Forex Market Review 30/04/2010


Past Events:
• EUR German Unemployment Change out at -68, versus expected -11K, prior -42K(revised up)
• EUR M3 Money Supply y/y out at -0.1%, versus expected -0.1%, versus -0.3%
• USD Unemployment Claims out at 448K, versus expected 442K, prior 459K
• GBP Consumer Confidence out at -16 versus expected -14, prior -15
• JPY Overnight Call Rate out at 0.10%, versus expected 0.10%, prior 0.10%
• JPY Household Spending y/y out at 4.4%, versus expected 0.7%, prior -0.5%
• JPY Tokyo Core CPI y/y out at -1.9%, versus expected -1.2%, prior -1.2%
• JPY Average Cash Earnings y/y out at 0.8%, versus expected -0.2%, prior -0.6%
• JPY Prelim Industrial Production m/m out at 0.3%, versus expected 0.9%, prior -0.6%
• JPY Unemployment Rate out at 5.0%, versus expected 4.9%, prior 4.9%
• AUD HIA New Home Sales m/m out at 0.9%, versus prior -5.2%
• AUD Private Sector Credit m/m out at 0.5%, versus expected 0.4%, prior 0.4%

Upcoming Events:
• EUR CPI Flash Estimate y/y (1000GMT)
• EUR Unemployment rate (1000GMT)
• CHF KOF Economic Barometer (1030GMT)
• CAD GDP m/m (1330GMT)
• CAD RMPI m/m (1330GMT)
• USD Advance GDP q/q (1330GMT)
• USD GDP Price Index q/q (1330GMT)
• USD Unemployment Cost Index q/q (1330GMT)
• USD Chicago PMI (14455GMT)
• USD Revised UoM Consumer Sentiment (1455GMT)

Market Commentary:
The euro rose on Thursday, rebounding from a one-year low the previous day on hopes a bail-out plan for debt-stricken Greece would be finalized soon. Gains were limited, however, as details of the Greece package were thin, leaving uncertainties about the timing and implementation of any deal.

Germany’s largest opposition party said it would move quickly to approve German participation, while European Union Economic and Monetary Affairs Commissioner Olli Rehn said the European Union should complete talks “within days”. However, Rehn said he still could not provide details of the deal, which he said were “conditional on fiscal consolidation.”

Mr. Rehns speech he emphasis on “a multi annual program” has helped provide comfort to markets amid fears that the initial plan for a 45 billion euro package would only help meet Greece’s borrowing needs through the current year. IMF officials have reportedly indicated the package could total between €100 billion to €120 billion.
Greek and other peripheral Euro-Zone bond markets rebounded amid the comments and also took relief from a well-received auction of Italian government debt, the first test of the credit markets by a southern euro-zone country since this week’s downgrades of credit ratings for Greece, Portugal and Spain.

The International Monetary Fund and European Union are pressing Greece to take extra austerity measures that could yield more than €20 billion a year as a precondition for financial assistance. These new austerity terms, which could range from pension overhauls to wage cuts, come at the end of two weeks of talks between the visiting IMF negotiator, the European Central Bank and the European Commission. The IMF and the EU have said that they hope to reach an agreement with Greece on its budget deficit by the weekend, in order to pave the way for financial assistance for the debt-stricken nation.

During the European trading session, the EUR rose 0.4% against the USD to hit a high of $1.327771. It was comfortably above a one-year low of $1.311231 it hit on Wednesday after Standard & Poor’s cut Spain’s credit rating by one notch, a day after downgrades to both Greece and Portugal. The Euro closed at $1.32632, up 0.40% from its opening price of $1.32105.

Yesterday report showing that European confidence in the economic outlook improved to its highest level in two years as well as German unemployment fell signaling that the euro-area recovery is strengthening even as Greece’s fiscal crisis spreads across the region.

An index of executive and consumer sentiment in the 16 euro nations rose to 100.6 in April from a revised 97.9 in March, the European Commission in Brussels said yesterday; while in Germany, Germany’s unemployment rate fell to 7.8% in April from 8.0% in March, exceeding market expectations that it would not be able to repeat last month’s move. The net change in unemployment for Germany was -68,000 in April, versus an expected -11,000 – marking the largest drop since February 2008. Germany’s unemployment levels are now at their lowest levels since January 2009.
Yesterday, the Euro rose during the Asian session to 0.87319 against the British Pound reaching the highest price in a week. The EUR/GBP retreated later losing today’s gains and fell to 0.86631 (session low). During the European session regained the upside but failed to hold above 0.8700. The pair closed at 0.86271, down 0.71% from its opening price.

This morning, Eurostat will simultaneously release the unemployment rate and Flash CPI for the entire continent. Unemployment levels for the EU have been hovering around 10.0% for the past few months, and the market expects a repeat of the same this time. On the other hand, inflation has been picking up slowly, and the flash CPI is expected to show an annual rise of 1.4%, exactly like last month and the highest level since end of 2008. In inflation levels continue to rise, the ECB may be forced to alter their firm stance on holding interest rates for “an extended period”.

The number of U.S. workers filing new applications for unemployment insurance fell slightly less than expected last week, government data showed on Thursday, implying only a gradual labor market improvement. In a report, the U.S. Labor Department said there were a seasonally adjusted 448,000 initial claims for unemployment benefits in the week ended April 24, down from 459,000 such claims during the preceding week, whose figure was revised up from 456,000. Economists had expected last week’s figure to come in at 440,000. Following the release of the data, the U.S. dollar was down against the euro, with EUR/USD gaining 0.34% to reach 1.3266.

Later today, the Bureau of Economic Analysis will release the advanced quarter GDP for the first quarter of this year. After a very strong fourth quarter last year (5.6% growth), which was not accompanied by the same recovery in jobs, economists expect the Q1 the show slower growth. An annual rate of 3.4% is predicted – expect substantial boost in the value of the U.S Dollar if the number comes in better than forecasted.

The Bank of Japan pledged to help lenders provide credit after reports showed the economic recovery isn’t yet strong enough to overcome deflation.  The policy board held the benchmark interest rate at 0.1% and left unchanged a credit program for lenders, which it doubled to ¥20 trillion ($213 billion) last month. “Members shared the view that it was necessary for the bank to make new efforts” to spur the economy, the statement said.

Governor Masaaki Shirakawa instructed staff to examine “ways to support private financial institutions in terms of fund provisioning with a view to strengthening the foundations for economic growth,” the bank said in a statement today. Today’s decision came hours after government figures showed consumer prices slid for a 13th month in March, even as household spending, wages and factory output all gained.

Also out last night, the Japanese Bureau of Statistics reported that Consumer prices excluding fresh food fell 1.2% in March from a year earlier, the 13th straight decline. Other reports showed the export-led recovery is beginning to spread to the domestic economy. Household spending rose 4.4%, the biggest gain since May 2004, and wages advanced for the first time in 22 months. Industrial production climbed 0.3% in March from February, when output declined for the first time in a year.

“The economy’s recovery is steadily continuing,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. Even so, “deflationary pressures are still deep- seated in the economy,” he said.
While job prospects improved in March, as the unemployment rate unexpectedly rose to 5% as college graduates entered the labor market- the market had expected it to hold steady at lasts months 4.9% rate.
There was little fluctuation in the price of the Yen following these announcements. The USD/JPY, which opened at 93.999, struck of 94.167, to then fall to 93.882.

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