Daily Forex Analysis by Finexo.com 15/04/2010

Past Events:

• EUR Industrial Production m/m out at 0.9%, versus expected 0.2%, prior 1.6% (revised)
• USD Core Retail Sales m/m out at 0.6%, versus expected 0.5%, prior 1.0% (revised)
• USD Retail Sales m/m out at 1.6%, versus expected 1.1%, prior 0.5% (revised)
• USD Core CPI m/m out at 0.0%, versus expected 0.1%, prior 0.1% (revised)
• USD CPI m/m out at 0.1%, versus expected -0.1%, prior 0.0%
• USD Business Inventories m/m out at 0.5% versus expected 0.3%, prior 0.2% (revised)
• USD Crude Oil Inventories out at -2.2M, versus expected 1.4M, prior 2.0M
• GBP Nationwide Consumer Confidence out at 72, versus expected 81, prior 81 (revised)
• AUD Inflation Expectations out at 4.1%, versus prior 3.2%

Upcoming Events:

• EUR ECB monthly bulletin (0900GMT)
• USD Unemployment Claims (1330GMT)
• USD Empire State Manufacturing Index (1330GMT)
• USD TIC Long-Term Purchases (1400GMT)
• USD Capacity Utilization Rate (1415GMT)
• USD Industrial Production m/m (1415GMT)
• USD Philly Manufacturing Index (1500GMT)

Market Commentary

The U.S dollar suffered losses against its major counterparts yesterday as a bigger-than-expected increase in U.S. retail sales last month spurred demand for riskier assets and the Federal Reserve Chairman repeated that interest rates will remain low for an “extended period”.

U.S retail sales rose 1.6% in March, marking the fifth gain in the past six months. Yesterday the U.S Census Bureau reported that sales totaled $363.2 billion, as demand increased for autos, building materials and new clothes. Excluding autos and trucks, core retail sales for March rose slightly more than expected- increasing 0.6% to $300.5billion. At the same time as the release of the retail sales report, the U.S Bureau of Labor Statistics released the Consumer Price Index (CPI) for March. While CPI was in line with market expectations of a 0.1%, the Core rate (excluding food and fuel) held steady after rising 0.1% in February- reflecting cheaper rents and clothing. Following the release of these reports, the USD increased by its largest amount versus the Japanese Yen in more than a week. The greenback appreciated as much as 0.6% to 93.72, resulting in the pairs biggest intra day gain since April 2nd. Moreover, following the release of these reports, the EUR/USD tumbled below the 1.3600 mark, hitting a fresh intra-day low of 1.3595. However, shortly after, the USD reversed all of these prior gains, declining 0.3% to reach $1.3658 per euro.

The Greenback continued to fall throughout the day, nearing its weakest level in almost a month versus the Euro as Federal Reserve Chairman Ben S. Bernanke testified to the Joint Economic Committee that policy makers have “stated clearly” that interest rates will be very low for an “extended period,” contingent on low inflation and other economic trends. Yesterday Bernanke said the U.S. expansion will remain moderate as the economy contends with weak construction spending and high unemployment. “On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,” Bernanke said when he testified in front of on Capitol Hill. He went on to say that “significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments.” Currently U.S. central bankers are debating how and when to pull back monetary stimulus as the economy recovers from the worst slump since the Great Depression. The Fed chairman’s remarks didn’t include a discussion of the path of interest rates, and his outlook doesn’t suggest officials are ready to alter their guidance that rates will remain low “for an extended period”. Policy makers have held the benchmark interest rate at zero to 0.25% since December 2008. Fed officials will next meet on April 27th and 28th. The Dollar Index traded near a four-week low on prospects that Fed officials will reiterate they expect to keep interest rates near zero. The index, which tracks the dollar against the currencies of six major U.S. trading partners, bought 80.250 from 80.190 yesterday when it declined to 80.031, the lowest level since March 18.

