6/19/2009 1:00 PM: EUR/$..1.3970 $/JPY..96.10 GBP/$..1.6485 $/CHF..1.0784 AUD/$..0.8070 $/CAD..1.1328

Dollar Drifts Lower by Korman Tam



The greenback drifted lower against the major currencies in a quiet session to end the week, slipping toward the 1.40-level against the euro and 96-figure versus the yen. US equities were mixed with the Nasdaq edging higher to 15.53-points to 1823.18 while the Dow Jones slipped by 27.73-points to 8,528.25.
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Germany ZEW Buoys EUR

The euro edged up slightly higher against the greenback on better than expected Eurozone data. Germany’s June ZEW sentiment survey unexpectedly surged to 44.8 – its highest level in 3-years, up sharply from 31.1 a month earlier and sharply beating estimates for an increase to 35.0. The current conditions component improved to -89.7 in June versus -92.8 in May. While the surge in ZEW propped the single currency higher, the euro was unable to sustain gains above the 1.40-level.

Greenback Rallies Sharply

he greenback reversed previous session’s losses, rallying sharply against the euro by over two big figures to 1.4111 and the sterling by nearly four big figures at 1.6244. US equities bourses pulled back further with the Dow Jones and Nasdaq sliding by over 1.2%, while the S&P 500 lost over 1.8%.

With markets eagerly anticipating the May US labor report due out on Friday, the May ADP private-sector payrolls were worst-than-expected, posting a loss of 532k jobs and exceeding expectations for a loss of 520k jobs from 491 private sector jobs lost previously. April durable goods orders increased by 1.7%, albeit less than the 1.9% increase from March, while factory orders improved by 0.7% from 0.9%. The May non-manufacturing ISM report improved to 44 versus 43.7 a month earlier, remaining beneath the key 50-level though.

Data slated for release on Thursday include weekly jobless claims, Q1 labor costs and non-farm productivity. The key reports will be released on Friday, consisting of the May unemployment rate, which is seen creeping up to 9.2% and the non-farm payrolls reading, expected reveal a 520k job loss from 539k loss of jobs a month earlier.

Rumors Pound Sterling

The greenback jumped sharply higher against the sterling and euro on rumors circulating earlier in the session over uncertainty over the UK political outlook. The dollar relinquished some of its strength to trade near 1.4180 versus the euro and 1.6190 against the pound.

The key May jobs data is due out tomorrow at 8:30 AM and traders will closely analyze the data to gauge the extent of the deterioration in the labor market. The unemployment rate is seen edging up further to 9.2% from 8.9% a month earlier while the non-farm payrolls are expected to post another loss of 520k jobs from 539k loss lost in April.

If the unemployment report is sharply better than expected, the likely scenario to materialize would be a rally in the US equity bourses, prompting a return to riskier assets which would ultimately be detrimental to the dollar.

USD Rallies Sharply

The greenback received a boost across the board at the start of the week, edging up to 1.3757 against the euro and 1.6245 versus the pound. Prompting the currency’s strength were comments from Russian Finance Minister Kudrin, in which he expressed confidence in the dollar as the global reserve currency of choice and that it would be premature to discuss an alternative. Recall several weeks ago, the dollar came under pressure following a series of comments from both Russian and Chinese government officials calling for a new global currency to replace the greenback given the deteriorating fiscal position.

US equity bourses posted steep losses, with the Dow Jones, Nasdaq and S&P 500 plunging by well over 2%. The economic calendar was largely negative today, with the June NY Fed manufacturing index deteriorating by more than expected to -9.41 versus May at -4.55. The April overall net capital flows revealed a net outflow of $53.2 billion, versus an inflow of $23.2 billion in the month prior. The June NAHB housing market survey missed estimates for an improvement to 17, instead dipping to 15 from 16 in May.

Key data slated for release in the Tuesday session include May PPI, building permits, housing starts, and industrial production. The headline producer price index in May is seen edging up to 0.4%, from 0.3% a month earlier and remain unchanged from the previous year at -3.7%. Core PPI is estimated to hold steady at 0.1% m/m and 3.2% y/y. Traders have continued to focus on housing reports for signs that the housing market has begun to bottom. The May housing starts are expected to improve to 490k units, compared with 458k units a month earlier while building permits are forecasted to edge up to 500k units from 498k units previously.. Meanwhile, May industrial production is seen holding steady from the previous month, posting a 0.5% decline.

Gold hits 3-wk low under $940 as dollar rebounds

LONDON - Gold slid to a three-week low below $940 an ounce in Europe on Friday as the dollar rebounded broadly and oil prices eased.

Most commodities priced in dollars have lost value as the U.S. currency firmed, as they become more expensive for holders of other currencies. Gold’s profile as a hedge against oil-induced inflation also eased with crude prices.

Spot gold stood at $941.35 per ounce at 1432 GMT, against $954.00 an ounce late in New York on Thursday. It earlier hit a low of $936.00, its weakest since May 21, as the dollar extended its gains against several major currencies.

“The dollar is the main driver,” said Societe Generale analyst David Wilson.

“The fact that it has managed to fall out of the bottom of that $940 to $980 range suggests there might be a bit more room to push it on the downside,” he said, adding that the metal was probably due for some retracement after failing to pierce the $1,000 mark last week.

The dollar rose broadly on Friday, rebounding from vicious selling earlier in the week, with the euro pressured after weak industrial output data. Crude oil eased toward $72 a barrel, a day after reaching a near eight-month high, pressured by the dollar’s strength and views that prices have risen too far, too fast.

Gold has historically tracked oil prices, as it is often bought as a hedge against inflationary pressures sparked by higher crude.

In wider markets, European shares dipped, and Wall Street opened lower, extending losses after a report showed a rise in inflation expectations and continuing job uncertainty even as consumer mood improved in June.

Investors also awaited a G8 finance ministers’ meeting later in the day.
STATIC

Demand for physical gold was weak. Holdings of the SPDR Gold Trust, the world’s largest bullion exchange-traded fund, were static for a fourth session on Friday.

Meanwhile gold buying in India, the world’s biggest bullion consumer last year, declined, with appetite for the precious metal receding as the wedding season tails off.

Asset manager Fortis Investments told Reuters it favours gold as a longer-term play on both inflation and deflation. Gold is seen as an asset that holds its value in volatile times.

Among other precious metals, silver tracked gold lower, falling to $14.83 an ounce against $15.37. Platinum was at $1,251.50 an ounce compared with $1,261, while palladium was at $253.00 from $254.00.

UBS said in a note to clients that it was holding firm with its recommendation for investors to hold long positions in platinum.

“Although we like platinum’s fundamentals, we were wary of outright longs due to signs of slowing Chinese interest at prices above $1200, hence we bought platinum against even-more-extended gold.”

Dollar up on weak European industrial output

NEW YORK - The dollar rose against the euro and other key currencies Friday after a steep decline in eurozone industrial output.

The euro fell to 1.4021 dollars in New York trading at around 2100 GMT from 1.4106 dollars on Thursday.

The dollar also climbed against the Japanese currency, to 98.40 yen from 97.60 yen.

Terri Belkas, currency strategist with Forex Capital Markets, said the greenback staged a “broad rebound” against the major currencies.

She said “fundamentals were also working against the euro” after the Eurostat data agency reported that eurozone industrial production fell 1.9 percent in April over one month, bringing the drop over 12 months to a record 21.6 percent, the sharpest annual contraction on record.

The drop was steeper than economists’ forecast of a slump of 0.6 percent from March.

Neil Mellor, an analyst at the Bank of New York Mellon, also noted that the euro fell following the grim eurozone industrial output data.

But “recent trends in the major currency pairs have been driven largely by general US dollar weakness rather than the perceived strength of its counterparts’ underlying fundamentals,” he cautioned.

Belkas said traders would keep an eye out for the communique at the end of the weekend meeting of finance ministers and central bankers of the Group of Eight top world powers in Lecce in southern Italy.

She said that “indications that exit strategies for the stimulus measures enacted by members are being plotted could provide a boost to risk appetite.”

The US dollar, viewed as a safe-haven currency in times of economic uncertainty, usually falls if investors moved towards riskier currencies such as the euro.

