Daily Forex Reporta - USD higher, consumer prices flat, continuing claims rise

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• USD: Higher, Greek fiscal worries and tensions with China over Yuan revaluation, Philly Fed rises
• JPY: Mixed, manufacturing sentiment improves, gains limited as US equities rally
• EUR: Lower, Greece may seek IMF aid as EU aid to Greece appears less likely
• GBP: Lower, February budget deficit smaller than expected, CBI orders decline
• CAD and AUD: AUD & CAD lower, Canadian net foreign investment flows rise

Overview  

The USD traded higher Thursday supported by concern about the Greek fiscal outlook and in reaction to increasing tensions between the US and China over the value of the Yuan. EUR was pressured by a Dow Jones report that Greece may seek IMF aid as aid from the EU seems less likely. Greek PM says it will give the EU one month to decide on an aid plan. US officials tell China that the value of the Yuan is a real concern. There is a movement in U.S. Congress to name China as a currency manipulator. Chinese officials continue to push back against pressure to revalue the Yuan and state that a rise in the Yuan would be a disaster for Chinese exports. US and Chinese rift over the Yuan dampens risk appetite and sparked selling of the commodity currencies. CAD outperformed supported by report of strong net foreign investment flows to Canada and diminished threat of BOC intervention. JPY traded higher in reaction to today’s drop in risk appetite and by report of improving manufacturing sentiment in Japan. GBP traded lower in reaction to a decline in UK CBI orders with downside limited by report of smaller than expected UK February budget deficit. Today’s US economic data was mixed with February CPI unchanged and jobless claims came in slightly higher than expected. Continuing claims unexpectedly rose by 12k. The US current account deficit widened by less than expected in the fourth quarter. LEI was reported a bit weaker than expected and the Philly Fed came in above expectation. Today’s US economic data points to a slow US recovery with low inflation and USD consolidated early gains.

Today’s US data:

February CPI was unchanged, a reading of 0.1% was expected. Initial jobless claims for the week ending 03/13 declined by 5k to 457k, a reading of 455k was expected. February LEI rose by 0.1%, a reading of 0.2% was expected.  March Philly Fed came in at 18.9, a reading of 18 was expected. US current account deficit widened to $115.59bln.

Upcoming US data:

No major US data is due for release Friday.

JPY
JPY traded mixed to higher supported by report of improving manufacturing sentiment in Japan and by gains in cross trade sparked by concern about the Greek fiscal outlook and growing rift between the US and China over the value of the Yuan. Japan’s March Reuters manufacturing index rose to its highest level since June of 2008. The rise in Japan’s manufacturing sentiment index follows recent economic data from Japan which suggests Japan’s economy is improving. JPY gained in cross trade versus the EUR supported by safe haven demand and in reaction to report that a rift over Greek aid between Germany and Greece has deepened. The Greek prime minister warns that the Greek debt may spiral higher because of rising costs to finance the debt. JPY traded higher versus the AUD with the AUD pressured by concern that the US rift with China over the Yuan value could increase the risk protectionism. Protectionism would add additional risk to the global recovery outlook. Wednesday the BOJ kept interest rates unchanged at 0.1% and announced a plan to double its lending program. The BOJ will expand its lending program to ¥20trln from ¥10trln announced in December. The vote to expand the BOJ’s lending operation was split with two board members opposing expansion of quantitative ease. The fact that the vote was split may reduce the risk of future BOJ monetary ease. Today’s report of stronger manufacturing sentiment from Japan will also reduce the risk of additional monetary ease from the BOJ. Diminished the BOJ ease speculation may be a modest positive for the JPY.

On March 19th January all industry activity will be released expected at 0.8% compared to -0.3% last month.

Key technical levels to watch in USD/JPY include support at 89.63 the March 9th low with resistance at 91.30 the February 23rd high.

