Daily Forex Analysis by Finexo.com 19/04/2010

Past Events

• USD Housing Starts, out at 0.63M versus expected 0.60M, prior 0.62M (revised)
• USD Building Permits, out at 0.69M versus 0.63M, prior 0.64M (revised)
• USD Prelim UoM Consumer Sentiment, out at 69.5 versus 74.7, prior 73.6 (revised)
• EUR CPI, out at 1.4% versus expected 1.5%, prior 1.5% (revised)
• EUR Core CPI, out at 1.0% versus expected 0.9%, prior 0.8%
• CAD Manufacturing Sales, out at 0.1% versus expected 1.0%, prior 1.8% (revised)

Upcoming Events

• USD Fed Chairman Ben Bernanke to address Financial Literacy and Education Summit in Chicago (1300 GMT)
• NZD CPI q/q (2245 GMT)

Market Commentary

US Housing starts climbed to an annual rate of 626,000 last month, up 1.6% from February’s 616,000 pace, according to Commerce Department figures released Friday in Washington. Building permits, an indicator of future construction, climbed to the highest level since October 2008. An improvement in the housing market, after a crash that contributed to the deepest recession since World War II ended signals a broadening of the economic recovery.

New-home construction rose 20% in March from the same month last year. Permits were up 34% in the 12 months ended in March. Construction of single-family houses decreased 0.9% to a 531,000 rate in March, while permits increased 5.6%. Work on multifamily homes, such as townhouses and apartment buildings, climbed 19% to an annual rate of 95,000. The increase in starts was concentrated in the South. New construction fell in the rest of the country.

A separate report showed consumer confidence unexpectedly slumped in April, indicating Americans are worried the expansion will be too slow to bolster the labor market. The Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly dropped to 69.5 this month from a final reading of 73.6 in March. The gauge was projected to rise to 75.

A measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy big-ticket items like cars, dropped to the lowest level this year. The index of expectations six months from now, which more closely projects the direction of consumer spending, posted its weakest reading since March 2009.

Stocks fell on Friday, halting a six-day rally, after the Securities and Exchange Commission charged Goldman Sachs Group Inc. with fraud. The Standard & Poor’s 500 Index declined 1.6% to close at 1,192.13. As a result Friday saw the US Dollar climb against the Euro for the second day, the Dollar gained 0.50% to close at EUR 1.35011. The US Dollar also climbed against the Pound for the second day in a row, appreciating 0.65% to close at GBP 1.53607.

Gold was steady on Friday, as safe-haven buying related to worries about Greece’s debt crisis helped the metal defy pressure from a rising U.S. Dollar.

In the Euro zone annual inflation was revised downwards in March, with energy costs continuing to fuel year-over-year price growth, while the core rate inched up after an upward revision in February’s figure, Eurostat reported on Friday.

On the year, the consumer price index rose 1.4%, revised down from the initial 1.5% figure. In monthly terms, inflation accelerated to 0.9% following February’s 0.3% increase. Excluding energy, food, alcohol and tobacco costs consumer prices increased 1.0% on the year, up from February’s record low of 0.9%, which was revised upward from 0.8%. The core inflation rate followed by the European Central Bank, which excludes both energy and unprocessed food costs, was up 0.9% on the year, from the record low of 0.8% in February.

Transport costs registered the strongest jump among the larger components, gaining 1.5% due to a 4.4% rise in fuel prices, while housing maintenance costs rose 0.5% over the same period. Boosted by a 20.2% year on year rise in fuel prices, transport costs also registered a strong annual gain, rising 6.1% compared to March 2009. Conversely, food prices were 0.6% lower on the year.

For 2010 as a whole, the European Commission confirmed its initial forecast of 1.1% inflation for the Euro zone, while the latest ECB’s staff projections suggest inflation ranging between 0.8% and 1.6% this year.

“The outcome of the monetary analysis confirms the assessment of low inflationary pressures over the medium term,” ECB President Jean-Claude Trichet said earlier this month. However, ECB Executive Board member Juergen Stark, speaking at an event in Washington D.C., stressed the need to keep an eye on the price situation, both within the Euro zone and beyond.

“We need to monitor price developments in the more dynamic regions of the world very closely, as well as the evolution of commodity prices and their potential impact on global inflation,” Stark said. “Notably, a multi-speed recovery of the world economy, with some regions growing fast, while the recovery in others remains rather slow, has the potential to exert upward pressure on prices,” he warned.

The Euro fell against Sterling on Friday after posting gains the previous two days. The single currency fell 0.14% to close trading before the weekend at GBP 0.87872.

In Canada manufacturing sales edged up by a weaker than expected 0.1% in February from January as weakness in the energy and auto sectors partially offset gains across a dozen industries, Statistics Canada said on Friday. Statscan also revised down its January sales growth figure to 1.8% from the 2.4% initially published.

Following the report the Canadian Dollar fell back to close down 1.06% against its American counterpart at CAD 1.01271.

The disappointing numbers suggest the economy grew at a slower pace in February than in the preceding five months. Still, analysts expect first-quarter growth to come in just as strong as the fourth quarter, at about 5% annualized. That will keep pressure on the Bank of Canada to raise interest rates either in June or July.

“We expect that, with evidence mounting that the economic recovery in Canada is on increasingly solid footing, the Bank of Canada will look to begin tightening monetary policy,” Nathan Janzen, economist at Royal Bank of Canada, wrote in a note to clients.

“However, economic slack built up during the recent recession is expected to keep inflation subdued in the near term, allowing the pace of tightening to be undertaken at a gradual rate,” he said.

The majority of primary dealers in Canada expect the first rate rise in July, but markets have also priced in a hike as early as June 1st.

February sales were strong in plastic and rubber products as well as in chemical products, partly the result of pharmaceutical and medical aid to Haiti following the recent earthquake. Much of the weakness came from a 3.9% drop in sales by the petroleum and coal products industry due to lower oil prices and slowdowns caused by fires at two refineries. Transportation equipment sales fell 1.8%, the second straight monthly decline as a result of temporary auto factory shutdowns and lower parts and aerospace sales.

Written by Finexo.com