Canadian Dollar Could See Breakouts on Upcoming Canadian Employment Figures
The Canadian dollar held up rather well on Wednesday, as USD/CAD continues consolidating within a large triangle formation and above key trendline support near 1.2300. A break higher or lower could be in the cards in the near-term, though, as Canadian economic data will be released on Thursday. At 7:00 ET, reports are forecasted to show that the Canadian net employment change fell by 50,000 during March, marking the fifth straight month of job losses. Furthermore, the unemployment rate is anticipated to have risen to match January 2002 high of 8.8 percent from 7.7 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to push USD/CAD higher, while an unexpected positive result could weigh the pair below 1.2300.
Euro Slips Further as Ireland’s Credit Downgrade by Fitch Adds to ECB Rate Cut Risks
The euro remained under pressure versus most of the majors yet again as evidence continues to point to another rate cut by the European Central Bank (ECB) and a move toward quantitative easing. Yesterday we saw that the final reading of Q4 GDP was unexpectedly revised to a new record low of -1.6 percent from -1.5 percent, due primarily to downward revisions to gross fixed capital formation (capital goods investment) to -4.0 percent from -2.7 percent. We also saw, ECB Governing Council member George Provopoulos say during an interview that the bank’s benchmark rate could be cut by at least another 25 basis points, as he did not “see 1 percent as a threshold,” and that he would “not exclude that the ECB could go down further from this level if the economic environment deteriorates further.” Then, today, Fitch announced that they had downgraded Ireland’s sovereign credit rating to AA+ from AAA, and issued a negative outlook. While S&P already did the same on March 30, the news only highlights the extent of the economic woes for the Euro-zone. All told, Credit Suisse overnight index swaps are now pricing in a 36 percent chance of a 25 basis point cut to 1.00 percent during the ECB’s next meeting, up from 22.5 percent on Tuesday, but there is plenty of time for market expectations to shift ahead of that May 7 meeting.
British Pound Lags Ahead of BOE Rate Decision on Thursday - What to Watch For
The British pound slumped versus most of its major counterparts, despite the fact that for the first time since the summer of 2008, the Bank of England is expected to leave rates unchanged on Thursday. Indeed, both Credit Suisse overnight index swaps and a Bloomberg News poll of economists reflect forecasts that the BOE will leave the Bank Rate at an all-time low of 0.50 percent at 7:00 ET on Thursday. A look at their March 5 policy statement shows that the BOE’s Monetary Policy Committee (MPC) expects both growth and inflation to fall lower in coming months and also announced a new 75 billion pound asset purchase program, which included the buying of medium and long-term gilts. Ultimately, how the British pound responds will likely depend on two factors: whether or not the BOE asserts that they want to avoid cutting the Bank Rate to zero, and whether or not they indicate that they want to expand their quantitative easing (QE) efforts. Signs that the BOE is open to reducing rates further or signs that they will increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK’s currency and lead EUR/GBP back below 0.9000.
US Dollar, Japanese Yen Gain as FOMC Minutes Reflect Dreary GDP, Unemployment Outlooks
The US dollar and Japanese yen were amongst the stronger currencies on Wednesday, though we’ve seen little in the way of “breakouts”, as the release of the Federal Open Market Committee’s (FOMC) meeting minutes from March wasn’t exactly groundbreaking since there was little in the way of new details revealed. During March, the FOMC left the fed funds target range at 0.0 percent - 0.25 percent but the big surprise was that they officially announced quantitative easing efforts. The only noteworthy part of the minutes was that the FOMC staff projections for the second half of 2009 and 2010 were downgraded from the FOMC’s long-run projections for growth, unemployment, and inflation in January. While the exact revisions were not published, the minutes did say that GDP was expected to “flatten out gradually over the second half of this year and then to expand slowly next year,” and that this “weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year.” All told, this suggests that Q3 and Q4 GDP results aren’t likely to show any sort of recovery, while the unemployment rate could breach the upper range of the FOMC’s projections of 9.2 percent, and perhaps reach double-digits.
ECB Disappointed The Market Again By Adopting Just A 25 bps Cut In April
To our, as well as the market's, disappointment, the ECB only reduced its policy rates by 25 bps to 1.25%, less than consensus forecast of a 50 bps cut. The deposit rate was also 25 bps lower, maintaining the corridor at 100 bps. At the same time, no non-standard measures were announced. We believe this was because the policymakers remained indecisive on what additional measures to be implemented and many of them still felt reluctant to put forward QE.