EUR
EUR traded lower pressured by worries about the Greek fiscal outlook. It’s becoming less likely that the EU will agree to an aid package for Greece. European press reports that the rift between Germany and Greece has deepened and Greece may turn to the IMF for help. If Greece is forced to go to the IMF for aid it would generate concern that the EU does not have a plan to deal with sovereign debt risk in the other peripheral EU nations.  This means that the Greek fiscal crisis may turn into a contagion and spread to other parts of Europe. The Greek fiscal crisis is seen as a challenge to the unity of European Monetary Union and a possible threat to the EU economic recovery. EUR was also pressured by report of widening of the EU trade deficit. The January trade balance widened to -8.9bln a reading -4bln was expected. Concern about the Greek debt crisis impact on the EU economy is a major focus for EUR trade. New York University economist Roubini says that he sovereign debt crisis in Europe increases the risk of a double dip recession for the EU. The risk of weaker economic outlook in the EU will encourage the ECB to maintain steady rate policy and delay its exit strategy. The EUR may be vulnerable widening of yield and growth differential as the US recovery appears to be on track and the Fed is believed to be closer to a shift in monetary policy.

The technical outlook for the EUR is mixed as support holds above 1.3600. Expect EUR support at 1.3530 the March 5th low with resistance at 1.3740 the March18th high.

GBP
GBP traded lower but outperformed supported by report the UK February net government borrowing was less than expected. UK public borrowing rose by 12.4bln in February, a 14bln deficit was expected. Despite the fact that the February deficit was smaller than expected it still set a new record for UK monthly borrowing in February. Recent weakness of the GBP has partly reflected concern that rising UK budget deficit increases the risk that the UK could lose its AAA sovereign debt rating. GBP was pressured by report that January net lending to businesses declined by 6.5bln compared to 3.5bln in December and in reaction report that March CBI orders dropped to -37 from -36 last month. In addition, mortgage approvals in February declined to a nine-month low. The weak lending and mortgage approvals data and weaker CBI orders may encourage speculation that the BOE will be forced to expand quantitative ease to boost the UK economy. Recent weakness of the GBP has partly reflected BOE ease speculation. GBP experienced a sharp rally Wednesday sparked by report of a sharp drop in UK claimant count and in reaction to the BOE minutes for the March policy meeting which suggest that the BOE is becoming concerned with increasing inflation pressures in the UK. The claimant count report and BOE minutes dampened BOE ease speculation. In light of today’s weaker than expected UK data this BOE policy uncertainty may encourage new selling of the GBP.

The technical outlook for GBP is positive as GBP trades above 1.5300. Expect near-term support at 1.5209 the March 17th low with resistance at 1.5475 the February 23rd high.

CAD
CAD traded mixed initially supported by report of strong investment flows to Canada and in reaction to diminished threat of BOC intervention. January net investment flows to Canada were 11.83bln, a reading of 8bln was expected. Canada’s PM Harper downplayed recent strength of the CAD. His comments appear to reduce the risk that Canada is considering intervention to try to slow the rate of the CAD rally. Harper said that Canada is competitive with CAD at parity with the USD. CAD is consolidating near a two year high versus the USD supported by improving Canadian economic outlook and speculation that the BOC may hike interest rates ahead of the Fed. Canadian wholesale trade surged by 3%, a 0.5% rise was expected. The surge in wholesale trade follows yesterday’s release of strong Canadian manufacturing shipments and productivity data. Canada’s January manufacturing shipments surged by 2.4% and Q4 productivity increased by 1.4%. The stronger manufacturing shipments and productivity data follows last week’s report of better than expected employment growth in Canada. These reports may encourage speculation that the BOC will hike interest rates earlier than expected. CAD has been outperforming supported by last week’s decision by the BOC to maintain steady monetary policy and signal a shift in its policy bias. In the BOC policy statement the BOC dropped reference to inflation risks being to the downside. This has encouraged speculation that the BOC may hike interest rates sooner than the Fed. Today’s benign US CPI and as expected jobs data will encourage the Fed to continue to hold monetary policy steady as the US recovery appears to be weak. The BOC pledged to maintain low yields through June of 2010 provided inflation remains in check. This week’s main focus is the CPI report due for release Friday. A higher than expected inflation reading would fuel speculation of an earlier BOC rate hike.

