• USD: Higher, Dollar index weakens from 11 month high pressured by Greek bailout hope, firmer US stocks
• JPY: Lower, pressured by a shift in risk appetite as US equities rebound, speculation of a larger Greek bailout
• EUR: Lower, EU/IMF may broaden Greek bailout effort to €120bln, S & P downgrade Spain’s debt rating
• GBP: Lower, concern about UK sovereign debt rating, election uncertainty
• CAD and AUD: AUD & CAD higher, Australian CPI rises increasing the risk of a rate hike

Overview
After trading at a new one-year low versus the USD sparked by a downgrade of Greek and Portugal’s debt ratings and fear that the EU sovereign debt crisis is spreading, the EUR staged a rally Wednesday. The EUR was supported by report that the EU and IMF may increase aid to Greece to €120bln over three years and in reaction to rhetoric from German officials pledging solidarity with Greece. The EUR recovery rally stalled in reaction to a statement from the head of the IMF that he would not release figures on Greek aid today. EUR turned lower for the day in reaction to a statement from German Chancellor Merkel expressing frustration with the pace of Greece’s reform effort and report that S & P downgraded Spain’s debt rating to AA with a negative outlook.  Look’s like no Greek aid today. GBP traded lower pressured by concern about the UK sovereign debt rating post-UK election. AUD traded higher supported by report of higher than expected Australian CPI and a statement from the RBA’s deputy governor that the sovereign debt crisis in Europe is having no impact on Australia. The Australian CPI rise generates speculation that the RBA will hike rates again in May. JPY traded lower despite a sharp decline in European and Asian equity markets with selling pressure attributed to Japanese bank selling and Greek bailout hope. No major US economic data was released in today’s trade. Investors await further developments on Greece and this afternoon’s FOMC policy statement. Investors are waiting to see if the German Parliament acts quickly to approve aid for Greece. The FOMC is expected to maintain steady policy, present an upbeat assessment of the US economic outlook and reaffirm commitment to accommodative monetary policy.

 Today’s US data:
No major US economic data was released in today’s trade.

Upcoming US data:
On April 29th initial jobless claims for the week ending 4/24 will be released expected at 448k compared to 456k last week. On April 30th Q1 employment cost index, GDP, core PCE index, Chicago April PMI and April University of Michigan final consumer sentiment will be released. The Q1 employment cost index is expected unchanged at 0.5%. Advanced Q1 GDP is expected at 3.5% compared to 5.6% last quarter. Q1 core PCE is expected at 1.4% compared to 1.8% last quarter. Chicago PMI is expected at 60 compared to 58.8 last month and the Michigan consumer sentiment is expected unchanged at 69.5.

JPY
It is getting harder to keep up with the shifts in market sentiment and direction as investors focus on the potential fallout from the Greek debt crisis. In early Asian trade the JPY traded higher supported by a spike in risk aversion as the Nikkei tumbles over 300 points. The Nikkei was pressured by concern that the Greek debt crisis is spreading. JPY reversed to trade sharply lower into the US session pressured by selling from Japanese banks and a EUR and AUD rebound in cross trade. EUR/JPY rallied over 1% with the EUR supported by report that the EU/IMF may increase aid to Greece. AUD/JPY traded 1.5% higher with the AUD supported by report of higher than expected Australian inflation and comments from the RBA deputy governor that the sovereign debt crisis in Southern Europe has had no impact on Australia. JPY was also pressured by a shift in risk sentiment as US equities trade higher despite the worsening of n the Greek debt crisis. US equities were supported by report of better earnings from Dow and Shell and speculation that the Fed will confirm a dovish policy bias in today’s FOMC policy statement. Japanese banks were featured sellers of the JPY but there was no indication that this selling was related intervention. Dealers indicate that he JPY strength was related to Toshin demand. The only Japanese economic data released today was report that Japan’s March retail sales rose by 0.8%.JPY direction is expected to continue track equities.

On April 30th March CPI will be released expected to rise by 0.3% compared to -0.1% last month. March household spending, unemployment, industrial output, housing starts and construction orders will also be released on April 30th. Household spending is expected to decline by 0.7% compared to a 0.5% decline last month. The unemployment rate is expected unchanged at 4.9% with the participation rate rising to 59.1 from 58.9 last month and employment growth to decline by 100k. Industrial output is expected to rise by 1% compared to a 0.6% decline last month. Housing starts are expected to rise by 3% compared to 8% fall last month and construction orders are expected to decline by 6.4% compared to 20.3% last month.

Key technical levels to watch in USD/JPY include support at 92.99 the April 28th low with resistance at 94.78 April 5th high.

