Daily Forex Analysis by Finexo.com 12/04/2010

Past events:

• GBP PPI Input m/m out at 3.6% versus expected 1.3%, prior 0.6% (revised)
• GBP PPI Output m/m out at 0.9%, versus expected 0.4%, prior 0.3%
• CAD Employment Change out at 17.9K versus expected 25.9K, prior 20.9K
• CAD Unemployment Rate out at 8.2% versus expected 8.1%, prior 8.2%
• AUD Home Loans m/m out at -1/8% versus expected -0.9%, prior -7.3% (revised)

Upcoming Events:

• CAD Housing Starts (1215GMT)
• CAD BOC Business Outlook Survey (1430GMT)


• USD Trade Balance (1230GMT)
• CAD Trade Balance (1230GMT)

Market Commentary:

The Euro surged to the highest level in more than three weeks against the U.S Dollar after European governments offered Greece a rescue package worth as much as €45Bn ($61bn) at below-market interest rates.

Finance Ministers of the 16-nation single currency bloc have agreed to offer as much as €30bn in three year loans, at around 5% interest. This is much lower than current borrowing costs facing the debt-stricken nation, with the yield on Greek government debt rising to a record high of 7.5% last Thursday. The aid package also involves the International Monetary Fund, which will provide an additional €15bn. “The Eurogroup is confident that the determined efforts of the Greek authorities and of its European partners will allow to overcome the fiscal and structural challenges of the Greek economy,” an E.U. statement said.

Following the release of the news, the EUR rose 1.2% to strike a high of $1.36906, the highest price for the single currency since March 18th. This unexpected jump comes a few days after the single European currency dropped to within one cent of an 11-month low against the greenback, last Thursday. It rose 1.1%, the most since March 31, to 127.19 yen. The Euro also managed to regain all of last week’s losses against the British Pound. Following the news of a “Greek Bailout”, the EUR/GBP appreciated 0.50%- jumping from last Friday’s closing price of 0.87802 to a high of 0.88241, this morning.

The E.U. decision follows a nightmare week for the Greek administration, which saw borrowing costs soaring to a record high, while international ratings agency Fitch lowered the country’s credit rating on Friday to ‘BBB-‘ from ‘BBB+’ with a negative outlook.

For a second straight week, the British Pound climbed against the U.S dollar, as U.K producer prices jumped in March by more than the market has predicted, in the largest increase for since November 2008. PPI Input soared a record 3.6% between February and March, versus an expected increase of 0.6%, boosted by the rising cost of petroleum products. Britain’s Office of National Statistics also reported that the PPI Output increased above expectations, rising 0.9% for the previous month, and 5% from a year earlier. This monthly rise was more than double the market forecasted increase of 0.4%, adding signs that Britain’s economic recovery is gathering speed. The GBP closed on Friday at $1.53692, up 0.598% from the day’s opening price of 1.52778, and up 0.68% from the week’s opening price of $1.52654. In this morning Asian session, the GBP/USD extended above the 1.54000 mark, to hit a 7-week high of 1.54833, before pulling back to the 1.5435 area.

Across the Atlantic, Canada added 17,900 jobs in March, fewer than the 25,900 economists had predicted, as construction and natural resources companies hired while the service industry shrank. Statistics Canada reported last Friday that the unemployment rate remained unchanged at 8.2%, despite a predicted decrease of 0.1%. While not as strong as expected, this smaller than predicted increase represents the third straight gain in Canada’s employment level, further adding evidence of a rebound in the early part of the year.

The Canadian dollar fell as low as C$1.0084, or 99.17 U.S. cents following the release of the report, before partially retracing its steps to close at C$1.00139. It was near parity with the U.S. dollar just before the data. While over the course the day, the Loonie fell 0.113% from its opening price of C$1.00252, the CAD managed to hold on to its prior week gains- closing the week up 0.567% from Monday’s opening price.

However, this weaker than expected employment data may grant the Bank of Canada some extra time as it ponders when to withdraw the extraordinary stimulus measures from the economy. The central bank has signaled that it won’t raise its benchmark interest rate from a record low level of 0.25% before July, unless inflation becomes a threat. With inflation already hovering near the bank’s 2% target and stronger than expected data pointing to a second straight quarter of 5% annualized growth, markets had begun to price in a chance of monetary tightening in June. But most analysts believe the central bank will keep its pledge to hold rates at least until the end of the second quarter.

Later today (1215GMT), the CMHC will release the number of Housing Starts for the month of March. The data is expected to report 201K new residential buildings that began construction during the previous month, up from 197K reported in February. Also out today (230GMT) is the Bank of Canada’s Business Outlook Survey – this report is highly respected given its source and timing in relation to interest rate decisions.

Tomorrow, both the US and Canada will simultaneously announce their trade balances. Last month, Canada reported a 0.8B surplus; however, the Canadian positive economic data was outshone by an unexpected decrease in the US trade deficit – which narrowed to 37.3B. This time around, the US expects its trade deficit to widen to 38.4B, which north of the border, Canada predicts that their trade surplus will remain consistent at 0.8B. This double hitter usual causes much volatility movement in the USD/CAD pair.

Down under in Australia, home-loan approvals fell in February for the fifth straight month following Governor Glenn Stevens continuous rate hikes along with the government decision cut grants top first time buyers. Waning demand for approvals adds to evidence that Governor Stevens’ decision to boost the benchmark interest rate five times in six meetings is cooling domestic demand. Just last week (April 6th), the RBA increased Australia’s overnight cash rate target by a quarter percentage point to 4.25%, adding to similar moves in March, December, November and October amid a rebound in consumer and business confidence, plus surging house prices. The Australian dollar traded at 93.41 U.S. cents as of 12:17 p.m. in Sydney from 93.45 cents just before the report was released.

Written by Finexo.com