On March 19th January retail sales will be released expected at 0.7% compared 0.4% last month along with February CPI. CPI is expected at 0.4% compared to 0.3%.

The technical outlook for CAD is positive as USD/CAD trades below 1.0200. Look for near-term support at 1.0071 the March17th low with resistance at 1.0334 the March 5th high.

AUD
AUD traded lower mainly pressured by selling in cross trade to the JPY. JPY was supported by repatriation flows  ahead of Japan’s fiscal year end on March 31st, stronger Japanese manufacturing sentiment and safe  haven demand sparked by a growing rift between the US and China over the value of the Yuan. As noted above, tensions between the US and China over the value of the Yuan have intensified. US officials believe that the Yuan is undervalued and that this undervaluation contributes to widening global trade imbalances. There is a movement in the U.S. Congress to label China as a currency manipulator. If the rift between the US and China over the Yuan escalates it could generate concern about trade protectionism and the outlook for the global recovery. Today’s Australian economic data was mixed with Q1 industrial trends reported up 6.3 points to 56.7 and February merchandise imports rose by 2%. The RBA confirmed that it sold A$424mln in February compared to A$295mln and January. AUD has held firm but remains reluctant to build on recent strength as uncertainty about the outlook for China’s economy and RBA policy limit demand. RBA watcher McCrann said that the odds slightly favor a RBA positive April. At the beginning of the month the RBA hiked interest rates 25bps to 4%. The RBA is expected to raise interest rates to 5% by the end of the year so a pause in April should not be a major deterrent to demand for the AUD. The trade will be closely monitoring developments in regard to the Yuan and China’s efforts to curb lending and slow growth.

The technical outlook for the AUD is positive as the AUD trades above 9200. Expect AUD support at 9175 the March 17th low with resistance at 9378 the November 17th high.

US Morning Notes - USD higher, Greece may seek IMF aid over Easter

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FX Highlights

• The USD is trading mixed to higher as concern over the Greek fiscal outlook re-emerged, Dow Jones reports that Greece may seek IMF aid as aid from the EU seems less likely, EUR trades lower pressured by Greek worries, GBP trades lower pressured by report of below forecast CBI manufacturing orders, JPY trades higher supported by a drop in risk appetite and report of improving manufacturing sentiment in Japan, commodity currencies pressured by intensifying rift between the US and China over the value of the Yuan, CAD outperforms supported by diminishing risk of BOC intervention as Canadian officials downplayed the impact of the CAD rally
• Focus turns to today’s release of US CPI, jobless claims, LEI and Philly Fed and Canada’s net foreign investment
• EU finance ministers say they have made no decisions on aid for Greece, Greece may seek aid from the IMF, rift with Germany deepens as Germany says Greece should turn to the IMF for help
• US officials tell China that the Yuan value is a real concern, Chinese officials say a rise in the Yuan would be a disaster for Chinese exports
• Japan’s Q1 manufacturing index rose to 4.3 Reuters March Tankan manufacturing index improved to its best level since June of 2008 at -8, an MOF official says that USD will likely remain the primary global reserve currency, JPY higher
• Australia’s Q1 industrial trends index rose 6.3 points to 56.7, February merchandise imports rose 2%, AUD lower
• EU January trade balance widened to -8.9bln, a reading of -4bln was expected, EUR lower
• UK February public-sector borrowing rose by less than expected 7.7bln, a reading of 11bln was expected, January net lending to businesses fell by 6.5bln, CBI orders drop to -37 from -36 last month, GBP lower
• Canada’s PM Harper downplays CAD strength, CAD higher
• MBA mortgage applications fell 1.9% last week, Citigroup downgraded the US financial sector to neutral from overweight
• US equity markets set to open lower, European equities 0.25% lower, Nikkei closed 103 points lower

Upcoming Events

• US - Thursday, February CPI will be released expected at 0.1% compared to 0.2% last month, along with initial jobless claims for week ending 03/13 expected at 455k compared to 462k last week, March Philly Fed expected at 18 compared to 17.6 last month and February LEI expected at 0.1% compared to 0.3% last month
• CAN - Thursday, January net foreign investment will be released expected at 8bln compared to 11.23bln last month

EU Morning Report - Euro falls as the EU lacks a clear support plan for Greece!