EUR
EUR traded higher rebounding from a one-year low of 1.3145 versus USD. It is unclear what sparked the EUR recovery as the news concerning the Greek debt crisis continues to worsen. In reaction to S&P downgrade of the Portugal and the Greek debt rating Tuesday, Asian and European stock markets plunged, Greek interest rates soared and Greek credit spread widened to record levels. Greek 10 year bond yields hit 13.1%, Greek/ German 10 year government bond yield spread widened to 1.021 bps. The cost to insure Greek debt is now the highest in the world. US equity markets shrugged off the latest news concerning sovereign debt risk in Southern Europe and traded higher Wednesday. Firmer US equity market trade coupled with report that the IMF may increase its planned aid for Greece and a statement from French officials that Germany may soon approve additional aid for Greece sparked a short squeeze in the EUR. It’s not clear, but it’s possible that investors have concluded that the news can’t get much worse for Greece. The key will be how well EU officials can contain the potential contagion from the Greek debt crisis. Wire services report that German and IMF officials are meeting to determine how to deal with the Greek crisis and the London press reports that the EU and IMF are making progress on Greece and could increase the size of Greek aid from €45bln to €120bln. An increase in aid to Greece may avert a near-term debt default but will have only temporary impact. Greece must take significant austerity measures to reduce its budget deficit to restore investor confidence in the Greek financial markets. There are numerous reports that the Greek crisis may result in the end of European Monetary Union. These reports seem to be extreme as German officials have a significant stake in preserving European Monetary Union and Germany may be moving closer towards broadening its bailout effort. Wire services report that the Greek bailout may top €120 billion over the next three years.

This week’s EU economic calendar includes the April 29th release of EU business climate expected at 99.8 compared to 99.6 last month. On April 30th EU March unemployment will be released expected unchanged 10% along with April HICP expected at 1.5% compared to 1.4% last month.

The technical outlook for the EUR is negative as EUR breaks 1.3200. Expect EUR support at 1.3120 the April 29th 2009 low with resistance at 1.3395 the April 27th High.

GBP
GBP traded lower pressured by a rumor that a UK clearing firm would soon release a report warning that the UK AAA debt rating would be cut after the UK election. This rumor proved false and GBP stabilized regaining its footing in reaction to report that the EU and IMF plan a larger bailout for Greece. In addition the UK clearing firm issued a report that they doubt the UK debt rating will be downgraded. GBP rebound was limited by selling in cross trade to the EUR as the EUR rallies on short covering sparked by Greek bailout hope. GBP gains were also limited by a statement from former BOE official Besley that the UK recovery remains fragile and inflation is expected to remain low. His comments suggest that the BOE is unlikely to move towards normalization of monetary policy anytime soon. Apart from the fallout from the Greek debt crisis, the main focus for GBP is the upcoming May 6th election. The latest UK election polls suggest that no party will win a majority in parliament. The lack of majority in UK Parliament makes it less likely that UK will take quick action to reduce its record budget deficit. The failure of the UK to take quick action to reduce its budget deficit could lead to a downgrade of the UK AAA sovereign debt rating. The risk of the UK may have increased by the fact of aggressive actions taken by S&P downgrade Portugal and Greek debt rating. Ratings agencies may not want to make the same mistakes they made missing the risks of the subprime debt. GBP continues in a sideways pattern as investor’s debate the potential impact of the UK election, the UK budget outlook and uncertainty about BOE monetary policy.

On April 29th April GFK consumer confidence will be released expected at -12 compared to-15 last month.

The technical outlook for GBP is mixed as GBP struggles to hold above 1.5400. Expect near-term support at 1.5130 the April 6th low with resistance at 1.5487 the April 27th high.

CAD
CAD traded higher supported by improving risk sentiment sparked by report that the EU/IMF plan a larger bailout for Greece. The report of the larger bailout plan for Greece helped to support US equities and risk appetite. CAD plunged in Tuesday’s trade tracking sharp drop in equities and commodities sparked by S&P downgrade of Portugal and Greek debt rating. Asian and European equities traded sharply lower today but the US equity market stabilized. This coupled with firmer gold prices boosted demand for the CAD. The Greek debt crisis overshadows positive news from Canada. Private economists have raised their forecast for Canada’s 2010 GDP to 3.1% from 2.6% in the survey taken in December with exports expected to grow by 11% in 2010. These economists expect Canada’s unemployment rate to drop to 8.1% from original forecast of 8.5%. CAD traded higher despite a statement from BOC Governor Carney that BOC was prepared to intervene against excessive CAD because strong CAD hurts Canadian exports to drag on Canadian economic growth. CAD price direction will continue to track risk sentiment with gains possibly limited by threat of intervention and BOC policy uncertainty. Last week Canada reported weaker than expected inflation and retail sales. Canada’s annual inflation rate slowed to 1.4% from 1.6% last month with the core inflation declining by 0.2%. Canada’s retail sales rose by 0.5% in February, a 0.8% rise was expected. These reports may dampen BOC rate hike speculation. Canadian inflation and retail sales data suggest that the BOC may not be in a hurry to withdraw stimulus. This week’s Canadian economic calendar is relatively light with investors looking to the data to gauge the probability of an earlier BOC rate hike.

This week’s Canadian economic calendar includes the April 30th release of Q1 GDP expected to rise by 0.8% compared to 0.6% last quarter. April raw material prices will be released on April 30th expected at 0.6% compared to 0.4% last month.

The technical outlook for CAD is mixed as USD/CAD trades above 1.0100. Look for near-term support at1.0000 the April 27th low with resistance at 1.0302 the March 26th high.