“Well, it looks like we end the week with dollar bears on their back foot,” analysts at PNC bank said in a note to clients.

Among others factors that boosted the dollar was a comment by Japanese Finance Minister Kaoru Yosano that Tokyo’s confidence in US debt was “unshakable” and that the dollar was a safe global currency, they said.

“This was especially timely in Asia where surpluses abound and countries are heavily invested in US Treasuries. China and Japan are the two US largest creditors in that order, the analysts wrote.

The dollar also rose Friday to 1.0789 Swiss francs from 1.0701 a day earlier.

The pound fell to 1.6442 dollars from 1.6588.

Oil falls below $72 per barrel

AP)
13 June 2009
NEW YORK — Benchmark crude for July delivery fell 64 cents to settle at $72.04 on the New York Mercantile Exchange, the first time oil prices have fallen in several days.

In other Nymex trading, gasoline for July delivery fell 2.18 cents to settle at $2.0431 a gallon and heating oil dropped 1.59 cents to settle at $1.8375. Natural gas for July delivery slid 7.6 cents to settle at $3.857 per 1,000 cubic feet.

In London, Brent prices fell 87 cents to settle at $70.92 a barrel on the ICE Futures exchange.

Still, oil prices have more than doubled since March even though demand is down for the year and American storage tanks are bloated with a huge surplus.

Crude hit new eight-month highs this week, peaking Thursday at $73.23 a barrel.

On Friday, the Organization of Petroleum Exporting Countries dropped its daily demand forecast by 230,000 barrels, estimating that global consumption would shrink to 83.8 million barrels a day.

Dollar Weighed As Diversification Warnings Eclipse Growth Forecasts

Will the world diversify out of the US dollar and the liquid assets that it backs? Is it feasible? More importantly, is it advisable considering the still-fragile state of the global financial markets? These are the concerns market participants have developed for the American currency over the past week.

Dollar Weighed As Diversification Warnings Eclipse Growth Forecasts

GBP Breaks above

The greenback was mixed in the Wednesday session, slumping sharply against the sterling to a near 7-month low and edging up versus the yen.

Economic data from the US was better than expected earlier today. Existing home sales shot up by 2.9% in April to 4.68 million units, reversing a downwardly revised 3.4% decline in March. Traders will look ahead to data on Thursday, including weekly jobless claims, April durable goods orders and new home sales.

Rumors Pound Sterling

The greenback jumped sharply higher against the sterling and euro on rumors circulating earlier in the session over uncertainty over the UK political outlook. The dollar relinquished some of its strength to trade near 1.4180 versus the euro and 1.6190 against the pound.

The key May jobs data is due out tomorrow at 8:30 AM and traders will closely analyze the data to gauge the extent of the deterioration in the labor market. The unemployment rate is seen edging up further to 9.2% from 8.9% a month earlier while the non-farm payrolls are expected to post another loss of 520k jobs from 539k loss lost in April.

If the unemployment report is sharply better than expected, the likely scenario to materialize would be a rally in the US equity bourses, prompting a return to riskier assets which would ultimately be detrimental to the dollar.

USD Extends Gains

The greenback traded higher in the London session, starting the week where it left off from last Friday, extending its gains from the stronger than expected May non-farm payrolls report. The dollar pushed the euro to 1.3805 and the pound toward the 1.58-figure before relinquished some of its strength in New York trading. The major equity bourses traded lower, with the Dow Jones, Nasdaq and S&P500 down by around 1%, while both spot gold and crude oil drifted lower as well.

There has been speculation that the recent data, particularly the May non-farm payrolls report, point toward a bottom in the economic downtown – prompting an advance in the dollar and declines in stocks amid inflationary concerns. The Fed’s current monetary policy remains highly stimulative and we believe it will remain so for the remainder of the year and into early 2010. Thus, we deem it to be premature for markets to begin pricing FOMC rate hikes.

The economic calendar from the US will see on Tuesday, April wholesale inventories, wholesale sales, on Wednesday: the April trade deficit and May Federal budget, on Thursday: weekly jobless claims, May retail sales, April business inventories and on Friday: the June University of Michigan consumer confidence survey and May import / export prices. Retail sales for May are expected to reverse the 0.4% decline in April, improving by 0.2%, while the core retail sales figure is seen edging up by 0.3% from a 0.5% decline a month earlier. The April trade deficit is estimated to edge up to $29.0 billion from a month earlier at $27.58 billion. The Federal budget deficit is expected to surge in May to 195.0 billion compared with $165.93 billion in April. The dollar may come under pressure toward the latter part of the week as the twin deficits come into focus, likely to trigger some profit-taking in the latest greenback run-up.

This article contains the following sections:

FOREXNEWS

Instrument Margin Req. Per Lot Lot Size Approximate
Tick Value Spread Trading Hours (GMT)
Currencies
EUR/USD $25 10,000 Euros .0001 = $1 2 24 hours
USD/JPY $25 10,000 USD .01 = $1 2 24 hours
USD/CHF $25 10,000 USD .0001 = $085 3 24 hours
GBP/USD $25 10,000 GBP .0001 = $1 3 24 hours
USD/CAD $25 10,000 USD .0001 = $0.85 4 24 hours
EUR/JPY $25 10,000 Euros .01 = $0.80 3 24 hours
EUR/GBP $25 10,000 Euros .0001 = $1.60 3 24 hours
EUR/CHF $25 10,000 Euros .0001 = $0.70 4 24 hours
GBP/JPY $25 10,000 GBP .01 = $0.80 8 24 hours
GBP/CHF $25 10,000 GBP .0001 = $0.70 8 24 hours
CHF/JPY $25 10,000 CHF .01 = $0.80 4 24 hours
AUD/USD $25 10,000 AUD .0001 = $1 4 24 hours
NZD/USD $25 10,000 NZD .0001 = $1 4 24 hours
AUD/CAD $25 10,000 AUD .001 = $0.90 4 24 hours
EUR/CAD $25 10,000 Euros .0001 = $0.60 7 24 hours
EUR/AUD $25 10,000 Euros .0001 = $0.70 6 24 hours
AUD/JPY $25 10,000 AUD .0001 = $0.90 4 24 hours

Stock Market Indices
S&P 500 $50 $10 x price 1.00 = $10 0.50 Sunday 11:00PM - Friday 9:00PM (Closed 10:30PM - 11:00PM daily)
NASDAQ 100 $50
$10 x price 1.00 = $10 1.00 Sunday 11:00PM - Friday 9:00PM (Closed 10:30PM - 11:00PM daily)
Dow Jones Ind. $50 $1 x price 1 = $1 5 Sunday 11:00PM - Friday 9:00PM (Closed 10:30PM - 11:00PM daily)
Nikkei 225 $50 $1 x price 1 = $1 5 12:45AM - 3:15AM &
4:15AM - 7:25AM
DAX30 $50 $1 x price 1 = $1 4 7:00AM - 9:00PM
CAC40 $50 $1 x price 1 = $1 4 7:00AM - 9:00PM
FTSE100 $50 $1 x price 1 = $1 4 8:00AM - 9:00PM

Commodities
Gold (XAU) $50 $10 x price 0.1 = $1 75 24 hours
Silver (XAG) $50 $1,000 x price 0.001 = $1 30 24 hours
Copper $50 $100 x price 0.01 = $1 25 Sunday 11:00PM - Friday 9:00PM (Closed 10:15PM - 11:00PM daily)
Crude Oil $50 $100 x price 0.01 = $1 5 Sunday 11:00PM - Friday 9:00PM (Closed 10:15PM - 11:00PM daily)
Natural Gas $50 $1,000 x price 0.001 = $1 25 Sunday 11:00PM - Friday 9:00PM (Closed 10:15PM - 11:00PM daily)



MetaTrader 4
MetaTrader offers a 100,000 currency unit lot size. Smaller lot sizes can be traded by using fractional lots (e.g., trading 0.1 lots). Stock Market Indices, Gold, Silver, and Crude Oil are of equal contract size to e-mini contracts on the futures exchanges.