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Euro falls as the EU lacks a clear support plan for Greece!

•  Yesterday’s trading was mixed with the majors remaining in their defined trading ranges following the FOMC policy decision the previous day. The FOMC kept rates unchanged and left the ”extended period” rhetoric in the ensuing statements. US equities were positive yesterday closing 0.45% and 0.58% for the DJIA and the SP500. Producer Prices also fell yesterday by -0.6% for February. Crude Oil inventories also increased by 1 mln barrels indicating that supply is keeping up with demand and commodity prices remain stable for now. 2 year US Treasury yields traded between 0.93% and 0.90 % for the day and USDJPY traded down to 90.07 tracking the yields. USDJPY Price action was between 90.70 - 90.07.
•  In Europe the market is still focused on the political rhetoric surrounding the Greek issue. The European commission on the one hand is ready to propose a coordinated plan for next month and on the other hand Germany’s Angela Merkel saying that a member state could be forced out of the Euro zone as a last resort. The Greek Finance minister then says that ”there is a zero possibility of Greece leaving the Euro zone” however was complaining about the high borrowing cost Greece is currently faced with and that it does not help stability concerns. EURUSD price action yesterday was between 1.3818 - 1.3665.
•  In the UK we had the MPC minutes yesterday which saw a unanimous decision by its members to keep rates unchanged and Quantitative Easing unchanged as well. They also said that the spare capacity in the economy can help keep inflation subdued allowing for lack monetary policy conditions. Unemployment fell by 32.30K for the month of February indicating a pickup in employment. GBPUSD price action was between 1.5381 - 1.5208.
•  Today’s financial calendar will be a busy one with Public Sector Net borrowing and CBI orders out of the UK, CBI orders is expected to improve to -32 for the month of March. In the US we have the consumer price index report for February expected to come in at 0.1% and also initial jobless claims for the week expected to drop to 455K. Finally we have the Phili Fed manufacturing index expected to improve to 18 for the month of March.

 Currency to watch out for: EURUSD & USDJPY

• § The EURUSD pivot point is at 1.3750 with a preference to enter into short positions at 1.3740
• § The USDJPY pivot point is at 89.95 with a preference to enter long positions at 90.00

 Today’s calendar and market movers:

• § UK PSNB for February expected at $14.75 bln
• § US Consumer Price Index for February expected at 0.1%
• § Initial Jobless claims for the week expected at 455K
• § Philadelphia fed manufacturing for March expected at 18

 Equity Markets:

•  US equities closed positive yesterday with the DJIA and the SP500 closing 0.45% and 0.58% respectively.  The European bourses were positive yesterday with the FTSE up 0.43% the DAX and the CAC closing positive at 0.89% and 0.48% respectively. The NIKKEI and the HSI at the time of writing is -0.95% and -0.22% respectively.

Daily Forex Outlook - Markets Rally Across the Globe

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CURRENCY TRADING SUMMARY - 18th March (00:30GMT)

U.S. Dollar Trading (USD) had a mixed day losing ground against the Risk currencies but holding its own against the two biggest currency pairs the Euro and the Yen. February PPI dropped -0.6%m/m it’s biggest drop in 7 months as energy costs fell. In US stocks, DJIA +47 points closing at 10733, S&P +6 points closing at 1166 and NASDAQ +11 points closing at 2389. Looking ahead, February CPI forecast at 0.1% vs. -0.1% m/m. Also released, Weekly Jobless Claims are forecast at 455k vs. 462k previously.