AUD
AUD traded higher supported by a report of higher than expected Australian inflation and a statement from RBA Deputy Governor Debelle that the EU sovereign debt crisis is having no impact on Australia. Australia’s Q1 CPI rose by 0.9%. The rise in CPI will increase pressure for the RBA to hike rates next week. Today’s CPI report follows yesterday’s report of higher than expected Q1 PPI rise. Q1 PPI rose by 1%, a 0.6% rise was expected. Debelle’s  statement helped to boost investor risk appetite and demand for the AUD. AUD was also supported by improving risk appetite in the US trading session as US equities traded higher. AUD traded sharply lower Tuesday as equity markets and commodities are pressured by Greek debt default fears, downgrade of Portugal’s debt rating and concern about the impact of tighter credit conditions in China. German officials are reluctant to approve aid for Greece unless Greece meets significant austerity guidelines. The Shanghai index closed at a seven-month low as tighter credit conditions in China generate concern about the sustainability of the Chinese recovery. China is a major export destination for Australia and is key to the outlook for growth in Asia. The RBA hiked rates by 25bps to 4.25% earlier this month. Last Thursday, Australia reported that inflation expectations rose to the highest level since October 2008. The rise in Australia’s inflation expectations could add pressure on the RBA to hike rates. Today’s report of higher than expected CPI may increase the chance of an RBA rate hike at the May 4th policy meeting. Speculation that China may take additional actions to tighten credit and curb lending may limit demand for commodities and the AUD.

On April 29th February leading Index will be released expected at 0.1% compared to -0.2% last month and Q1 business conditions expected at 14 compared to 13 last month. On April 30th March private sector credit will be released expected unchanged at 0.4%. Next RBA policy meeting will be held on May 4th.

The technical outlook for the AUD is mixed as the AUD struggles to hold above 9300. Expect AUD support at 9131 the March 31st low with resistance at 9287 the April 27th of high.

Read More

• USD: Higher, Dollar index weakens from 11 month high pressured by Greek bailout hope, firmer US stocks
• JPY: Lower, pressured by a shift in risk appetite as US equities rebound, speculation of a larger Greek bailout
• EUR: Lower, EU/IMF may broaden Greek bailout effort to €120bln, S & P downgrade Spain’s debt rating
• GBP: Lower, concern about UK sovereign debt rating, election uncertainty
• CAD and AUD: AUD & CAD higher, Australian CPI rises increasing the risk of a rate hike

Overview
After trading at a new one-year low versus the USD sparked by a downgrade of Greek and Portugal’s debt ratings and fear that the EU sovereign debt crisis is spreading, the EUR staged a rally Wednesday. The EUR was supported by report that the EU and IMF may increase aid to Greece to €120bln over three years and in reaction to rhetoric from German officials pledging solidarity with Greece. The EUR recovery rally stalled in reaction to a statement from the head of the IMF that he would not release figures on Greek aid today. EUR turned lower for the day in reaction to a statement from German Chancellor Merkel expressing frustration with the pace of Greece’s reform effort and report that S & P downgraded Spain’s debt rating to AA with a negative outlook.  Look’s like no Greek aid today. GBP traded lower pressured by concern about the UK sovereign debt rating post-UK election. AUD traded higher supported by report of higher than expected Australian CPI and a statement from the RBA’s deputy governor that the sovereign debt crisis in Europe is having no impact on Australia. The Australian CPI rise generates speculation that the RBA will hike rates again in May. JPY traded lower despite a sharp decline in European and Asian equity markets with selling pressure attributed to Japanese bank selling and Greek bailout hope. No major US economic data was released in today’s trade. Investors await further developments on Greece and this afternoon’s FOMC policy statement. Investors are waiting to see if the German Parliament acts quickly to approve aid for Greece. The FOMC is expected to maintain steady policy, present an upbeat assessment of the US economic outlook and reaffirm commitment to accommodative monetary policy.

 Today’s US data:
No major US economic data was released in today’s trade.

Upcoming US data:
On April 29th initial jobless claims for the week ending 4/24 will be released expected at 448k compared to 456k last week. On April 30th Q1 employment cost index, GDP, core PCE index, Chicago April PMI and April University of Michigan final consumer sentiment will be released. The Q1 employment cost index is expected unchanged at 0.5%. Advanced Q1 GDP is expected at 3.5% compared to 5.6% last quarter. Q1 core PCE is expected at 1.4% compared to 1.8% last quarter. Chicago PMI is expected at 60 compared to 58.8 last month and the Michigan consumer sentiment is expected unchanged at 69.5.