Although the ECB has slashed its main refinancing rate 300 bps to the current level at 1.25%, the lowest since 1999, since October 2008, it's monetary easing is still lagging its major counterparts, including the Fed, BOE, SNB and BOJ, whose interest rates have reached almost zero.
The ECB President Trichet stated that another cut is possible in May when it may also decide on any new non-standard measures. However, he did not give further details on the options, except for ruling out using exchange rate at an unconventional tool.
Concerning economic outlook, Trichet mentioned at the press conference that economic activities has weakened and is likely to remain very subdued for the rest of the year in the Eurozone. However, gradual recovery is expected in 2010. Despite further easing in inflation, the ECB's ‘inflation expectations over the medium to longer term, at levels below but close to 2%, remain firmly anchored in line'.
We believe at the meeting next month, the central bank will reduce interest rate by another 25 bps, thereby making the policy rate to 1% and narrowing the corridor to 75 bps (as it seems unlikely that the central bank will allow the deposit rate to reach 0%). Moreover, some non-standard measures will be announced and we expect it will be extension of the liquidity provision to banks to 12 months from the current 6 month as well as purchase of private securities. Although buying of sovereign securities is an attractive option, it's not likely for the ECB to do it at the moment.
Although the ECB has slashed its main refinancing rate 300 bps to the current level at 1.25%, the lowest since 1999, since October 2008, it's monetary easing is still lagging its major counterparts, including the Fed, BOE, SNB and BOJ, whose interest rates have reached almost zero.
The ECB President Trichet stated that another cut is possible in May when it may also decide on any new non-standard measures. However, he did not give further details on the options, except for ruling out using exchange rate at an unconventional tool.
Concerning economic outlook, Trichet mentioned at the press conference that economic activities has weakened and is likely to remain very subdued for the rest of the year in the Eurozone. However, gradual recovery is expected in 2010. Despite further easing in inflation, the ECB's ‘inflation expectations over the medium to longer term, at levels below but close to 2%, remain firmly anchored in line'.
We believe at the meeting next month, the central bank will reduce interest rate by another 25 bps, thereby making the policy rate to 1% and narrowing the corridor to 75 bps (as it seems unlikely that the central bank will allow the deposit rate to reach 0%). Moreover, some non-standard measures will be announced and we expect it will be extension of the liquidity provision to banks to 12 months from the current 6 month as well as purchase of private securities. Although buying of sovereign securities is an attractive option, it's not likely for the ECB to do it at the moment.
EUR/USD Weekly Outlook
After being supported at 1.3112, EUR/USD rebounded strongly to 1.3516 last week before turning sideway. With 1.2928 support as well as 55 days EMA intact, rise from 1.2456 should still be in progress. Initial bias remains on the upside this week as long as 1.3322 minor support holds. Further rise should be seen towards 1.3737 resistance first and break will confirm that rise from 1.2456 has resumed for 1.3822 (61.8% retracement of 1.4719 to 1.2456 at 1.3855). On the downside, though, below 1.3322 will be the first signal that rise from 1.3112 has completed. Further break of this support will put focus back to 1.2928.
In the bigger picture, recent development suggests that EUR/USD is still bounded in sideway consolidation that started at 1.2329, with rise from 1.2456 as the third leg. At this moment, there is no sign that such rise from 1.2456 has completed and we're still slightly favoring the case for it to extend to 1.4719 or above. But even in such case, upside should be limited by 1.4867 resistance and bring down trend resumption. On the downside, below 1.2928 support will indicate that rise from 1.2456 has completed earlier than we thought and will put focus back to 1.2329/2456 support zone.
In the long term picture, outlook is rather unclear for the moment. While 1.6038 is no doubt an important long term top, there is no clear answer on whether subsequent price actions from 1.6038 are unfolding as sideway consolidation, deep correction, or a reversal in trend. Nevertheless, note that another fall is still in favor as long as 1.4867 resistance holds and in such case, EUR/USD should at least have a test of 1.1639 long term support.
In the bigger picture, recent development suggests that EUR/USD is still bounded in sideway consolidation that started at 1.2329, with rise from 1.2456 as the third leg. At this moment, there is no sign that such rise from 1.2456 has completed and we're still slightly favoring the case for it to extend to 1.4719 or above. But even in such case, upside should be limited by 1.4867 resistance and bring down trend resumption. On the downside, below 1.2928 support will indicate that rise from 1.2456 has completed earlier than we thought and will put focus back to 1.2329/2456 support zone.