The Euro (EUR) failed above 1.3800 and pulled back for the rest of the day as profit tacking on EUR/JPY weighed. EUR/JPY tested Y125 but this proved too much for the single currency as the recent run up has been fairly quick. Attention remains on Germany’s internal debates concerning the bailout of Greece. Overall the EUR/USD traded with a low of 1.3638 and a high of 1.3725 before closing at 1.3819. Looking ahead, January Current Account.

The Japanese Yen (JPY) had a knee jerk reaction to the BOJ meeting as the expansion of special funding by 10Trn as widely expected but was voted for by only a 5-2 majority. Yen strength was short lived however as the risk environment trumped and stocks around the globe enjoyed solid gains. AUD/JPY and GBP/JPY led the crosses higher. Overall the USDJPY traded with a low of 90.01 and a high of 90.74 before closing the day around 90.30 in the New York session.

The Sterling (GBP) popped above resistance at 1.5270 as Jobs data beat expectations. February Unemployment fell 32k vs. a rise of 8k forecast. GBP/JPY rallied to Y139 briefly and EUR/GBP crashed through the Key 0.9000 level. Overall the GBP/USD traded with a low of 1.5207 and a high of 1.5385 before closing the day at 1.5340 in the New York session. Looking ahead, Public Debt forecast at 14bn vs. 4bn previously.

The Australian Dollar (AUD) finally broke above resistance at 0.9200 as AUD/JPY buying propelled the pair higher in Europe. Weak Gold and Euro capped gains. Earlier in the Day Assistant RBA Governor Debelle stated that further interest rates hikes were on the way. Overall the AUD/USD traded with a low of 0.9172 and a high of 0.9254 before closing the US session at 0.9230.

Oil & Gold (XAU) failed above $1130 and fell back to lower $1120’s support. Overall trading with a low of USD$1118 and high of USD$11 before ending the New York session at USD$1127 an ounce. Continued to be well supported by the strong risk appetite. Crude Oil was down $1.20 ending the New York session at $82.90.

TECHNICAL COMMENTARY

Euro - 1.3720

Initial support at 1.3640 (Mar 15 low) followed by 1.3621 (Mar 11 low). Initial resistance is now located at 1.3839 (Feb 9 high) followed by 1.3903 (Feb 4 high)

Yen - 90.35

Initial support is located at 89.99 (Mar 16 low) followed by 89.63 (Mar 9 low). Initial resistance is now at 90.74 (Mar 16 high) followed by 91.09 (Mar 12 high).

Pound - 1.5310

Initial support at 1.4979 (Mar 16 low) followed by 1.4855 (Mar 2 low). Initial resistance is now at 1.5422 (Feb 25 high) followed by 1.5477 (Feb 24 low).

Australian Dollar - 0.9220

Initial support at 0.9096 (Mar 15 low) followed by the 0.9056 (Mar 4 low). Initial resistance is now at 0.9252 (Mar 17 high) followed by 0.9280 (Jan 18 high).

Gold - 1122

Initial support at 1108 (Mar 16 low) followed by 1094 (0.5 of 1044.85-1144.98). Initial resistance is now at 1137 (Mar 8 high) followed by 1161 (Jan 11 high).

Oil - 82.60

Initial support at 80.00 (Intraday Support) followed by 78.00 (Intraday Support). Initial resistance is now at 83.20 (Intraday Resistance) followed by 85.00 (March High).

Special FX Report - Sustainable recovery or double dip?

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The Fed’s decision Wednesday to keep monetary policy steady and maintain the language in its policy statement that interest rates will remain low for an extended period was widely expected. The Fed’s decision to make no change in the extended period language in the policy statement suggests that the Fed still does not see the US recovery self-sustaining and that the US economy requires continued Fed support. In its policy statement however the Fed did change its language about the strength of the US economy and the labor market and said equipment and software spending increased significantly. The Fed says the US economy continues to strengthen and the labor market has stabilized. This language is a bit more upbeat than the prior policy statement and may encourage analysts to look for the Fed to drop the extended period language possibly as soon as April policy meeting. Dropping the extended period language would set the stage for future Fed rate hikes and the end of easy money. Much of the recent recovery of the US economy has been attributed to fiscal and monetary stimulus. Fiscal stimulus is expected to diminish into year end and a shift in Fed policy may emerge in Q4 2010.