JPY
It is getting harder to keep up with the shifts in market sentiment and direction as investors focus on the potential fallout from the Greek debt crisis. In early Asian trade the JPY traded higher supported by a spike in risk aversion as the Nikkei tumbles over 300 points. The Nikkei was pressured by concern that the Greek debt crisis is spreading. JPY reversed to trade sharply lower into the US session pressured by selling from Japanese banks and a EUR and AUD rebound in cross trade. EUR/JPY rallied over 1% with the EUR supported by report that the EU/IMF may increase aid to Greece. AUD/JPY traded 1.5% higher with the AUD supported by report of higher than expected Australian inflation and comments from the RBA deputy governor that the sovereign debt crisis in Southern Europe has had no impact on Australia. JPY was also pressured by a shift in risk sentiment as US equities trade higher despite the worsening of n the Greek debt crisis. US equities were supported by report of better earnings from Dow and Shell and speculation that the Fed will confirm a dovish policy bias in today’s FOMC policy statement. Japanese banks were featured sellers of the JPY but there was no indication that this selling was related intervention. Dealers indicate that he JPY strength was related to Toshin demand. The only Japanese economic data released today was report that Japan’s March retail sales rose by 0.8%.JPY direction is expected to continue track equities.

On April 30th March CPI will be released expected to rise by 0.3% compared to -0.1% last month. March household spending, unemployment, industrial output, housing starts and construction orders will also be released on April 30th. Household spending is expected to decline by 0.7% compared to a 0.5% decline last month. The unemployment rate is expected unchanged at 4.9% with the participation rate rising to 59.1 from 58.9 last month and employment growth to decline by 100k. Industrial output is expected to rise by 1% compared to a 0.6% decline last month. Housing starts are expected to rise by 3% compared to 8% fall last month and construction orders are expected to decline by 6.4% compared to 20.3% last month.

Key technical levels to watch in USD/JPY include support at 92.99 the April 28th low with resistance at 94.78 April 5th high.

EUR
EUR traded higher rebounding from a one-year low of 1.3145 versus USD. It is unclear what sparked the EUR recovery as the news concerning the Greek debt crisis continues to worsen. In reaction to S&P downgrade of the Portugal and the Greek debt rating Tuesday, Asian and European stock markets plunged, Greek interest rates soared and Greek credit spread widened to record levels. Greek 10 year bond yields hit 13.1%, Greek/ German 10 year government bond yield spread widened to 1.021 bps. The cost to insure Greek debt is now the highest in the world. US equity markets shrugged off the latest news concerning sovereign debt risk in Southern Europe and traded higher Wednesday. Firmer US equity market trade coupled with report that the IMF may increase its planned aid for Greece and a statement from French officials that Germany may soon approve additional aid for Greece sparked a short squeeze in the EUR. It’s not clear, but it’s possible that investors have concluded that the news can’t get much worse for Greece. The key will be how well EU officials can contain the potential contagion from the Greek debt crisis. Wire services report that German and IMF officials are meeting to determine how to deal with the Greek crisis and the London press reports that the EU and IMF are making progress on Greece and could increase the size of Greek aid from €45bln to €120bln. An increase in aid to Greece may avert a near-term debt default but will have only temporary impact. Greece must take significant austerity measures to reduce its budget deficit to restore investor confidence in the Greek financial markets. There are numerous reports that the Greek crisis may result in the end of European Monetary Union. These reports seem to be extreme as German officials have a significant stake in preserving European Monetary Union and Germany may be moving closer towards broadening its bailout effort. Wire services report that the Greek bailout may top €120 billion over the next three years.

This week’s EU economic calendar includes the April 29th release of EU business climate expected at 99.8 compared to 99.6 last month. On April 30th EU March unemployment will be released expected unchanged 10% along with April HICP expected at 1.5% compared to 1.4% last month.

The technical outlook for the EUR is negative as EUR breaks 1.3200. Expect EUR support at 1.3120 the April 29th 2009 low with resistance at 1.3395 the April 27th High.

GBP
GBP traded lower pressured by a rumor that a UK clearing firm would soon release a report warning that the UK AAA debt rating would be cut after the UK election. This rumor proved false and GBP stabilized regaining its footing in reaction to report that the EU and IMF plan a larger bailout for Greece. In addition the UK clearing firm issued a report that they doubt the UK debt rating will be downgraded. GBP rebound was limited by selling in cross trade to the EUR as the EUR rallies on short covering sparked by Greek bailout hope. GBP gains were also limited by a statement from former BOE official Besley that the UK recovery remains fragile and inflation is expected to remain low. His comments suggest that the BOE is unlikely to move towards normalization of monetary policy anytime soon. Apart from the fallout from the Greek debt crisis, the main focus for GBP is the upcoming May 6th election. The latest UK election polls suggest that no party will win a majority in parliament. The lack of majority in UK Parliament makes it less likely that UK will take quick action to reduce its record budget deficit. The failure of the UK to take quick action to reduce its budget deficit could lead to a downgrade of the UK AAA sovereign debt rating. The risk of the UK may have increased by the fact of aggressive actions taken by S&P downgrade Portugal and Greek debt rating. Ratings agencies may not want to make the same mistakes they made missing the risks of the subprime debt. GBP continues in a sideways pattern as investor’s debate the potential impact of the UK election, the UK budget outlook and uncertainty about BOE monetary policy.

On April 29th April GFK consumer confidence will be released expected at -12 compared to-15 last month.

The technical outlook for GBP is mixed as GBP struggles to hold above 1.5400. Expect near-term support at 1.5130 the April 6th low with resistance at 1.5487 the April 27th high.

