Daily Forex Analysis by Finexo.com 13/04/2010

Past events:

• CAD Housing Starts out at 197K, versus expected 201K, prior 200K
• USD Federal Budget Balance out at -65.4B, versus expected -64.0B, prior -220.9B
• GBP BRC Retail Sales Monitor y/y out at 4.4% versus expected 2.2%
• GBP RICS Housing Price Balance out at -1.3%, versus expected -1.1%, prior -1.6%
• AUD NAB Business Confidence out at 16, versus prior 19

Upcoming Events:

• GBP Trade Balance (0930GMT)
• USD Trade Balance (1330GMT)
• USD Import Price m/m (1330GMT)
• CAD Trade Balance (1330GMT)
• CAD NHPI m/m (1330GMT)
• USD Fed Chairman Bernanke Speaks ( tomorrow 0000GMT)

Market Commentary:

The Euro strengthened yesterday to its highest level in more than three weeks versus the U.S Dollar after news broke that Greece would be receiving an international rescue package worth as much as €45 billion ($61 billion) to help it avoid a default. Following the announcement of the of the “rescue plan” the single currency rose to $1.36906, appreciating as much as 1.4%, its biggest gain since last September. The Euro’s gain, which was its third increase in the past three days, sent the Dollar Index tumbling 1.3% to its lowest level since March 18th.

The 16-nation Euro-Zone finance ministers reported that they would offer Greece €30 billion in three-year loans in 2010 at about 5% interest. An additional €15 billion would come from the International Monetary Fund, resulting in what could possibly be the largest multilateral financial rescue ever attempted. The Greek official said the government would decide within a few days whether to ask for the aid, depending on whether market interest rates subside. For the time being, Athens will try and refinance its public debt on the bond market. This week, the Greek government will hold another bond auction that will surely be a test if the Euro Zone’s recent bailout plan has restored faith in the Greek bonds.

By yesterday’ close the single European currency has retreated from its near three week high against the USD as Greece prepares to sell €1.2Billion in 26 and 52 week bills. The Euro closed at $1.35924, down 0.71% from the day’s high.

The Japanese Yen rose, ending three days of losses versus the EUR, on speculation demand for Greece’s short-term debt will be weak at an auction today. Japan’s currency appreciated versus all 16 major counterparts after Asian stocks dropped, weakening demand for riskier investments. After closing yesterday at 126.119, the EUR/JPY continued to fall throughout this morning’s trading session, touching on a low of 125.690. Similarly, the USD/JPY fell during this morning’s Asian session- tumbling as much as 0.64% from yesterday’s closing price of 93.161, to hit a session low of 92.563.

Yesterday, the U.S posted a budget deficit for a record 18th straight month in March, reflecting gains in government spending to bolster the economy. The excess of spending over revenue declined to $65.4 billion last month, compared with the $220.9 billion reported last month, according to Treasury Department figures released yesterday in Washington. A deficit that’s forecast to reach a record $1.6 trillion this fiscal year illustrates the challenges facing President Barack Obama and Congress as they struggle to stimulate the recovery while keeping the budget gap manageable. Deterioration in the government’s balance sheet in coming years raises the risk of higher interest rates. Tonight, U.S Fed Chairman Ben Bernanke will speak. He will continue to speak tomorrow at the Joint Economic Committee where he will lay out his economic outlook.

Later today, there will be a lot of action on both sides of the US Canadian border, as both countries are set to simultaneously announce their trade balances (1330GMT). 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 37.3billion. This time around, the US expects its trade deficit to widen to 38.4billion, while north of the border, Canada predicts that their trade surplus will remain consistent at 0.8billion. This double event usually causes a lot of volatility in the USD/CAD pair.

Also out at 1330GMT, Stats Canada will announce the New Housing Price Index (NHPI) for February. Prices of new homes in Canada have steadily been rising for the past seven months. January’s rise of 0.4% is expected to be repeated with a 0.5% increase in February. This report follows yesterday’s lower than expected Number of Housing Starts. Canadian housing starts dipped 1.5% in March to a seasonally adjusted annualized rate of 197,300 units from an upwardly revised 200,400 units in February, Canada Mortgage and Housing Corp. reported yesterday. The number of starts in March was below average expectations of analysts who had called for 200,000 starts. Following the release of this worse than expected news, the CAD neared a 2-day low against the USD. The USD/CAD rose 0.53% to reach 1.0083 during European afternoon trade, close to the 2-day high of 1.0088 it hit earlier.

However, the Canadian Dollar recovered, and resumed to trade near parity with its U.S counterpart after the Bank of Canada’s quarterly business outlook, provide further evidence that the country’s recovery from the recession is firmly taking hold. The Loonie traded at C$1.00095 per U.S Dollar after the survey showed that businesses are planning their fastest price hike in more than a decade. A price hike will lead to increased inflation expectations, which is among the key details that the Bank of Canada looks at when setting the benchmark interest rate. Last week, the Canadian dollar achieved parity versus its U.S counterpart for the first time in almost two years on speculation that the nation’s central bank will opt for a rate hike before the U.S Fed. The USD/CAD closed at 1.00266.

Over the in the U.K, a report by the British Retail Consortium (BRC) reported that that total retail sales hit its highest level in almost four years in March. Total year-on-year sales growth spiked to 6.6% in March, up from 4.5% in February and the highest level since April 2006. Like-for-like sales rose 4.4% in March, up from 2.2% the previous month. BRC said base effects had boosted year-on-year growth rates. Like-for-like sales fell 1.2% on the year last March. The timing of Easter was one factor boosting growth, as Good Friday and Easter Saturday fell in the March trading period in 2010 but in April 2009. Also out last night, a U.K house-price gauge for March reported the fewest increases in values for eight months as more supply eroded momentum in the property recovery market. The RICS House Price Balance reported a 9%, versus a predicted 18% increase. The report also showed that more respondents reported that prices are now falling in certain areas rather than rising.

The GBP which closed yesterday at $1.53710, hit a daily low of $1.53349 this morning. Later today (930GMT), the UK will report its Trade Balance for February- the bureau of National Statistics is expecting a deficit of 7.3B, versus January’s 8.0B.

Written by Finexo.com