Tuesday, March 8, 2011

The Yen is strong today

*USD –* Last week the February non-farm payroll headline number was
essentially in line with expectations (192,000 vs. 196,000 expected),
while private payrolls were a marginally stronger than anticipated
(222,000 vs. 200,000 forecast). The fall in unemployment to 8.9% from
9.1% is encouraging. Broad unemployment fell for the third straight
month to 15.9%, its lowest point since April 2009. In the US, a slow
start to the week means that potential market movers are saved for
Thursday and Friday with the main consequence, February retail sales,
on Friday. A strong gain in auto sales and a rebound in building
materials are expected after terrible weather depressed January sales.
This will give a boost to overall retail sales with American consumers
expected to remain in a spending mood, particularly given the lift to
disposable incomes from the recent tax cuts and somewhat better
weather. Also on Friday, the University of Michigan consumer
confidence is anticipated to increase slightly. Earlier today, Dallas
Fed President Fisher spoke on the US economy warnomg that he would
vote to scale back or stop the central bank's $600 billion
bond-buying curriculum if it proves to be "demonstrably
counterproductive." "The liquidity tanks are full, if not brimming
over. The Fed has done its job," he added. Fisher is one of the new
hawks who have rotated to become a voting member of the FOMC this year
making his comments regarding the asset hold curriculum of particular

*EUR –* The euro, having breached resistance at its February peak of
$1.3862, has jumped to a four-month high, beginning the week above
$1.40. The go comes as expectations grow that the ECB will hike
interest rates as soon as next month. ECB President Trichet told
reporters that rates may rise in April as the central bank looks to
slow inflation, which has now outpaced the Bank's 2% target for
several months. But, the single currency met resistance after Friday's
downgrade of Spain's sovereign debt by Fitch's rating agency and an
overnight downgrade of Greece by Temperamental's. While expectations
of higher rates will provide significant support for the ordinary
currency in the near term, continued concerns over Eurozone debt will
likely keep the EUR relegated to its recent ranges, albeit towards the

*GBP –* Last week Sterling traded in a tight one cent band against
the USD as the currency appears to be catching its breath following
the recent go higher. The BoE is widely expected to keep rates steady
at its meeting on Thursday. Sentiment still remains that they will
have to increase rates sometime this year as inflation is running at
double the BoE's target of 2.0%. With oil prices spiking higher,
U.K. manufacturers have said they plot to bring to somebody's
attention prices to help defray their higher manufacturing costs. This
will place additional difficulty on inflation – and thus lends
support to the GBP.

*JPY –* The Yen is strong today, but in line with most of the
non‐USD majors. In the midst of a donation scandal, Japan's
foreign minister, Seiji Maehara has resigned, but there has been
essentially no currency result. Data today included a strong
coincident index, which rose to 106.2 and the leading index, which
disappointed expectations, but still rose to 101.9. The key driver of
the USDJPY pair remains interest rate differentials between the US and
Japan, and risk aversion. Once we are through the first quarter,
USDJPY will likely drift higher for the remainder of the year.

*CAD –* The CAD starts the week near a three-month high as the price
of oil surged to nearly $107/bbl.
Crude, Canada's primary export, rose to a 29-month high as
increasing violence in Libya has raised concerns that global supply
disruptions may increase. While energy prices will be the primary
market driver this week, investors will take note of several key
Canadian economic releases, counting housing starts, international
merchandise trade, and an employment report. While the Canadian
economy is facing a potentially hard road ahead with a strong currency
making the nation's goods and air force relatively more expensive,
rapidly rising energy prices will keep the loonie well supported in
the near term.

*MXN –* The Mexican peso rose nearly 1% against the greenback last
week when crude oil, the nation's following largest export rose to a
yearly high. Internally, Mexico left its benchmark overnight lending
rate at a confirmation low of 4.5%, but the central bank changed the
tone of its policy in acknowledging increased risks to the inflation
outlook as a result of geopolitical tensions and weak crop growth due
to weather conditions. To curb peso gains, the central bank has been
buying as much as $600million monthly since March 2010, boosting
foreign reserves. In the near term, the peso should remain well
supported by the rising oil prices.

*AUD –* The AUD is modestly higher this morning as commodity
currencies have been broadly supported by rapidly rising energy and
precious metal prices. But, the AUD has been relegated to its recent
ranges as investors start to consider the effects that prolonged high
oil prices may have on global growth. The market will take note of
Australian employment and housing reports this week and trade weigh
and CPI data out of Plates, Australia's primary trade partner. While
rising commodities will provide support for the AUD in the near term,
high prices and a strong currency could ultimately weigh on the
export-driven Australian economy.

*Last Week's Currency Highs and Lows and Forecast*

*U.S. Economic Indicators*

Source: Fxstreet.com

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