In the long term picture, outlook is rather unclear for the moment. While 1.6038 is no doubt an important long term top, there is no clear answer on whether subsequent price actions from 1.6038 are unfolding as sideway consolidation, deep correction, or a reversal in trend. Nevertheless, note that another fall is still in favor as long as 1.4867 resistance holds and in such case, EUR/USD should at least have a test of 1.1639 long term support.
Mid-Day Report: Dollar Steady after NFP and ISM Services, Sterling Lifted by PMI Services
Mid-Day Report: Dollar Steady after NFP and ISM Services, Sterling Lifted by PMI Services
Dollar remains steadily in range against most major currencies in early US session after the release of closely watched employment and services report. Non farm payroll showed that job market in US cut another -663k jobs in March, close to expectation of -654k. Unemployment jumped to 25 years high of 8.5%, meeting consensus expectations. ISM Services cam in worse than expected, dropping form 41.6 to 40.8 in March, comparing with consensus of 42.0. There is little reaction to the data as markets are still digesting recent moves. The greenback and yen remain generally soft.
On the other hand, Sterling is lifted by stronger than expected services data today. PMI Service rose much more than expected from 43.2 to 45.5 in March comparing to expectation of 43.5. UK Halifax house price dropped -1.9% mom in March, slightly deeper than expectation of -1.8%. Sterling is noticeably strong against Euro and EUR/GBP. As mentioned before, recent development argues that EUR/GBP's rebound from 0.8635 has already completed at 0.9494 and further decline could be seen to retest this low first. In other words, Sterling is expected to outperform Euro in near term.
Other economic data released today saw EUrozone PMI services revised higher to 40.9 in March. Swiss CPI dropped -0.3% mom, -0.4% yoy in March, deeper than expectation of 0% mom, -0.1% yoy. Germany import price dropped -0.1% mom, -6.4% yoy in Feb, above expectation of -0.3% mom, -7.8% yoy.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.4529; (P) 1.4638; (R1) 1.4831; More
GBP/USD's rally is still in progress and reaches as high as 1.4844 in early US session. At this point, intraday bias remains on the upside as long as 1.4647 minor support holds. Whole rise from 1.3654 is treated as the third leg of consolidation from 1.3503 and is now expected to extend further to 1.4984 resistance, and probably further to 100% projection of 1.3503 to 1.4984 from 1.3654 at 1.5135. On the downside, below 1.4647 will turn intraday outlook neutral and bring pull back. But short term outlook will remain bullish as long as pull back is contained above 1.4109 support.
In the bigger picture, a medium term bottom is in place at 1.3503 after GBP/USD completed the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Consolidation from 1.3503 is still in progress with rise from 1.3654 as the third leg. It's still uncertain how such consolidation will develop into but in any case, upside should be limited by resistance zone of 1.5722 and 38.2% retracement of 2.0158 to 1.3503 at 1.6045. On the downside, below 1.4109 will revive the triangle scenario and bring more choppy consolidation between 1.3503 and 1.4984 before resuming the long term down trend.
Dollar remains steadily in range against most major currencies in early US session after the release of closely watched employment and services report. Non farm payroll showed that job market in US cut another -663k jobs in March, close to expectation of -654k. Unemployment jumped to 25 years high of 8.5%, meeting consensus expectations. ISM Services cam in worse than expected, dropping form 41.6 to 40.8 in March, comparing with consensus of 42.0. There is little reaction to the data as markets are still digesting recent moves. The greenback and yen remain generally soft.
On the other hand, Sterling is lifted by stronger than expected services data today. PMI Service rose much more than expected from 43.2 to 45.5 in March comparing to expectation of 43.5. UK Halifax house price dropped -1.9% mom in March, slightly deeper than expectation of -1.8%. Sterling is noticeably strong against Euro and EUR/GBP. As mentioned before, recent development argues that EUR/GBP's rebound from 0.8635 has already completed at 0.9494 and further decline could be seen to retest this low first. In other words, Sterling is expected to outperform Euro in near term.
Other economic data released today saw EUrozone PMI services revised higher to 40.9 in March. Swiss CPI dropped -0.3% mom, -0.4% yoy in March, deeper than expectation of 0% mom, -0.1% yoy. Germany import price dropped -0.1% mom, -6.4% yoy in Feb, above expectation of -0.3% mom, -7.8% yoy.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.4529; (P) 1.4638; (R1) 1.4831; More
GBP/USD's rally is still in progress and reaches as high as 1.4844 in early US session. At this point, intraday bias remains on the upside as long as 1.4647 minor support holds. Whole rise from 1.3654 is treated as the third leg of consolidation from 1.3503 and is now expected to extend further to 1.4984 resistance, and probably further to 100% projection of 1.3503 to 1.4984 from 1.3654 at 1.5135. On the downside, below 1.4647 will turn intraday outlook neutral and bring pull back. But short term outlook will remain bullish as long as pull back is contained above 1.4109 support.
