar includes Friday's release of December producer price index and GDP. December IPPI is expected at 0.4% and RMPI is expected at 1.2%. November GDP is expected unchanged at 0.2%.
The technical outlook for CAD is negative as USD/CAD trades above 1.0600. Look for near-term support at 1.0438 the January 21st low with resistance at 1.0700 the December 21st high.
AUD
AUD traded lower pressured by a spike in risk aversion and weaker equity market trade. AUD price action has been closely tracking the Shanghai index which was down 1.5% today. AUD decline was somewhat of a surprise in light of the fact that Australia reported faster than expected CPI growth in Q4. Australia's Q4 CPI rose by 0.6% and 3.2% y/y. In addition Australia's Westpac leading economic index rose by 7.6%. The rise in Australia's inflation and stronger economic index may increase pressure on the RBA to hike rates at next week's policy meeting. RBA watcher in McCrann says that the CPI report will determine whether the RBA hikes rates at the February 2nd Policy meeting. AUD traded lower last week pressured by a spike in risk aversion as global equity markets weakened in reaction to China's tightening of liquidity, uncertainty about Bernanke's job tenure and President Obama's proposal of new US bank regulations. AUD price direction remains tied to commodities and equities but RBA rate hike speculation should limit AUD downside. Financial markets are forecasting that the RBA will hike rates 25 bps next week.
This week's Australian economic calendar includes a January the 27th release of Q4 CPI expected at 0.4% compared to 1% last quarter. On January 29th December private sector credit will be released expected at 1.1% compared to0.8% last month.
The technical outlook for the AUD is mixed as the AUD holds above 8800. Expect AUD support at 8902 the December 30th low with resistance at 9093 the January 22nd high.
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