CAD
CAD traded higher supported by improving risk sentiment sparked by report that the EU/IMF plan a larger bailout for Greece. The report of the larger bailout plan for Greece helped to support US equities and risk appetite. CAD plunged in Tuesday’s trade tracking sharp drop in equities and commodities sparked by S&P downgrade of Portugal and Greek debt rating. Asian and European equities traded sharply lower today but the US equity market stabilized. This coupled with firmer gold prices boosted demand for the CAD. The Greek debt crisis overshadows positive news from Canada. Private economists have raised their forecast for Canada’s 2010 GDP to 3.1% from 2.6% in the survey taken in December with exports expected to grow by 11% in 2010. These economists expect Canada’s unemployment rate to drop to 8.1% from original forecast of 8.5%. CAD traded higher despite a statement from BOC Governor Carney that BOC was prepared to intervene against excessive CAD because strong CAD hurts Canadian exports to drag on Canadian economic growth. CAD price direction will continue to track risk sentiment with gains possibly limited by threat of intervention and BOC policy uncertainty. Last week Canada reported weaker than expected inflation and retail sales. Canada’s annual inflation rate slowed to 1.4% from 1.6% last month with the core inflation declining by 0.2%. Canada’s retail sales rose by 0.5% in February, a 0.8% rise was expected. These reports may dampen BOC rate hike speculation. Canadian inflation and retail sales data suggest that the BOC may not be in a hurry to withdraw stimulus. This week’s Canadian economic calendar is relatively light with investors looking to the data to gauge the probability of an earlier BOC rate hike.

This week’s Canadian economic calendar includes the April 30th release of Q1 GDP expected to rise by 0.8% compared to 0.6% last quarter. April raw material prices will be released on April 30th expected at 0.6% compared to 0.4% last month.

The technical outlook for CAD is mixed as USD/CAD trades above 1.0100. Look for near-term support at1.0000 the April 27th low with resistance at 1.0302 the March 26th high.

AUD
AUD traded higher supported by a report of higher than expected Australian inflation and a statement from RBA Deputy Governor Debelle that the EU sovereign debt crisis is having no impact on Australia. Australia’s Q1 CPI rose by 0.9%. The rise in CPI will increase pressure for the RBA to hike rates next week. Today’s CPI report follows yesterday’s report of higher than expected Q1 PPI rise. Q1 PPI rose by 1%, a 0.6% rise was expected. Debelle’s  statement helped to boost investor risk appetite and demand for the AUD. AUD was also supported by improving risk appetite in the US trading session as US equities traded higher. AUD traded sharply lower Tuesday as equity markets and commodities are pressured by Greek debt default fears, downgrade of Portugal’s debt rating and concern about the impact of tighter credit conditions in China. German officials are reluctant to approve aid for Greece unless Greece meets significant austerity guidelines. The Shanghai index closed at a seven-month low as tighter credit conditions in China generate concern about the sustainability of the Chinese recovery. China is a major export destination for Australia and is key to the outlook for growth in Asia. The RBA hiked rates by 25bps to 4.25% earlier this month. Last Thursday, Australia reported that inflation expectations rose to the highest level since October 2008. The rise in Australia’s inflation expectations could add pressure on the RBA to hike rates. Today’s report of higher than expected CPI may increase the chance of an RBA rate hike at the May 4th policy meeting. Speculation that China may take additional actions to tighten credit and curb lending may limit demand for commodities and the AUD.

On April 29th February leading Index will be released expected at 0.1% compared to -0.2% last month and Q1 business conditions expected at 14 compared to 13 last month. On April 30th March private sector credit will be released expected unchanged at 0.4%. Next RBA policy meeting will be held on May 4th.

The technical outlook for the AUD is mixed as the AUD struggles to hold above 9300. Expect AUD support at 9131 the March 31st low with resistance at 9287 the April 27th of high.

FX Highlights

• The USD is trading mixed with the JPY rising supported by a decline in risk appetite as Asian equity markets drop and the impact of the Greek austerity plan fades, Moody’s says Greece must carry out the austerity plan perfectly or the Greek sovereign debt rating may be cut, the trade awaits today’s result of the Greek bond auction and EU reaction to the Greek budget plan, the BOE elects to keep monetary policy and its asset purchase program on hold, GBP pressured by report of a drop in UK house prices, commodity currencies pressured by global growth concern, Australian trade deficit widens, ECB leaves monetary policy unchanged, EUR pressured by ongoing concern about the Greek fiscal outlook and weak Q4 GDP
• Focus turns to today’s release of US jobless claims, productivity and unit labor costs factory orders and pending home sales, Canada’s building permits and Ivey PMI and the ECB press conference, investors will be looking to the press conference to see whether the ECB adopts additional measures to withdraw stimulus or delays its exit strategy
• The BOE holds interest rates and asset purchases unchanged, February Halifax house price index declined by 1.5%, GBP mixed
• Australia’s January trade deficit widens to 1.176bln, a 1.5bln deficit was expected, exports rose by 1% and imports declined by 3%, AUD lower
• Japan’s Q4 CAPEX spending declined by 17.3%, BOJ’s Noda rejects government calls for the BOJ purchase of JGB’s, Noda says the BOJ bond buying may push long bond yields higher and additional quantitative ease won’t lift prices, JPY higher
• EU Q4 GDP rose by 0.1%, EUR lower
• Moody’s says Greek budget cuts are consistent with A2 negative outlook rating, the IMF welcomes new Greek austerity measures and said the 2010 fiscal package is very strong, French Finance Minister says Greece does not need any EU help at this time
• Fed’s Lockhart says fresh data points to slow growth
• Beige book says economic activity improved in 9 of 12 districts, consumer spending has improved slightly, residential real estate markets are improving but commercial real estate remains weak, hiring has improved but labor markets remain soft, the February snowstorm slowed economic activity
• US postal service to cut 30k jobs and reduce overtime to reduce costs
• US equity markets set to open mixed, European equities 0.25% lower, Nikkei closed 107 points lower