The debate continues over whether the US is on a sustainable recovery path and what the shape of that recovery may be, V-shaped or U-shaped. In the V-shaped camp are economists Brian Wesbury and Robert Stein. These economists see strong consumption in February despite the blizzards, a bottom in the housing market, increased business investment and a shrinking trade deficit which they think points to V-shaped recovery for the US economy. In the U-shaped recovery camp is New York University economist Roubini. Roubini says that recent US economic data has been weak. Consumer confidence, home sales, construction and employment have been coming in weaker than expected. He also says the real disposable income was negative in January and the expansion in manufacturing PMI has lost momentum. According to Roubini this data suggests that there are downside risks to the already anemic levels of growth in the US economy and challenges in the second half of the year include the removal of fiscal stimulus and tightening of Fed policy which will increase the risk of a double dip recession.

The timing of withdrawal of stimulus remains the key to whether the US experiences a V-shaped or U-shaped recovery. The Fed’s March policy statement confirms that there was one dissenter to maintaining the extended period language. That dissenter was Hoenig. Hoenig said that low rates for extended period is no longer warranted. His main concern is the massive expansion of the Fed’s balance sheet raises the risk of inflation if the Fed does not begin to withdraw liquidity. Hoenig’s dissent may bring the Fed closer to a decision to withdraw stimulus and tighten monetary policy. In the Mach policy statement the Fed said the housing market remains weak. Nobel laureate Joseph Stiglitz says that the Fed’s decision to allow the mortgage purchase programs to end this month could contribute to a worsening of the US housing market crisis. According to Stiglitz the Fed has misjudged things and he sees the main danger to the US and global recovery a too quick exit of monetary stimulus by central banks sparked by an irrational fear of inflation risk. He went on to note that China is taking action to tighten monetary conditions try to prevent asset bubbles. Tightening in China means that the global economy will unlikely return to robust growth anytime soon. Stiglitz says that double dip recessions tend to be rare but he sees a significant risk of a slowdown in global growth and that the US economy will likely see growth weakening at the end of the year. If the Fed tightens policy too soon it may tip the scales in the direction of the double dip recession. Based on the strength of global equity markets which are trading at a 19 month high and the Fed policy statement it appears that economic optimism trumps fear the economy will relapse.

Daily Forex Report - USD lower, inflation subdued

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• USD: Lower, PPI falls the most in seven months, steady Fed policy
• JPY: Lower, BOJ expands quantitative ease and raised its lending auctions to ¥20trln
• EUR: Lower, annual rate of labor cost rise the slowest in four years
• GBP: Higher, UK claimant count posts biggest drop in 13 years, BOE minutes note increased inflation risk
• CAD and AUD: AUD & CAD higher, strong Australian housing data, easy money from the Fed and BOJ

Overview  
The USD traded mostly lower Thursday pressured by the Fed’s decision to hold monetary policy steady and signal that interest rates will remain low for an extended period. GBP surged in reaction to report that UK jobless claims declined the most in 13 years. GBP was also supported by the minutes from the BOE’s March policy meeting which state that the central bank is growing more concerned about inflation risk. EUR traded lower  with gains limited by report of slowing rise of labor costs in the EU and selling pressure in cross to the GBP. The commodity currencies traded higher in reaction to firmer equity market trade with the AUD supported by hawkish comments from the RBA’s Debelle and strong Australian housing. Debelle said rates may have to rise a bit more. CAD was supported by report of a surge in Canada’s whole sale trade. JPY traded lower in reaction to the BOJ’s decision to expand quantitative ease from ¥10trln to ¥20trln. Today’s US economic data was mixed with PPI posting a bigger than expected decline. The PPI report supports the Feds forecast that US inflation pressures will likely remain subdued. With the US economic recovery uneven and inflation subdued the Fed will be in no hurry to tighten monetary policy. Focus turns to Thursday’s release of US CPI.