Instrument Margin Req. Per Lot Lot Size Approximate
Tick Value Spread Trading Hours (GMT)
Currencies
EUR/USD $250 10,000 Euros .0001 = $1 2 24 hours
USD/JPY $250 10,000 USD .01 = $1 2 24 hours
USD/CHF $250 10,000 USD .0001 = $085 3 24 hours
GBP/USD $250 10,000 GBP .0001 = $1 3 24 hours
USD/CAD $250 10,000 USD .0001 = $0.85 4 24 hours
EUR/JPY $250 10,000 Euros .01 = $0.80 3 24 hours
EUR/GBP $250 10,000 Euros .0001 = $1.60 3 24 hours
EUR/CHF $250 10,000 Euros .0001 = $0.70 4 24 hours
GBP/JPY $250 10,000 GBP .01 = $8 8 24 hours
GBP/CHF $250 10,000 GBP .0001 = $7 8 24 hours
CHF/JPY $250 10,000 CHF .01 = $8 4 24 hours
AUD/USD $250 10,000 AUD .0001 = $10 4 24 hours
NZD/USD $250 10,000 NZD .0001 = $10 4 24 hours
USD/ZAR $250 10,000 USD .001 = $10 100 24 hours
EUR/CAD $250 10,000 Euros .0001 = $6 7 24 hours
EUR/AUD $250 10,000 Euros .0001 = $7 6 24 hours
USD/MXN $250 10,000 USD .0001 = $10 100 24 hours

Stock Market Indices
S&P 500 $250 $50 x price 1.00 = $50 0.50 Sunday 11:00PM - Friday 9:00PM
(Closed 10:30PM - 11:00PM daily)
NASDAQ 100 $250
$20 x price 1.00 = $20 1.00 Sunday 11:00PM - Friday 9:00PM
(Closed 10:30PM - 11:00PM daily)
Dow Jones Ind. $250 $5 x price 1 = $5 5 Sunday 11:00PM - Friday 9:00PM (Closed 10:30PM - 11:00PM daily)
Nikkei 225 $250 $5 x price 1 = $5 5 12:45AM - 3:15AM &
4:15AM - 7:25AM
DAX30 $250 $5 x price 0.1 = $0.50 4 7:00AM - 9:00PM
CAC40 $250 $5 x price 0.1 = $0.50 4 7:00AM - 9:00PM
FTSE100 $250 $5 x price 0.1 = $0.50 4 8:00AM - 9:00PM

Commodities
Gold (XAU) $250 $50 x price 0.1 = $5 75 24 hours
Silver (XAG) $250 $5,000 x price 0.001 = $5 30 24 hours
Copper $250 $500 x price 0.01 = $5 25 Sunday 11:00PM - Friday 9:00PM
(Closed 10:15PM - 11:00PM daily)
Crude Oil $250 $500 x price 0.01 = $5 5 Sunday 11:00PM - Friday 9:00PM
(Closed 10:15PM - 11:00PM daily)
Natural Gas $250 $5,000 x price 0.001 = $5 25 Sunday 11:00PM - Friday 9:00PM
(Closed 10:15PM - 11:00PM daily)

Forex: GBP/USD: Pound weakens to 1.6400 after UK data

FXstreet.com (Barcelona) - The Pound has pulled down from levels at 1.6435 resistance to prices right below 1.6400 after UK Trade balance and Manufacturing output data was released.

UK trade gap widened to GBP7.0 Billion in April from a downwardly revised GBP6.5 billion in March. markets were expecting a deficit of about 6.4 billion in April. On the other side, UK Manufacturing output has increased 0.3% ion April, while it dropped 12.3% year on year.

The Pound dropped to levels around 1.6375 from 1.6435 before UK data was released. At the moment the Pound has picked up reaching prices right at 1.6400.


GBP/USD
GBP/USD (Jun 10 at 10:02 GMT)
1.6345/48 (0.18%)H 1.6443 L 1.6291S3 S2 S1 R1 R2 R3
1.6350 1.6367 1.6384 1.6418 1.6435 1.6452
[?]Trend Index [?]OB/OS Index
Strongly Bullish Neutral
Data updated on Jun 10 at 08:31 (15-minute timeframe)



[ View GBP/USD technical studies ]


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Currencies Bid As Traders Look to Build on Dollar Shorts; USD/JPY Commentary (Midday Snapshot)

MIDDAY SNAPSHOT & ANALYSIS OF SELECTED RATES

The USD has been well offered in the New York session of trade with many accounts still bearish on the Greenback, looking to take advantage of the latest slide in currencies to build on existing long positions. Data out of the US this morning was mixed with wholesale trade coming in on the softer side, while IBD/TIPP consumer optimism was better after breaking above the key 50 level for the first time since November 2008. Sterling continued to be a relative outperformer, as comments from Stephen Timms that UK measures were working, along with Treasury Byrne who said that the deficit would be halved in 4 years, helped to fuel additional gains. Also generating headlines was the news that the Treasury had granted permission to 10 major banks to repay TARP funds. Treasury Secretary Geithner said that the repayment was an "encouraging sign of financial repair." US equities are mixed, while gold trades flat and oil climbs higher, back above $69.00 to trade higher by some 1.50%.


Usd/Jpy: Has pulled back quite sharply on Tuesday with the market looking set to retest the previous resistance now turned support at 97.25 into the latter half of the session. However, any setbacks are seen limited to this area, with the overall structure now favoring additional gains over the medium-term after the market managed to close above shorter-term trend-line resistance off of the 2009 highs on Friday. A higher low is now sought out by 97.25 ahead of a fresh upside extension towards 100.00, to be confirmed on a break back above 98.90. Strategy: BUY @97.25 FOR A 100.25 OBJECTIVE, STOP @95.75. Recommendation to be removed if not triggered by NY close (5pm ET) on Tuesday.

NZD/USD: Trading the Reserve Bank of New Zealand Interest Rate Decision

The Reserve Bank of New Zealand is widely expected to hold the benchmark interest rate steady at the record-low of 2.50% this week as the Treasury Department anticipates the $128B economy to emerge from the recession in the fourth quarter of this year, led by a rebound in business confidence.

Trading the News: Reserve Bank of New Zealand Interest Rate Decision

What’s Expected
Time of release: 06/11/2009 21:00GMT, 17:00 EST
Primary Pair Impact : NZDUSD
Expected: 2.50%
Previous: 2.50%

Impact the RBNZ Interest Rate Decision has had on NZDUSD through the last 2 meeting
Period
Data Released
Estimate
Actual
Pips Change

(1 Hour post event )
Pips Change

(End of Day post event)

Apr 2009
04/29/2009 21:00 GMT
2.50%
2.50%
-29
-8

Mar 2008
03/11/2009 20:00 GMT
2.75%
3.00%
+22
+18

April 2009 RBNZ Interest Rate Decision

The New Zealand central bank cut the cash rate by another 50bp to a fresh record-low of 2.50% in April, and the RBNZ went onto say that they ‘expect to keep the cash rate at or below the currently level through until the latter part of 2010’ in an effort to steer the $128B out of its worst recession in over a quarter century. Moreover, Governor Alan Bollard stated that ‘the cash rate could still move modestly lower over the coming quarters’ as price growth falters, and the central bank head sees ‘it appropriate to provide further policy stimulus’ as global trade condition deteriorate. In addition, the Organization for Economic Cooperation and Development called upon the RBNZ lower rates further in order to stem the downside risks for growth and inflation as Governor Bollard expects the annual rate of unemployment to reach a 10-year high of 6.8% in the first half of 2010.


March 2009 RBNZ Interest Rate Decision


The Reserve Bank of New Zealand lowered the benchmark interest rate by 50bp to a record-low of 3.00% in March amid expectations for a 75bp rate cut, and policymakers may continue to take additional steps to shore up the economy as the region faces its worst economic downturn in over a quarter century. Governor Alan Bollard projects economic activity to rebound in the third quarter of this year as the cash rate remains at a ‘very stimulatory’ level however, the central bank head said that borrowing costs ‘could go lower’ as growth prospects deteriorate, but went onto say that a zero interest rate policy ‘would be unlikely, unusually, and would have some undesirable effects’ on the outlook for long-term stability. At the same time, the RBNZ forecasts inflation to grow at an annual rate of 0.7% in the third quarter, which is well below the 1-3% target range held by the central bank, and Governor Bollard is likely to ease policy further in the month ahead as the outlook for growth and inflation falter.