Yesterday evening the U.S Federal Reserve released the Beige Book – a compilation of anecdotal evidence on economic conditions from each of the twelve Fed districts regarding local and economic conditions that covers approximately the six week period from the end of February through early April. According to the Beige Book eleven of the twelve Fed districts experienced growth since the last report. The St. Louis district was the lone exception, as it reported “softened” economic conditions. The U.S Dollar remained steady after the release of the Federal Reserve Beige Book with the EUR/USD holding steady above 1.3650; the GBP/USD traded above 1.5460. USD/JPY managed to rise to 93.20 from 93.00.

The USD closed the day down 0.30% against the Euro at $1.36541, down 0.54% against the GBP at $1.54695 and down 0.14% against the Yen at 93.181Y/USD.

Early this afternoon, the Department of Labor will release the number of unemployment claims for the week of April 5th. While last week saw disappointing rise to 460K, breaking the previous few week’s trend of steady improvement, this week the market predicts that the number of jobless claims will fall back down to 439K. Also out this afternoon, the U.S Department of Treasury will release the February’s TIC Long-Term Purchases – a report that represents the difference in value between foreign long-term securities purchased by US citizens and US long-term securities purchased by foreigners during the reported period. After leaping $126.8billion three months ago, this figure has been steadily increasing – jumping $19.1billion last month. This time around, the market predicts that the TIC Long-Term Purchases will increase by $39.2billion. The U.S’s numerous reports today will end with the Philly Fed Manufacturing Index (1500GMT). This important gauge of production has been on the rise in the past three months, ticking up to 18.9 points last time. It’s now predicted to take the next step and rise to 20.3 points (a level above 0.0 indicates improving conditions, below indicates worsening conditions).

Across the Atlantic, Greek government bonds dropped as some of the world’s biggest investors said the European Union’s €45 billion bailout plan for the debt stricken nation failed to make the securities attractive. The declines pushed the yield on the two-year note up for a second day after Pacific Investment Management Co., which runs the world’s biggest bond fund, said it’s too early to buy Greek debt and BlackRock Inc. said EU states planning to participate in a bailout must show they can withstand a “backlash” from their citizens. Moreover, Portuguese bonds declined after the EU said the government needs to do more to tackle its budget deficit. “The aid package is a safety net, but it doesn’t change the fiscal situation in Greece,” said Luca Jellinek, a senior interest-rate strategist at ANZ Banking Group Ltd. in London. “Yields are not going to fall straight away. They need to show they are successfully cutting the deficit.”

Yesterday, the Eurostat released Europe’s Industrial Production for February. While markets had expected a slight increase of 0.2%, the report showed a sharp increase of 0.9% in industrial production between February and March – indicating that the EU’s recovery in the manufacturing sector remains firmly on track.

Later today, the ECB will publish its monthly bulletin. Released one week after the central bank’s rate interest decision, this report exposes the figures that the ECB used to make its rate decision – generally the report includes hints about future policies.

In regards to the commodity based currencies, Canada’s dollar appreciated to the strongest level in 22 months versus its U.S. counterpart as a rise in global stocks and commodities burnished the appeal of currencies tied to growth. For the first time this week, the Loonie dipped below the parity line with its American counterpart, to hit C$0.99590, its strongest value since June 2nd of last year.

In Australia, consumer expectations of inflation rose in April with a drop in the proportion of people predicting that price increases would fall within the central bank’s target band, a survey says. The Melbourne Institute (MI) survey of consumer inflationary expectations said the median expectation for inflation rose 0.9% point to 4.1% in April. Australia’s rate of headline inflation was an annual 2.1% in the year to December 2009, according to Australian Bureau of Statistics figures. The proportion of consumers expecting inflation to be within the Reserve Bank of Australia’s (RBA) two to three per cent target band fell in April for the second consecutive month, down to 15.9% from 18.6% in March. “This month’s report indicates inflation pressure is mounting after a relatively stable period,” Melbourne Institute research fellow Michael Chua said in a statement. “For the first time since February 2009, the proportion of consumers expecting inflation to be within the RBA’s 2-3 per cent band, is below its 12-months moving average.”The jump in the median inflation rate is significant and suggests that consumers expect demand to grow at a faster rate than changes in production.” The Aussie rose 0.85% against the U.S Dollar yesterday, closing at $0.93567.

Written by Finexo.com