Today’s US data:
February PPI declined by 0.6%, reading of -0.2% was expected. PPI posted its biggest decline since July of 2009. Core PPI rose by 0.1% compared to 0.3% in January.

Upcoming US data:
On March 18th February CPI will be released expected at 0.1% compared to 0.2% last month. Q4 current account, initial jobless claims for week ending 03/13, leading indicators for February and March Philly Fed will also be released on March 18th. The current account is expected at -120bln compared to -108bln last quarter. Initial claims are expected at 457k compared to 462k last week. Leading indicators are expected to rise by 0.2% compared to 0.3% last month. Philly Fed is expected at 18 compared to 17.6 last month.

JPY
JPY traded lower pressured by BOJ ease, improving risk for sentiment as equity markets rally and by selling in cross trade to the GBP and AUD. The BOJ kept interest rates unchanged at 0.1% and announced a plan to double its lending program. The BOJ will expand its lending program to ¥20trln from ¥10trln announced in December. The vote to expand the BOJ’s lending operation was split with two board members opposing expansion of quantitative ease. The fact that the vote was split may reduce the risk of future BOJ monetary ease. Prior to the BOJ policy announcement there had been debate over whether the BOJ would initiate policy action to target the JPY. BOJ Governor Shirakawa says that the latest policy by the BOJ is not directed at Forex. It’s unclear whether today’s action by the BOJ will slow deflationary pressures in Japan. The BOJ did not announce a plan to buy Japanese government bonds. Increased purchase of Japanese government bonds by the BOJ would likely spark more significant selling pressure of the JPY and would be seen as a more aggressive ease. Today’s BOJ policy decision to expand its lending auctions may not be enough to get the Japanese government to back off on BOJ pressure to do more to combat deflation and weaken the JPY. GBP surged in cross to the JPY with GBP supported by report of a sharp drop in UK claimant count. AUD rallied in cross trade to the JPY supported by RBA rate hike speculation as the RBA’s Debelle says that rates may need to rise a bit more. The only economic data released from Japan today was report that January tertiary index rose by 2.9%.

On March 18th January revised leading indicators will be released expected at 2.5% compared to 3.8% in the original report. On March 19th January all industry activity will be released expected at 0.8% compared to -0.3% last month.

Key technical levels to watch in USD/JPY include support at 89.99 the March 16th low with resistance at 91.30 the February 23rd high.

EUR
EUR drifted lower in reaction to report of weaker EU labor costs and selling in cross trade to the GBP. EU Q4 labor costs rose at the slowest annual rate in four years. Lack of wage pressure in the EU points to continued subdued inflation risk. Low inflation will likely encourage the ECB to maintain steady rate policy. EUR selling in cross trade to the GBP is attributed to report of a sharp improvement in UK employment outlook. EUR was also pressured by the uncertain outlook for Greek fiscal debt. Tuesday Standard & Poor’s took Greece off its sovereign debt negative watch but there is concern Greece may not follow through on its deficit reduction. EUR failed to find much support from Tuesday’s decision by the Fed to maintain steady rate policy and there was little reaction to today’s report of a sharp drop in US February PPI. There is an interesting report on Bloomberg report which states that UBS expects the EUR to drop to 1.3000 to the USD in the next three months pressured by the divergence in Fed and ECB policy outlook. According to UBS the Fed is expected to soon gradually begin raising interest rates and the ECB is not expected to raise rates until it the earliest the end of Q4.

On March 18th EU January current account will be released expected at 9.1bln compared to 9.4mln last month. EU January foreign trade will also be released on March 18th expected at 3.8bln compared to 4.4bln last month.

The technical outlook for the EUR is mixed as support holds above 1.3600. Expect EUR support at 1.3717 the March 16th low with resistance at 1.3818 the March 17th high.