Upcoming Events

• US - Thursday, jobless claims for week ending 02/27 will be released expected at 470k compared to 496k last month along with Q4 productivity expected at 6.3% and Q4 ULC expected at -4.4%, January factory orders expected at 1.8% compared to 1% last month and January pending home sales index expected at 97.6 compared to 96.6 last month
• CAN - Thursday, January building permits will be released expected at 1% compared to 2.4% last month along with February Ivey PMI expected at 57 compared to 50.8 last month

.. Read More

More Resources

• CastleBay hires ex-Galleon Asia equities team | Wall Street and Main
• Asian markets trade mixed on Thursday | CafeStocks MarketUpdate
• Digital Bids » Blog Archiv » Citigroup’s Auction-Rate Bonds Freeze $1 Billion in Hawaii Cash – BusinessWeek
• The Green Leap Forward ??? » How Green is China’s Stimulus Package?
• Greece’s Aid Plea Snubbed by Merkel as Protesters Seize Ministry in Athens
• Greece offers key new bond issue | The Daily Caller – Breaking News, Opinion, Research, and Entertainment
• French Fin Min: Forex Volatility Unbearable For Europe Industry – Wall Street Journal : Forex Trading Revealed – Forex Robot Reviews & Forex Guide Reviews
• Dubai Index Leads Drop in Gulf Markets on Global Growth Concern (Bloomberg)
• Inside Columbia Magazine » Blog Archive » Race To The Top
• The Cavalier Daily | Commission panel addresses concerns

• USD: Lower, new home sales declined by 11.2%, Bernanke says rates to stay low for an extended period
• JPY: Higher, exports rise, safe haven demand as Asian equities decline
• EUR: Higher, EU industrial orders rise,ECB’s Gonzalez-Paramo downplays risk of contagion from Greece
• GBP: Mixed, BOE’s Posen said he expects UK inflation to remain subdued, QE will be expanded if needed
• CAD and AUD: AUD & CAD higher, China tells commercial lenders to restrict lending to local governments

Overview  
The USD traded mixed to lower Wednesday with the EUR rebounding supported by report of better than expected EU industrial orders and speculation that Bernanke will signal that US interest rates will remain at zero for some time. The GBP continues to underperform pressured by a dovish statement from the BOE’s Posen. Posen said that the BOE will expand quantitative ease if necessary. Commodity currencies opened lower pressured by weaker Asian equity market trade and report that China took action to curb lending. China’s regulators told its commercial banks to restrict lending to local governments. Commodity currencies turned higher in US trade, tracking a rally in US equities sparked by Bernanke’s testimony. JPY traded higher for the fourth day in a row supported by report of a jump in Japan’s January exports. In his testimony before Congress Fed Chairman Bernanke said the economy still needs help, a sustained recovery remains in question and interest rates will stay low for an “extended period.” Bernanke went on to say the Fed will have to tighten at some point to prevent inflationary conditions but he gave no clue when that point might be.  Bernanke’s testimony was seen a bit more dovish than expected as he confirmed the Fed extend period language. Some analysts have suggested that the Fed’s discount rate hike last week would be a prelude to the Fed dropping the extended period language from its next communiqué. This seems less likely after today’s testimony. The Fed’s Bullard said rates may stay near zero for all of 2010 and the USD trades lower as stocks rally. US economic data was weak with new home sales reported down by a record 11.2%.

Today’s US data:
January new home sales came in at 309k, a reading of 360k was expected.

Upcoming US data:
On February 25th January durable goods will be released expected at 1.5% compared to 1% last month along with initial jobless claims for the week ending 02/20 expected at 460k compared to 473k last week. On February 26th Q4 preliminary GDP will be released expected at 5.5% compared to 5.7% in the original report. February Chicago PMI and final Michigan sentiment will also be released on February 26th. The PMI is expected at 60 compared to 61.5 last month and Michigan consumer sentiment is expected at 74 compared to 73.7 last month. Finally on February 26th, January existing home sales will be released expected at 550k compared to 545k last month.