What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:


Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.


How To Trade This Event Risk

The Reserve Bank of New Zealand is widely expected to hold the benchmark interest rate steady at the record-low of 2.50% this week as the Treasury Department anticipates the $128B economy to emerge from the recession in the fourth quarter of this year, led by a rebound in business confidence. However, the central bank may take additional steps to stem the downside risks for growth and inflation as businesses face fading demands from home and abroad, and firms may continue to scale back on production and employment throughout the second half of the year as growth prospects deteriorate. A Bloomberg News survey shows 6 of the 11 economists polled forecast the RBNZ to hold the cash rate steady this month, and projects the central bank to adopt a wait-and-see approach as businesses confidence improves. At the same time, a report by Statistics New Zealand showed household spending slumped for the sixth consecutive quarter during the three-months through March to mark its worst slump on record, while a separate report showed employment plunged 1.1% during the first quarter to mark the biggest contraction since 1989, and the data reinforces a weakening private consumption as households face a weakening labor market paired with falling home prices. Meanwhile, inflation expectations slipped to an annual rate of 2.2% in the second quarter, while producer price unexpectedly fell 1.4% in the fourth quarter, and the downside risks for price growth could lead the central bank to take additional steps in an effort to stem the risks for deflation. Nevertheless, RBNZ Governor Alan Bollard signaled that the board is willing to lower the interest rate further during an interview this week, and went onto say that they are prepared to take further steps if ‘monetary policy wasn’t having its normal orthodox impact’ to stimulate the economy. As the central bank maintains a 2-3% target range for price growth and holds a dovish outlook for inflation, easing price pressure could lead Governor Bollard to take additional steps to jump-start the ailing economy, and an unexpected rate could is likely to weigh on the exchange rate as investors weigh the outlook for future policy.

Trading the given event favors a bullish outlook for the New Zealand dollar as market participants forecast the RBNZ to hold the benchmark interest rate steady at the record-low, and price action following the rate decision could set the stage for a long kiwi trade. Therefore, if the central bank attempts to put a floor on the exchange rate, and holds the cash rate steady at 2.50%, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of NZD/USD. Once these conditions are met, we will place our initial stop at the nearby swing low, or a reasonable distance taking volatility into account, and this risk will determine our first target. Our second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.

In contrast, deteriorating trade condition paired with the dour outlook for inflation could lead the RBNZ to surprise the markets with a rate cut as the central bank attempts to jump-start the ailing economy. As a result, if the board unexpectedly lowered the benchmark interest rate 25bp or more, we will look to sell the NZD/USD, and will follow the same strategy for a short kiwi-dollar trade as the long position listed above.

Key Events Next Week: US Retail Sales, Trade Balance, RBNZ

Key Events Next Week: US Retail Sales, Trade Balance, RBNZ
RBNZ will meet Thursday to discuss about interest rate. While the market has widely priced in a month of pause, it's still likely for the central bank to 'shock' the market by announcing a 25 bps reduction as policymakers have earlier expressed their disappointment about domestic banks' sluggishness in passing the cuts to the public. Australia's employment in May should have driven much interest after a surprising rise in the number of jobs in April. However, we still believe a pullback will be seen in May.

International trade data will be released in the US, UK and Canada. Stabilization in economic outlook and rally in crude oil price over the past months should have shown some changes the picture of trade balance in May.

Jun 11: New Zealand: RBNZ Rate Decision

After reducing the OCR by 575 bps in previous months, the market forecast the RBNZ to remain sidelined next week as Governor Bollard may prefer to reserve some bullets for future use - when unemployment rate rises rapidly. That said, we do not rule out the possibility of another 25 bps reduction Thursday.

Although signs of recovery have been displayed in New Zealand and other parts of the world, inflation pressure has continued easing, retail sales has remained weak and employment condition has deteriorated further.

Since the previous meeting in April, NZD has appreciated by almost 20% against USD. NZD's strength is tightening the monetary policy in nature and we believe the central bank would explicitly talk about the issue in the post-meeting statement. It's also possible for RBNZ to cut rates in attempt to bring the currency down.

We believe the central bank will reiterate the statement in April that 'we expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters'.

RBNZ will also release the June Monetary Policy Statement (MPS). We expect the central bank have revised down GDP growth to -2.5% and +1% in fiscal 2009 and 2010 from corresponding -2.2% and +3.2% as projected in March. For inflation, CPI probably have been downgraded slightly from +3.1% and +1.6% in fiscal 2009 and 2010, respectively.





Jun 10: International Trade Balance (April)

US: US' trade deficit is expected to have widened to $29B in April from $27B in the prior month as imports should have risen while exports remained on the downtrend. That said, decline in exports should have moderated as global economic recession has stabilized. Released last week, export orders components of ISM manufacturing index has been rising (May: 48) after reaching a trough at 35.5 in December. This gave us further evidence on improvement of exports in the US.



Canada: Trade surplus in Canada should have modestly increased to CAD 1.12B in April, as driven by surge in oil price, after a strong rise to CAD 1.1B in March. China's import data remained robust in April and it had probably helped exports data in Canada. Moreover, improvement was also seen in lumber and auto part exports. However, appreciation in Canadian dollar against USD might have affected exports on the downside. Concerning imports, a small bounce is anticipated following a -4.4% decline in April.





UK: Trade deficit probably narrowed further to 6.4B pounds in April from 6.6B in the prior month. Despite the over 20% appreciation in sterling, the currency remained undervalued given the sharp fall in late 2008 and this made foreign goods appeared to be more expensive than domestic products, making decline in imports outpace decline in imports. Moreover, exporters have tried to improve profit margin by raising exports price as sterling still looked relatively cheap. Recent improvement in international trade gave further signals that UK's trade volume should have stabilized.

Jun 11: US: Retail Sales (May)

After 2 months decline, US' retail sales probably increased +0.9% mom in May as led by rise in auto sales and gasoline prices. Unit auto sales recorded a jump to 9.9M in May, the highest level since December. Although part of the sales increase was driven by dealers' discounts, we still believed some automakers did well last month and contributed increase in nominal sales.

Core retail sales (excluding autos, gasoline and building materials) should have risen +0.4% mom, following a -0.3% drop in April. Chain-store sales, which declined -0.6% in May, were worse than consensus as high- to mid- end retailers' performance was disappointing during the month.



Jun 11: Australia: Unemployment Rate (May)

Although the number of jobs surprisingly increased 27K which lowered the unemployment rate to 5.4% in April, the market forecast some correction in May. The Australian labor force survey probably showed a decline of 45K in payrolls during the month and pushed unemployment rate to 5.8%.

Mid-Day Report: Dollar Digests Gains, Euro Pressured by Ireland Downgrade

Mid-Day Report: Dollar Digests Gains, Euro Pressured by Ireland Downgrade
Dollar retreats mildly in early US session, just ahead of key near term resistance against Euro and Sterling, after soaring for the early part of the day. Treasury yield opens lower with yield on 10 year T-bond down mildly, breaching 3.8% level, but loss is so far limited. The greenback looks set to consolidate recent gains and some sideway trading might be seen in near term before having a test of key near term resistance again. On the other hand , Euro is noticeably weak in crosses as Ireland's credit rating was downgraded by S&P for the second time this year from AA+ to AA, at the same level as Japan, Slovenia and UAE, with a "negative outlook".

There are more news about recovery in the global economy. OECD composite leading indicators rose 0.5 pt to 93.2 in April even though it's still 8.3 pts lower than that in Apr 2008, suggesting easing in the global recession. Meanwhile, there were strong indications that the downturn may have hit bottom in Canada, France, Italy and Britain. There were signs of improvement in Japan, Germany and US but the leading indicators are still pointing to a slowdown.


