| NZD price action was fairly dull, 0.5160 to 0.52, with a slight downward bias. Yesterday’s Q4 PPI input prices were much lower than expected, supporting the view that inflation is off the RBNZ’s radar for now. There is talk of the first government guaranteed NZD Uridashi issue to be marketed next week. AUD/USD traded in a very tight range of 0.65 +/-20pips, while AUD/NZD was bound by 1.25 to 1.2580. The RBA’s February meeting minutes will be released today, perhaps offering clues regarding the next rate cut. EUR managed a one cent range of 1.2730 to 1.2830, with little net movement. Despite the negative press, GBP bounced from 1.4150 to 1.5320, possibly aided by a positive surprise in house price data. JPY tracked sideways between 91.5 and 92, forming an interesting rising wedge pattern (these usually break upwards). Canadian manufacturing shipments fell 8.0% in Dec, their steepest one month decline since at least the early 1990s - and the fifth fall in a row. About half of the latest decline reflected lower volumes, the rest was mostly due to lower prices for energy shipments. Yet further evidence that Q4 GDP growth weakened sharply in Canada, as it did in most other parts of the world that have already reported. UK house prices up 1.2% in Feb according to Right move - the second major UK house price measure to record a surprise gain in early 2009 (HBoS was up 1.9% in Jan). However the annual price measure slid from –7.3% yr to –9.1% yr due to unfavorable base effects. That downtrend is probably a better guide to the true house price picture, although the Right move measure is not yet falling as fast in annual terms as the major lender price indices. | US Dollar Down as Consumer Confidence Nears 28-Year Lows After a conspicuously choppy session, the US dollar would finish the week with a modest buffer from major breakout levels (the exception being USDJPY). The University of Michigan's consumer confidence index fell more than expected in February to 56.2 from 61.2, nearing the 28-year lows, as expectations for the future of the economy remain dour. However, the component of the index gauging sentiment on current conditions rose to 67.1 from 66.5, suggesting that aggressive discounting by retailers and hopes for a successful fiscal stimulus plan are having a temporary impact. Indeed, as we saw on Thursday, US retail sales surprisingly rose 1 percent in January, but with the index still down 9 percent from a year earlier and job losses climbing, the increase marks little more than a blip on the radar. Euro Ends Day Lower as Euro-zone GDP Falls by Most Since at Least 1995 The advanced reading of Q4 GDP for the Euro-zone showed that growth in the economy contraction for the third consecutive quarter and by the most since record keeping began in 1995 at a rate of -1.5 percent. Likewise, the annual measure fell negative for the first time ever at a rate of -1.2 percent. While European Central Bank President Jean-Claude Trichet essentially wrote off the possibility of cutting rates to zero in comments following the bank’s February meeting, noting that such a level was "not appropriate" as there are a number of drawbacks, the GDP news only raises the odds that the ECB will cut rates during their next meeting on March 5. Indeed, Mr. Trichet refused to say the ECB would not reduce rates further, while a variety of ECB members have said that further cuts were “very probable.” Ultimately, though, EUR/USD remains within relatively well-defined trading ranges on a short-term and medium-term basis despite the fact that the latest price action reflected high volatility. This leaves breakout potential open, so it will be important to keep an eye on risk trends as well as key technical levels, such as support at 1.27 and resistance at 1.32. |
| Japanese Yen: Watch for Reactions to G7 Statements, Dismal Japanese GDP Results The Japanese yen outlook remains contingent upon risk trends, and keeping this in mind, traders should watch out for the forex market’s reaction to both the G7 statement, Japanese GDP results, and word on final votes on the US fiscal stimulus place. The G7 statement has potential to include hawkish comments on currencies like the Japanese yen, which could help drive it lower on speculation that the government will physically intervene, but it is worth noting that previous G7 meetings have yielded little in the way of market-moving news. |
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