JPY
JPY traded higher for the fourth day in a row supported by safe haven flows as Asian equity markets decline and in reaction to report that China has taken further action to curb lending. China’s regulators told its commercial banks to restrict lending to local governments. This action follows recent moves by China to raise its reserve ratio requirements to try to curb lending to slow China’s rapid expansion of growth and rise in asset prices. JPY was also supported by report that Japan’s trade deficit turned to a surplus of ¥82.5bln in January with exports reported to have risen by 40.9% and imports rose by 8.6%. The improvement in Japan’s export sales generates speculation that Japan’s economy may be nearing a bottom. Japan’s corporate service price index for January declined by 0.4%. The decline in the corporate service price index confirms that deflationary pressures continue in Japan. The BOJ’s Deputy Governor Yamaguchi said that Japan’s central bank will do everything it can to defeat deflation but with rates near zero there is not much that the BOJ can do. Yamaguchi said that downward pressures on prices are likely to continue. Analysts at J.P. Morgan Chase forecast JPY will trade at 87 next month as traders reduce bets that the Fed will raise interest rates sooner than expected.

On February 26th January CPI will be released expected at -0.2% compared to -0.5% last month along with January industrial output, retail sales, housing starts and construction orders. Industrial output is expected at 2.2% compared to 0.7% last month. Retail sales are expected to fall by 1.2% compared to 0.2% last month. Housing starts are expected to rise by 3.3% compared to 2.5% last month and construction spending is expected to rise by 0.6% compared to 24.5% last month.

Key technical levels to watch in USD/JPY include support at 89.57 the February 11th low with resistance at 91.30 the February 23rd high.

EUR
EUR traded higher supported by report of stronger than expected EU industrial orders and speculation that the Fed will maintain interest rates near zero. EU December industrial orders rose by 0.8%. The rise in EU industrial orders report suggests that the improving global economy is generating demand for EU exports. EUR gains were limited by report that German Q4 GDP was flat with private consumption reported to have dropped by 1% and German March GFK consumer confidence declined for the fifth month in row. Tuesday the Fed’s Bullard said that US interest rates may remain near zero through the end of the year and Bernanke said that rates will remain low for an extended period. EUR was supported by statement from the ECB’s Gonzalez-Paramo that the EUR decline is not totally unjustified and that he does not see a contagion from Greece if the other countries abide by the rules of the stability pact. EUR also supported by short covering. We noted in a special report Tuesday that negative sentiment towards the EUR is approaching an extreme and that the EUR is technically oversold. EUR remains vulnerable to concern about EU sovereign debt risk and speculation that the US economy will recover faster than the EU.

On February 25th EU business climate will be released expected at 98 compared to 97.1 last month. On February 26th EU January CPI will be released expected at 1.2% compared to 1.1% last month.

The technical outlook for the EUR is negative. Expect EUR support at 1.3425 the May 18th low with resistance at 1.3692 the February 23rd high.

GBP
GBP traded mixed with gains limited by dovish comments from the BOE’s Posen. Posen said that he expects UK inflation to remain subdued and that the BOE will expand quantitative ease if needed. Posen’s comments follow a statement from BOE Governor King Tuesday that it may be necessary to expand quantitative ease. King made his comments in testimony before Parliament and his comments followed Tuesday’s report of weaker than expected January UK mortgage lending. Weaker UK mortgage lending may be a sign that the recovery in UK housing sector has slowed. The UK housing sector has been one of the main bright spots in a slow UK economic recovery. GBP was also pressured in cross trade to the EUR with the EUR supported by report of better than expected EU industrial orders data and downplaying of the contagion risk from the Greek debt crisis. Analysts at UBS said that GBP could fall below parity with the EUR and 1.05 versus the USD if the UK government prematurely withdraws stimulus and tightens fiscal policy. EUR/GBP cross is currently trading at 0.8790 and GBP at 1.5414. GBP last traded at 1.05 in the mid-1980s. Focus turns to Friday’s release UK Q4 GDP. This report will be key to investor perception of the strength of the UK recovery and the outlook for BOE policy. Recent UK economic data has been mixed with January CPI rising to the high end of the BOE’s 1 to 3% inflation target. January CPI rose by 2.9%. The rise in UK CPI and signs of slowing of UK recovery is a challenge to the BOE and an improvement in UK GDP could reduce the risk that the BOE will be soon expanding quantitative ease. GBP remains vulnerable to concern about UK debt, economic outlook and possibility of an expansion of the BOE’s quantitative ease. This week’s main focus will be Friday’s release of UK GDP. An upward revision in GDP could help to slow the rate of the GBP decline.

This week’s UK economic calendar includes the February 26th release of Q4 GDP expected at 0.2% compared to 0.1% in the prior report. January GFK survey and nationwide home prices will also be released on the 26th. The GFK is expected unchanged at -17 and house prices are expected to rise by 0.4% compared to 1.2% last month.

The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.5345 the February 19th low with resistance at 1.5683 the February 18th high.