While there are still talk about dollar's status as world's reserve currencies, markets are paying little attention to theses speculations for the moment. Indeed, dollar is positively supported by news that BRICs countries, (Brazil, Russia, India and China) increased reserves by more than $60b in May to limit currency gains. The number represents the largest dollar buying in a year in Brazil, largest gains since Jan 2008 in India and larges since July in Russia. While there have been talk about discussion of "de-dollarization" in the BRIC summit on Jun e 16 in Russia, markets see last months dollar buying as a sign that BRICs countries are still dependant on the greenback as reserve currency.

On the data front, Japanese current account surplus widened to 0.97T yen in Apr. Eco watchers survey also improved to 36.7 in May. Swiss unemployment rate jumped to 3 year high of 3.5% in May. Eurozone Sentix investor confidence improved more than expected to -27 in Jun. Germany Factory orders though, fell more than expected by -37.1% yoy in Apr. Canadian housing starts rose less than expected to 128k in May.

USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 1.0708; (P) 1.0807; (R1) 1.0951; More

USD/CHF retreats mildly after hitting as high as 1.0985 earlier today. But after all, intraday bias remains on the up side as long as 1.0834 minor support holds. The break of 1.0952 resistance affirms the case that whole fall from 1.1740 has completed at 1.0590 already. Further rally should then be seen to next key resistance zone of 1.1158/1740. On the downside, below 1.0834 will turn intraday outlook neutral first. But pull back should be contained above 1.0590 and bring rally resumption.

In the bigger picture, price actions from 1.2296 are treated as consolidation to whole rally from 0.9634, with first leg completed at 1.0366, second at 1.1963. Break of mentioned 1.0952 resistance argues that the third leg from 1.1963 has completed at 1.0590 too and should bring strong rise towards 1.1158/1740 resistance. Nevertheless, in such case, we'd favor that such consolidation is development into triangle pattern and hence, upside should be limited by 1.1158/1740 initially and bring one more fall before completing the consolidation. However, break of 1.1963 will serve as the first signal that whole rally from 0.9634 is resuming. On the other hand, note that a break of 1.0590 will indicate that fall from 1.1963 is still in progress for 1.0366, or even further to 100% projection of 1.2296 to 1.0366 from 1.1963 at 1.0033 before completing the consolidation from 1.2296.

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Michigan economy continues to shrink

the latest figures show that the state's real gross domestic product -- the inflation-adjusted value of all goods and services produced in Michigan -- dropped again last year, falling 1.5% to $326.1 billion.

Once again, Michigan ranked near the bottom for GDP growth, coming in at No. 47 among all states.

Only Florida, Delaware and Alaska fared worse.

Michigan was one of 12 states that saw their real GDP decline last year.

On average, real GDP by state rose 0.7% last year, down from an increase of 2% in 2007.

Michigan's economic output last year contracted mostly because of tough times in key industries such as durable goods manufacturing, construction and finance and insuranc

Oil: Up to $200 or Down to $25?

It is worrying for oil producers when the Russian President Dimitri Medvedev talks of $150 oil because it is so reminiscent of the $250 a barrel forecast last summer. A little hubris often comes before a fall.


Oil got down to $33 a barrel last December. Could another fall be on the cards this autumn?

Two things drive the oil market: speculation and fundamentals. It has been the speculators who have taken over the market since December and ramped oil prices back up despite the fundamentals of the worse recession since the Second World War.
Inflation

It is almost as though government bailout and stimulus money has been redirected back into the oil markets to cause this primary inflation. Well, it certainly could be that cheap money from the Fed has been put to good use gambling on rising oil prices.

The problem surely is that this surge in oil prices is self-defeating. Let us not forget that it was the spike in oil prices to $147 last July that preceded the collapse in financial markets last autumn. Oil prices and recessions have long been close associates.

As oil prices rise that places an additional cost burden on industry, transportation and consumers. And the impact is huge. The recent oil price rises could well have entirely offset all the global bailouts and stimulus packages since last autumn.

Indeed, surely here we can see the cause of the next down leg in this Great Recession. Oil prices are a tax on the global economy that it can not afford to bare, and demand will tumble as a result.
Horrific impact

British Airways has warned of a ‘fight for survival’ because of higher fuel prices on top of a global slump, energy prices will also go up for consumers already saving more and so they will spend even less and industry will struggle to pass on the additional cost, hitting profits.

Are higher oil prices therefore unsustainable in the short term? Will speculators then rush for the exit and drive prices down even below levels seen last December?

It certainly seems possible, even likely. For oil producers then only compensation is that this false recovery shows just how well prices are going to perform one day when a real recovery arrives as it must in due course.

Dollar Rises Most Versus Yen Since February on U.S. Economy

June 6 (Bloomberg) -- The dollar advanced the most against the yen in more than three months and rose versus the euro as economic data showed evidence the U.S. recession is easing, boosting demand for the nation’s assets.

The greenback climbed this week as a government report indicated slower deterioration of the labor market, supporting bets dollar-denominated assets will gain as the U.S. leads the global economy out of its slump. The yen fell versus the Australian and New Zealand dollars on speculation investors will increase purchases of higher-yielding assets.

“There’s no denying the dollar’s had a strong move in a week of decent data,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “It’s a tantalizing possibility. If so, that would be good news because that’s the way we were all raised to understand the relationship between yields, currencies and data.”

The dollar gained 3.5 percent to 98.64 yen this week, from 95.34 on May 29, after touching 98.82, the highest level since May 8. It was the biggest weekly rally since the five days ended Feb. 27, when the greenback increased 4.5 percent. The dollar advanced 1.3 percent to $1.3968 versus the euro from $1.4158. The euro appreciated 2.1 percent to 137.81 yen from 134.96 in a third week of gains.

The pound fell 1.3 percent this week to $1.5981 as Prime Minister Gordon Brown rearranged his cabinet amid calls for his resignation. Pensions Secretary James Purnell stepped down on June 4 and urged Brown to follow. Defense Minister John Hutton quit yesterday. Sterling touched $1.6662 on June 3, the highest level since Oct. 30.

Sweden’s Krona

Sweden’s krona dropped against all of the 16 most-traded currencies tracked by Bloomberg on bets Latvia will devalue its currency, the lats. Swedish banks have about $75 billion in loans to the Baltic states, according to the Bank for International Settlements in Basel, Switzerland.

“It’s a question of time when Latvia will be forced to depeg or repeg against the euro,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., said in a Bloomberg Television interview. “Eastern Europe has problems. It’s going to be dragging on western European currencies.”

The krona dropped 2 percent this week to 10.8992 versus the euro. Latvia’s central bank buys and sells foreign-currency reserves to prevent the lats from fluctuating more than 1 percent on either side of 0.702804 per euro.

The trade-weighted Dollar Index gained 1.8 percent this week to 80.674, recovering from May’s 6.4 percent decline as traders added to bets that demand for dollar-denominated assets will rise in an economic recovery.

Economy and Dollar

“We may be moving to a situation where stronger economic numbers are actually good for the dollar,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “It may be just a hint that the pessimism on the dollar has been overdone.”

The dollar fell on June 3 to its lowest level in 2009 against the euro on concern the quadrupling of the U.S. government’s budget deficit this year would sap demand for Treasuries among foreign investors and central banks.

The Australian and New Zealand dollars rose against the yen on four out of the five trading days this week on bets U.S. economic data will spur carry trades, where investors borrow in a country with low interest rates to buy where returns are higher. The target lending rate of 0.1 percent in Japan compares with Australia’s 3 percent and 2.5 percent in New Zealand.

‘A Green Light’

“It’s a green light for some more risk-seeking trades out there in the currency market,” said Samarjit Shankar, a director of global strategy in Boston at Bank of New York Mellon Corp., which administers more than $20 trillion in assets. “There’s more momentum to the view that the worst of the cycle might be behind us.”

U.S. job cuts slowed to 345,000 in May, fewer than the revised decrease of 504,000 in the previous month, the Labor Department reported yesterday in Washington. The median forecast of 76 economists surveyed by Bloomberg News was for a 520,000 reduction. The unemployment rate rose to 9.4 percent.

Factory orders rose in April for the second time in three months, and service industries contracted at a slower pace in May, other reports showed this week.