In the bigger picture, a medium term bottom is in place at 1.3503 after GBP/USD completed the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Consolidation from 1.3503 is still in progress with rise from 1.3654 as the third leg. It's still uncertain how such consolidation will develop into but in any case, upside should be limited by resistance zone of 1.5722 and 38.2% retracement of 2.0158 to 1.3503 at 1.6045. On the downside, below 1.4109 will revive the triangle scenario and bring more choppy consolidation between 1.3503 and 1.4984 before resuming the long term down trend.
Forex News and Rumors - Afternoon Update
Falling Retail Sales Push Down Pound
The British pound fell after February UK retail sales in February fell by 1.9 percent from January. One analyst in London described the outlook of the pound as “fragile”. More
Geithner Plans to Increase Authority Over Banking System
US Treasury Secretary Timothy Geithner told a House Committee today that the government needs more authority over the banking system to prevent the type of risk-taking that led to the current financial crisis. The following points are under consideration:
Establishing a single entity responsible for stability among major institutions
Enforcing more conservative capital requirements for financial institutions
Forcing investment companies of a certain size to register with the Securities and Exchange Commission (SEC), the US financial regulator
Establishing a framework for derivative markets
Strengthening requirements for money market funds
More
PM Calls for Creation of New Fund
While speaking at a summit one week ahead of the G20 Meeting, British Prime Minister Gordon Brown called for the creation of a $100bn (£69bn) global fund to boost global spending in a bid to protect emerging market economies. More
Oil Climbs to Four-Month High
Crude oil prices jumped nearly 3 percent today as continued stock market gains help soothe investor’s fears. Contracts for May delivery rose $1.52 to $54.29 a barrel in New York. More
The British pound fell after February UK retail sales in February fell by 1.9 percent from January. One analyst in London described the outlook of the pound as “fragile”. More
Geithner Plans to Increase Authority Over Banking System
US Treasury Secretary Timothy Geithner told a House Committee today that the government needs more authority over the banking system to prevent the type of risk-taking that led to the current financial crisis. The following points are under consideration:
Establishing a single entity responsible for stability among major institutions
Enforcing more conservative capital requirements for financial institutions
Forcing investment companies of a certain size to register with the Securities and Exchange Commission (SEC), the US financial regulator
Establishing a framework for derivative markets
Strengthening requirements for money market funds
More
PM Calls for Creation of New Fund
While speaking at a summit one week ahead of the G20 Meeting, British Prime Minister Gordon Brown called for the creation of a $100bn (£69bn) global fund to boost global spending in a bid to protect emerging market economies. More
Oil Climbs to Four-Month High
Crude oil prices jumped nearly 3 percent today as continued stock market gains help soothe investor’s fears. Contracts for May delivery rose $1.52 to $54.29 a barrel in New York. More
FUNDAMENTALS — THIS WEEKS ECONOMIC RELEASES
Most Recent Economic Releases Forecast Previous
USD Geithner Speaks at IDB's Annual Meeting in Medellin, Colombia
EUR Italian Bloomberg Retail PMI (MAR) 38.2
EUR German Bloomberg Retail PMI (MAR) 45.4
EUR French Bloomberg Retail PMI (MAR) 43.5 42.6
EUR Euro-Zone Bloomberg Retail PMI (MAR) 42.3
EUR Euro-Zone Business Climate Indicator (MAR) -3.48 -3.40 (R+)
EUR Euro-Zone Consumer Confidence (MAR) -34 -33
EUR Euro-Zone Economic Confidence (MAR) 65.4 65.3 (R-)
USD Geithner Speaks at IDB's Annual Meeting in Medellin, Colombia
EUR Italian Bloomberg Retail PMI (MAR) 38.2
EUR German Bloomberg Retail PMI (MAR) 45.4
EUR French Bloomberg Retail PMI (MAR) 43.5 42.6
EUR Euro-Zone Bloomberg Retail PMI (MAR) 42.3
EUR Euro-Zone Business Climate Indicator (MAR) -3.48 -3.40 (R+)
EUR Euro-Zone Consumer Confidence (MAR) -34 -33
EUR Euro-Zone Economic Confidence (MAR) 65.4 65.3 (R-)
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