CAD
CAD traded mixed with gains limited by report that China took further action to try and curb lending. According to a Reuters report China’s banking regulator told banks to restrict funding to local governments. China raised its bank reserve requirements by 50bps twice this year to try to curb lending. Tightening in China contributes to recent weakness in global equity and commodity markets and has generated a reappraisal of risk appetite. Tightening in China may discourage demand for commodity-based currencies if the tightening leads to slower global growth. The impact of the news from China was partly offset by speculation that the Fed will maintain interest rates near zero for most of 2010. There were no major economic reports released from Canada today. The next major focus for CAD trade will be the BOC policy meeting scheduled for March 2nd. The BOC has pledged to maintain record low yields through June of 2010 provided inflation remains in check. Last week Canada reported above expectation inflation with CPI rising close to the 2% BOC target. Despite the rise in Canada’s inflation the BOC is expected to maintain steady rate policy. The BOC’s decision to maintain steady rate policy could be a mild negative for CAD. Recent Canadian economic data including improvement in retail sales, housing and employment suggest that the Canadian domestic economy is rebounding. The trade will be looking to see if the BOC makes any adjustments in its policy outlook because of the recent improvement in Canadian economic data and rising inflation.

On February 26th Q4 current account will be released expected at -8.75bln compared to -13.12bln last quarter

The technical outlook for CAD is mixed as USD/CAD trades above 1.0500. Look for near-term support at 1.0426 the February 23rd low with resistance at 1.0595 the February 24th high.

AUD
AUD traded mixed initially pressured by China’s tightening of credit and in reaction to weaker Asian equity market trade. AUD traded to the day’s lows in reaction to report of a sharp decline in US new home sales. The drop in the new home sales generates concern about the US and global recovery. AUD turned higher for the day as stocks rallied in reaction to Bernanke’s statement that rates will remain low for an extended period. As noted above China’s banking regulator told commercial banks to restrict new credit to local governments. The latest tightening in China generates concern about the outlook for the global recovery and demand for commodities. AUD downside was limited by positive Australian economic data and RBA rate hike speculation. Australia’s Q4 wage price index rose by 0.6%% and Q4 construction work done rose by 2.6%. These reports confirm that the Australian domestic economy is improving. Tuesday RBA Deputy Governor Battellino said that a strong AUD helps to contain inflationary pressures. His comments are seen as an endorsement of recent tightening of RBA monetary policy. Last week RBA Governor Stevens said that interest rates are still 50 to 100bps below average and that future policy changes will be made if the economy improves as expected. RBA Deputy Governor Lowe said that the outlook for the Australian economy is positive and he expects interest rates return to more normal levels. Lowes’ comments follow last Tuesday’s release of the RBA minutes which suggest that the RBA is considering future rate hikes. RBA watcher McCrann said that he expects the RBA to hike interest rates 200 bps this year with a 25bps rate hike expected in March. Today’s tightening in China may cloud the outlook for RBA policy. The RBA was widely expected to hike rates in February but refrained from hiking rates. One of the reasons the RBA decided not hike rates in February was tightening of policy in China. AUD should remain well supported on breaks by RBA rate hike speculation and improving outlook for the Australian domestic economy.

On February 26th January private sector credit will be released expected unchanged at 0.3%.

The technical outlook for the AUD is mixed as the AUD failed to hold above 9000. Expect AUD support at 8858 the February 24th low with resistance at 9093 the January 22nd high.

.. Read More

FX Highlights

• The USD starts the week mixed to a bit firmer as the German finance Ministry denies report that the EU plans 25bln rescue plan for Greece, the USD had been weakening in early overseas trade pressured by a slight improvement in risk sentiment as Asian equity markets rise and in reaction to diminished Fed rate hike speculation as the US reported weaker than expected CPI Friday, focus turns to this week’s testimony from Bernanke before Congress later in the week, GBP pressured by UK election poll which suggests risk of a hung parliament as the Tory party lead narrows, JPY edges higher despite improvement in risk appetite as the Nikkei surges by 3%, AUD pressured by weak Australian new vehicle sales
• No major US or Canadian economic data is due for release today, Chicago January National Activity Index and Dallas Fed manufacturing survey will be released
• Rumor of a 25bln aid plan for Greece was denied by the German finance minister, Bloomberg reports that EU derivative markets suggest that the EUR will continue to weaken even if the EU bails out Greece, George Soros says the EU will face bigger problems than Greece, EUR lower
• Japan’s DPJ party support falls to 37%, corporate bankruptcies fall to pre-crisis levels, BOJ reiterates pledge to combat deflation, Nikkei rose by 3%, S & P says there is a low chance of Japan being downgraded this year, JPY higher
• Australia’s January new vehicle sales fell by 3.4%, AUD lower
• SNB VP Jordan says recent CHF strength no barrier to growth, central bank ready to act on excessive CHF strength, CHF lower
• MBA says the number of people falling behind on home loans fell to 3.6% from 3.8% in the third quarter, this means the number of foreclosures are likely to decline and the mortgage crisis may be easing
• Reuters reports that the SEC is looking into possible new regulations to curb short selling of stocks
• NABE expects 103k jobs growth per month growth in 2010 and a jobless rate at 9.6% by end of the year, sees housing market recovery ongoing and sustainable, corporate profits to rise 24% over the next two years
• US equity markets set to open higher, European equities mixed, Nikkei closed 277 points higher

Upcoming Events

• US - Monday, no major US economic data is due for release today
• CAN - Monday, no major Canadian economic data is due for release today

.. Read More