Japan’s currency fell 1.2 percent this week to 61.79 against the New Zealand dollar and 2.5 percent to 78.25 versus Australia’s currency.

The Standard & Poor’s 500 Index climbed 2.3 percent this week, and the Dow Jones Stoxx 600 Index of European shares advanced 1.2 percent.

Canadian Dollar

The Canadian dollar slipped 2.5 percent to C$1.1190 versus the greenback as a government report showed the economy lost jobs for a sixth time in seven months, pushing unemployment up to 8.4 percent.

The dollar also gained against the yen on speculation the Federal Reserve will raise interest rates later this year, reducing the advantage of borrowing in the U.S. to fund purchases elsewhere.

Traders added to bets the central bank will increase its target rate for overnight loans between banks by its November policy meeting, according to futures traded on the Chicago Board of Trade. The contracts show a 66 percent chance of a rate increase by then, compared with 24 percent odds a week ago.
European Central Bank Governing Council member John Hurley said yesterday in an interview broadcast by Ireland’s RTE radio that the central bank’s main interest rate of 1 percent is “not necessarily” the lowest level.

advertisement Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open) Friday, 05 June 2009 05:22:18 GMT Printer Frien

Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open) Friday, 05 June 2009 05:22:18 GMT Printer Friendly | Email Article | RSS | Previous articles Previous Articles Jun 05 - Short-Term Forex Technical Outlook: NZD/USD Jun 05 - Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open) Jun 04 - Rate Decisions the First Wave, NFPs the Second (Forex Video) Jun 04 - US Dollar: US Non-Farm Payrolls (NFPs) May Determine Trend Continuation Jun 04 - Forex Markets Choppy After BOE, ECB, BOC Decisions - What Happened? Jun 04 - British Pound Forecast Turns Bearish On Sentiment Jun 04 - The ECB and BoE Rate Decisions Can Be Market Moving Without Cuts Jun 04 - Euro, British Pound in Play as Forex Markets Brace for Interest Rate Decisions (Euro Open) Jun 04 - Short-Term Forex Technical Outlook: GBP/CHF Jun 03 - Dollar Rallies as Risk Appetite Cools, But is this Just Noise? Jun 03 - US Dollar Turns Higher, BOE, ECB, BOC Rate Decisions on Thursday Set to Stoke Volatility (Forex Video) Jun 03 - Forex Technical and Fundamental Forecasts for June Jun 03 - Forex Options Show US Dollar Sentiment Extreme, Bounce Likely Jun 03 - Tech Talk 06.03.2009 Jun 03 - Short-Term Forex Technical Outlook: NZD/JPY Jun 03 - Euro Zone GDP to Confirm Economy Shrank at Record Pace in First Quarter (Euro Open) Jun 03 - Australian Dollar Surges As Economy Unexpectedly Grows in Q1 Jun 02 - Australian Dollar Still Facing Volatility from GDP (Forex Video) Jun 02 - Forex Carry Trade Correlation to CRB Index at Record Highs Jun 02 - FX Correlations (June): How Do Currencies Move In Relation To Each Other? Written by Ilya Spivak, Currency Analyst The forex market saw trading ranges narrow dramatically in the overnight session as traders looked ahead to the looming event risk of May’s US Non Farm Payrolls report to guide directional momentum. Switzerland’s Consumer Price Index and UK Producer Prices are on tap in European hours. Key Overnight Developments • Australia's Construction Sector Shrinks for Fifteenth Month in May • Euro, British Pound Ranges Narrow Ahead of US NFP Report Critical Levels The Euro consolidated in a narrow range in overnight trading, oscillating around the 1.42 level. The British Pound followed suit, confined to a narrow band above the 1.61 level. Asia Session Highlights Australia’s AiG Construction PMI rose to 46.9 in May from 36.5 in April. The reading below the 50 “boom-bust” level reveals that the sector contracted for the fifteenth consecutive month, albeit at the slowest pace in over a year. Builders have seen demand begin to stabilize after the government tripled its grants to first-time home buyers to A$21,000. Perhaps most notably, the wages component of the metric expanded for the second consecutive month, rising from 50.6 to 55.0. Higher wages are supportive of consumption, the largest component of overall economic growth, offering a bit of hope that the private-sector demand will support the economy after the government’s boost is exhausted. Australian GDP unexpectedly expanded in the first quarter but details of the report suggested that much of the result was owed to aggressive fiscal stimulus, raising concerns about the sustainability of such performance in the months ahead. Euro Session: What to Expect Switzerland’s Consumer Price Index is expected to show prices shrank at an annual pace of -0.9% in May, the third consecutive month that CPI has printed in negative territory. A survey of economists conducted by Bloomberg expects deflation will persist for the remainder of 2009 as economic growth remains subdued. Switzerland was confirmed to be in recession after GDP shrank in the six months ending in March and positive growth is not expected to return at least until the second quarter of next year. The downturn could be prolonged for substantially longer if expectations of lower prices become entrenched, encouraging consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment. Turning to the UK, May’s Producer Price Index report is expected to reveal that the annual pace of wholesale inflation shrank -0.4%, the first time in nearly seven years. The reading implies downward pressure on consumer prices (the headline inflation gauge) in the months ahead as lower production costs are passed on via cheaper finished products. Although inflation now stands at 2.3%, a reading comfortably close to the Bank of England’s 2% target level, economists expect price growth to slip below 1% through the second half of this year. Median estimates from the bank now suggest economic growth will average 0.02% over 2010, an assumption that yields forecasts of a return to inflation above 1% in the first quarter of next year. On balance, forex traders are likely to look past the European data docket, with price action waiting for the release of the US Non Farm Payrolls report late into the session to guide directional momentum. Expectations call for payrolls to drop 520k in May as the unemployment rate surges to a 26-year high at 2.6%. Markets have viewed the health of the US economy as a proxy for that of the world at large, expecting a rebound in the largest consumer market to offer positive spillover elsewhere. To reach Ilya regarding this article or subscribe to his email distribution list, please contact him at ispivak@dailyfx.com <> Next > [ Back ]

NZD 2.50% AUD 3.00% GBP 0.50% USD 0.25% CAD 0.25% EUR 1.00% CHF 0.25% JPY 0.10% Daily FX RSS advertisement EUR/USD: Trading The US Chan

The U.S. shed another 663K jobs in March, while the annual rate of unemployment surged to 8.5% from 8.1% in February, which is the highest level since November 1983, and the labor market is likely to deteriorate further as business continue to cut back on production and employment in an attempt to weather the economic downturn. The world’s largest economy has lost nearly 5.1M jobs since the recession began in late 2007, and conditions are likely to get worse as firms face fading demands from home and abroad. As a result, Fed Chairman Ben Bernanke said that the jobless rate could perhaps exceed 10% ‘for a period’ as the downturn in the global economy intensifies, and policymakers may take additional measures to get the nation back on track as private-sector spending, which is one of the biggest drivers of growth, deteriorates.

BOE May Keep Up Money Printing as Economy Revives (Update2)

une 4 (Bloomberg) -- The Bank of England may keep up the pace of bond purchases today as officials weigh whether they are already printing enough money to revive the British economy. 

Governor Mervyn King’s forecasts last month showed it needs to spend 125 billion pounds ($207 billion) of newly printed money in U.K. debt markets to fight off the recession. Policy makers will still refrain from expanding that plan in their decision at noon today in London, according to 37 of the 40 economists in a Bloomberg News survey. 

Service industries expanded for the first time in a year last month and Halifax’s house price index unexpectedly jumped, stoking optimism the recession is past its worst. While Deputy Governor Charles Bean and other officials are discussing how the bank might exit its bond purchases, King still says it will “take time” for the economy to heal. 

“There’s no way they want to say we’re out of the woods,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets. “Things are moving slowly in the right direction but they’ll be cautious. They won’t be in a rush to do anything, let alone cut the facility back.” 

The Bank of England will also keep its benchmark interest rate at a record low of 0.5 percent at today’s meeting, according to all 62 economists in a Bloomberg survey. The European Central Bank will keep its rate at 1 percent today, the median of 54 economists’ forecasts shows. 

Government Turmoil 

Turmoil in Prime Minister Gordon Brown’s government has overshadowed the bank’s decision as doubt grows on whether Chancellor of the Exchequer Alistair Darling will keep his job managing the economy. Four ministers have resigned from Brown’s Cabinet this week, and he twice sidestepped questions on Darling’s future in Parliament yesterday. 

Consumers have still become more hopeful that Britain will emerge from the worst recession since World War II, with Nationwide Building Society’s confidence index rising to a six- month high. Markit’s surveys of services, construction and manufacturing all rose last month, and Lloyds Banking Group’s Halifax division said today that house prices rose by 2.6 percent in May, the most since 2002. 

The pound has risen 10 percent against the euro since touching a record low in December, climbing to a six-month high of 85.97 pence per euro on June 3. It traded at 86.66 pence at 9:25 a.m. in London. 

‘Blossoming’ 

Kingfisher Plc, Europe’s largest home-improvement retailer, said on June 2 that first-quarter profit rose more than expected on a rebound in same-store sales at its U.K. B&Q chain. 

“Green shoots are blossoming,” said Alan Clarke, an economist at BNP Paribas SA in London. “Still, the Bank of England don’t want to go and get ahead of themselves. Unemployment will continue to rise, and that will put downward pressure on inflation, which is what the bank targets.” 

David Blanchflower, who left the rate-setting panel last week, said on June 1 that it is still “early days” to gauge whether the bank’s policies are having an effect and predicted jobless claims may keep rising by 100,000 per month. Lloyds, Britain’s biggest mortgage bank, said yesterday it will eliminate 510 additional jobs in the U.K. 

The Monetary Policy Committee said last month that there was “uncertainty” about the impact of the bond plan so far. Some policy makers favored spending the full authorized total of 150 billion pounds, though they said there was “no pressing need” to do so immediately. The panel also said it will seek permission to print even more money than the maximum if needed. 

‘Tricky Judgment’ 

Rising bond yields have muted its impact as investors demand higher returns amid a surge in government borrowing. Yesterday, the yield on the 10-year U.K. government bond was at 3.79 percent, 11 basis points higher than on May 7, the date of the bank’s last meeting. It fell as low as 2.95 percent on March 13 following the bank’s announcement to start purchasing gilts. 

The bank faces a “tricky judgment” on when to exit the money-printing plan, which will be guided by the bank’s target for consumer prices, Bean said on May 22. Inflation may not reach the 2 percent goal within three years on the current spending plan, and the economy faces a “slow and protracted recovery,” King said on May 13. 

Bean also predicted that the supply of credit will “remain impaired for some while” because banks don’t feel secure enough to lend normally. British manufacturers are still seeing an increase in the cost of borrowing and no improvement in access to financing, the EEF lobby group said in a survey today. 

“Credit conditions are still pretty tight,” said Neville Hill, an economist at Credit Suisse Group in London and a former U.K. Treasury official. “I expect nothing from the bank now, but the risks are they’ll still feel the need to do something next month

Australia economic growth appears stronger

SYDNEY (AFP) — Australia may post stronger-than-expected economic growth for the financial year to June, Treasurer Wayne Swan said Thursday, after boosted exports helped the nation dodge a technical recession.

But the minister warned that even if the economy exceeds the forecast of flat growth made by the government last month, unemployment would continue to rise.

"(The gross domestic product figure released on Wednesday) will definitely mean there is probably more positive growth or upside risk in the forecasts, but it doesn't change the nature of the challenge," Swan told Sky News.

Reserve Bank of Australia (RBA) governor Glenn Stevens said the central bank was ready to further cut interest rates to encourage a "durable upswing" but also warned that unemployment could weigh on the economy.

The RBA has slashed rates from 7.25 percent in September to a 49-year low of 3.0 percent, although it declined to make further changes at its meeting this week.

"While consumer spending has held up quite well so far, it may be weaker over the next few months, as the one-off government payments pass and rising unemployment starts to weigh on incomes and willingness to spend," Stevens said.

"Our expectation remains that the economy will be well placed for expansion towards the end of this year," he added.

The government estimated in its May budget that GDP growth for 2008-09 would be flat while the economy would contract by 0.5 percent in the 2009-10 financial year.

But Australia on Wednesday became the only major Western nation to avoid recession during the global economic slump when it posted surprise growth in the first quarter of 2009.

The announcement that the economy had grown 0.4 percent in the three months to March instead of shrinking for a second consecutive quarter came a day after the government unveiled better-than-expected export figures for the period.

However, joblessness still looms large on the economic horizon, with a government prediction of 8.5 percent of unemployment by the middle of 2010 expected to stand, Swan said.

"There's still a very big employment challenge out there," Swan said, adding there was no plan to revise the jobless forecasts.

Currency Alerts

During early Asian deals on Wednesday, the US dollar showed strength against its major counterparts.

Traders reacted positively to the release of a report from the National Association of Realtors showing that pending home sales increased by much more than expected in the month of April. The increase came as homebuyers responded to very favorable market conditions.

The report showed that the pending home sales index rose 6.7 percent to 90.3 in April from a reading of 84.6 in March. Economists had been expecting a much more modest increase by the index of about 0.5 percent. 

In corporate news, General Motors, which filed for voluntary Chapter 11 bankruptcy protection, revealed that it has entered into a memorandum of understanding, or MoU, with a buyer for its premium off-road brand Hummer. The deal would save around 3,000 jobs in the U.S.

Against the European currency, the US dollar edged higher during early deals on Wednesday. At 9:15 pm ET, the dollar reached a high of 1.4273 against the euro, compared to 1.4305 hit late New York Tuesday. The next upside target level for the US currency is seen around 1.402.

The US dollar that closed Tuesday's North American session at 1.6581 against the British pound climbed to 1.6549 during Wednesday's early Asian deals. The dollar is currently trading at 1.6577 versus the pound with 1.59 seen as the next target level. 

In economic news, consumer confidence in Great Britain improved in May, according to survey results from the Nationwide Building Society mortgage agency. Nationwide's consumer confidence index for May registered a reading of 53, compared to an upwardly revised reading of 51 in April.

The rate of shop price inflation in Great Britain fell to a four-month low in May, led by a sharp slowdown in fresh food prices. The British Retail Consortium reported today that shop price inflation in May increased 0.5% on month and 1.3 percent for the full year to May. Shop price inflation for April was down 0.5 percent on month and hit a 1.4 percent annualized rate.

Against the Swiss franc, the US currency showed strength during today's early deals. At 9:10 pm ET, the dollar-franc pair hit a high of 1.0641, compared to Tuesday's closing value of 1.0619. If the pair gains further, 1.082 is seen as the next target level. The US dollar is currently trading at 1.0624 against the Swiss currency.

Against the Japanese yen, US dollar gained ground after hitting a low of 95.39 during early Asian deals on Wednesday. At 9:45 pm ET, the dollar-yen pair rose to 95.84, compared to yesterday's closing value of 95.77. On the upside, 96.9 is seen as the next target level for the pair.

Forex Daily Outlook - June 3rd 2009

In Europe, there are a few figures: Final Services PMI is expected to stay stable at 44.7. PPI is expected to fall by 0.9%. Deflation rules in Europe. Revised GDP is predicted to show no change from the initial call, and remain at a fall of 2.5%. Since this is a late figure, it won’t have too much influence.

In Britain, Services PMI is expected to rise from 48.7 to 49.4. If the figure surprises and passes the 50 mark, this means optimism in the UK.

For a special coverage of the Pound read: Britain’s Got Talent.

In the US, ADP Non-Farm Employment Change is expected to fall by 525K jobs, somewhat worse than last month’s fall of 491K. This figure swings a lot, and despite its importance, it’s not really an indicator for the NFP on Friday.

ISM Non-Manufacturing PMI is predicted to rise cautiously from 43.7 to 45.1 This is the complementary release to the Manufacturing PMI published earlier this week and was better than expectations. Will this surprise as well?

The PMI release will be overshadowed by a testament by Ben Bernanke. What will he tell the House? Will he be optimistic or pessimistic? His careful words will be closely watched.

Also in the US, Factory Orders are predicted to turn positive, and rise by 0.7%. Well, this is optimistic…

Just before midnight GMT, Japanese Capital Spending is expected to drop by 27.1%. It’s hard to get good news from Japan these days.

Happy forex trading!

Australian Dollar Rises to 8-Month High After Economy Expands

June 3 (Bloomberg) -- Australia’s dollar rose to the highest level in eight months as a government report showed the economy unexpectedly expanded last quarter, avoiding two consecutive quarters of contraction. New Zealand’s currency fell. 

Australia’s dollar extended a record three-month advance as the report showed gross domestic product grew 0.4 percent after shrinking a revised 0.6 percent in the previous three months. The expansion enabled the economy to skirt the two straight quarters of decline often used to define a recession. 

“This will probably reinforce Aussie outperformance,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. “Against the U.S. dollar, we still see a risk that the Australian currency hits 85 cents before we see any signs of peaking.” 

Australia’s currency rose as high as 82.63 U.S. cents, the most since Sept. 29, before trading at 82.38 cents as of 4:22 p.m. in Sydney, from 82.09 cents yesterday in New York. The currency gained 0.6 percent to 79.12 yen. 

New Zealand’s dollar slid 0.5 percent to 65.33 U.S. cents from yesterday, when it climbed to 65.94 cents, the most since Oct. 6. It dropped to 62.73 yen from 62.89 yen. 

The Australian dollar faces “key technical resistance” at 82.26 U.S. cents, the currency’s 100-week moving average, Trinh said. “If we can hold above that, it adds to upward momentum for the Aussie in the short-term.” 

U.S. Dollar Bears 

The Australian and New Zealand dollars climbed yesterday after Russian President Dmitry Medvedev said a new supranational currency could lay the foundation for a future financial system and reduce global vulnerability to movements of the greenback. The euro strengthened beyond $1.43 for the first time in 2009. 

“The market is a bit nervous about the possibility of a change in the credit ratings for the U.S.,” said Jim Vrondas, manager of corporate business at online foreign-exchange dealer OzForex Ltd. in Sydney. 

New Zealand’s currency ended four days of gains versus the greenback after Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said milk powder prices fell from a six- month high as its latest monthly auction. Dairy products account for about a fifth of New Zealand export earnings. 

The 64.50-cent level is going to be “critical for further upside,” for the New Zealand currency, which may advance as high as 66 cents this week, Vrondas said. 

New Zealand’s currency has been the best performer against the U.S. dollar among the 16 most-active currencies over the past three months, advancing 32 percent. 

The currency’s strength may delay New Zealand’s recovery from its worst recession in more than three decades by about six to nine months, the New Zealand Institute of Economic Research Inc. said today. 

Australian Bonds 

Australia sold A$700 million ($576 million) of bonds maturing February 2017 today at a weighted average yield of 5.33 percent. The so-called bid-to-cover ratio at the auction was 3.3 times, up from 2.6 at the previous sale last month. 

Australian government bonds were little changed with the yield on the benchmark 10-year note rising less than one basis point to 5.49 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.04, or A$0.40 per A$1,000 face amount, to 98.18. 

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.56 percent from 3.59 yesterday. 

To contact the reporter on this story: Candice Zachariahs in Sydney at

European Economic News

 Swiss economy contracted: Swiss economy contracted0.8% sequentially in the first quarter following a revised 0.6% fall in the previous quarter, the State Secretariat for Economic Affairs said Tuesday. However, the economy shrank less than the expected 1.5% fall. Gross domestic product or GDP fell for the third straight quarter.

On an annual basis, the real GDP dropped 2.4% in the first three months of 2009. In the previous quarter, the economy had contracted 0.6%. Economists had predicted a fall of 1.7% for the first quarter. 

by RTT Staff Writer

Aussie dollar hits a high

SYDNEY - THE Australian dollar hit an eight-month high against the US currency on Monday, breaching the 80 cents mark as optimism rises over the world economy, dealers said. 

The aussie was trading at 80.44 US cents at noon (0200 GMT, 10am Singapore time), backed by solid gains on the local stock market and renewed appetite for risk, they said. 

'The Aussie dollar is experiencing a high yield advantage as equity markets are performing quite strongly,' said CMC markets dealer Jian Wei. 

'Local markets are trading 40 points higher today. All those factors are giving it a boost.' 

The Australian unit opened at 80.17, its highest start since Sept 30, while the SP/ASX 200 index was up 1.16 per cent at 3,862.3 points by noon. 

The dollar threatened parity with the greenback last July before being dumped as Australia's key commodities exports were ravaged by the global downturn. -- AFP

Oil prices rise towards $67 in Asian trade

Singapore, June 01: Oil prices rose in Asian trade on Monday to near seven-month highs, fuelled by a rise in regional equities markets and a weakening US dollar, dealers said.

New York's main futures contract, light sweet crude for July delivery, rose 56 cents to USD 66.87 a barrel. 

Brent North Sea crude for delivery in July advanced 54 cents to USD 66.06. 

"Oil is heading up this morning. It's actually moving in sync with stock markets in Asia.... What's really supporting oil is primarily investors buying commodities as the US dollar weakens," said Victor Shum, an analyst with Purvin and Gertz energy consultancy in Singapore. 

A weak US currency makes dollar-priced oil cheaper for holders of stronger currencies and in turn, tends to stimulate demand and push prices higher. 

The US dollar is losing allure among investors amid growing signs of a recovery in the global economy as they seek higher yields from other foreign currencies, analysts said. 

Investors usually favour the US dollar because of its safe haven status in times of economic uncertainty despite the low returns compared with other units. 

However, Shum cautioned that the rally was "very fragile" as global energy demand remained weak. 

"The reality is that there is a big contradiction confronting oil markets today. Fundamentals are very weak but oil prices have increased by 50 per cent since last December amid a glut of oil," he said.

Dollar soars to 8-month high

The Australian dollar has closed at an eight-month high after soaring above $US0.8000 in the offshore session and building on those gains during the Asian trading day.

At the local close, the dollar was trading at $US0.8087, up 1.6 US cents - or 2 per cent - from Friday's close of $US0.7928.

It was the local currency's strongest close since September 29 last year, when it finished at $US0.8219.

During the day, the unit moved between a low of $US0.7993 and high of $US0.8087 reached just before the local close.

The Australian dollar broke through $US0.8000 in New York trade as investors abandoned the US dollar after encouraging economic data from Europe and Asia raised hopes of a global recovery.

The unit came under brief selling pressure at the start of the local trading day, but the move quickly stalled.

Weak domestic economic data, in the form of declining company profits and falling business inventories, failed to dampen enthusiasm for the Australian dollar.

Kinetic Securities chief economist Clifford Bennett said some investors were gradually coming around to the view that the worst of the slowdown in the Australian economy was over.

"People are starting to grasp the idea now, as more data comes through, that they are not going to see the apocalyptic downturn in the Australian economy,'' Mr Bennett said.

"I expect that the Australian economy has bottomed in February/March, is already on the uptick, and data will continue to suggest that, going forward.''

"It's really important that we stop thinking that we are the tail of the US dog, we no longer are.''

 Mr Bennett said the Reserve Bank of Australia (RBA) was at the end of its easing cycle - further supporting the local unit - with its next monetary policy move likely to be a 25-basis-point increase in December or January.

The RBA is widely expected to leave the cash rate on hold at a 49-year low of three per cent at its monthly board meeting on Tuesday.

Mr Bennett tipped the Australian dollar to reach $US0.8900 by the end of 2009 before surging past parity and towards $US1.08-$US1.12 over the next three to five years.

"The Australian dollar is on a sustained bull trend,'' Mr Bennett said. "The outlook for the US dollar is dire, I expect the US dollar to continue to fall rather sharply.''

Mr Bennett said there might be some US dollar buying on the overnight session following General Motors' bankruptcy protection announcement expected at 2200 AEST on Monday.

Mr Bennett said he expected the Australian dollar to remain well supported as investors pushed the currency towards $US0.8150.

"You might see a momentary bounce in the US dollar and a bit of a pullback in the Aussie, but that won't change the fact that the overall trend is higher for the Aussie.''