GBP
GBP traded higher supported by report that UK claimant count posted its biggest monthly decline in 13 years. UK February claimant count declined by 32,300. This was the largest decline since November of 1997 and the report suggests that the UK labor market outlook has improved. GBP was also supported by the release of the BOE minutes for the March policy meeting. The BOE minutes state that the board voted 9 to 0 in favor of leaving rates and quantitative ease unchanged. The minutes also indicate that the board members are becoming more concerned about rising inflation risk in the UK. BOE focus on inflation risk may reduce the risk the BOE will expand quantitative ease. Sentiment towards the GBP remains extremely negative because of UK election uncertainty, and concern about UK debt. There has been substantial buildup of short positions in the GBP. The combination of today’s better than expected UK employment report, BOE minutes and the most recent UK election polls which suggest the Conservatives could gain a majority in parliament sparked short covering of the GBP. GBP may extend today’s rally supported by diminished speculation that the BOE will expand quantitative ease. Focus turns to tomorrow’s release of UK net borrowing report.

On March 18th February money supply and public-sector borrowing will be released. Money supply is expected at 0.8% compared to 0.6% last month. Net public-sector borrowing is expected at -13bln compared to -11.7bln last month. Also on March 18th March CBI orders will be released expected at -34 compared to -36 last month.

The technical outlook for GBP is positive as GBP trades above 1.5300. Expect near-term support at 1.5209 the March 17th low with resistance at 1.5475 the February 23rd high.

CAD
CAD traded higher supported by the Fed’s decision to maintain steady rate policy, stronger equity and commodity markets and report of better than expected Canadian wholesale trade. CAD is trading at a 28 month high versus the USD supported by improving Canadian economic outlook and speculation that the BOC may hike interest rates ahead of the Fed. Canadian wholesale trade surged by 3%, a 0.5% rise was expected. The surge in wholesale trade follows yesterday’s release of strong Canadian manufacturing shipments and productivity data. Canada’s January manufacturing shipments surged by 2.4% and Q4 productivity increased by 1.4%. The stronger manufacturing shipments and productivity data follows last week’s report of better than expected employment growth in Canada. These reports may encourage speculation that the BOC will hike interest rates earlier than expected. CAD has been outperforming supported by last week’s decision by the BOC to maintain steady monetary policy and signal a shift in its policy bias. In the BOC policy statement the BOC dropped reference to inflation risks being to the downside. This has encouraged speculation that the BOC may hike interest rates sooner than the Fed. The BOC pledged to maintain low yields through June of 2010 provided inflation remains in check. This week’s main focus is the CPI report due for release Friday.

On March 18th January net foreign investment will be released expected at 8bln compared to 11.2bln last month. On March 19th January retail sales will be released expected at 0.7% compared to 0.4% last month along with February CPI. CPI is expected at 0.4% compared to 0.3%.

The technical outlook for CAD is positive as USD/CAD trades below 1.0200. Look for near-term support at 1.0000 with resistance at 1.0334 the March 5th high.

AUD
AUD traded higher supported by hawkish comments from the RBA’s Debelle and strong Australian housing data. Debelle said that interest rates may need to rise a bit more and that the RBA is monitoring house prices. AUD is supported by RBA rate hike speculation. The AUD rallied despite a statement from RBA watcher McCrann that the odds slightly favor a RBA positive April. At the beginning of the month the RBA hiked interest rates 25bps to 4%.  The RBA is expected to raise interest rates to 5% by the end of the year so a pause in April should not be a major deterrent to demand for the AUD. Australia’s Q4 dwelling unit starts rose 15.1%, a 0.6% rise was expected. The jump in the dwelling unit starts suggests that the Australian housing market is strong. Westpac leading index was also strong with the coincident index rising at its fastest pace since July of 2007. AUD was also supported by the BOJ’s decision to expand quantitative ease. This sparked demand for the AUD in cross trade from to the JPY. Wednesday’s decision by the Fed to hold rate policy steady ads to today’s AUD rally as yield differential remains in favor of the AUD. The World Bank raised its forecast for China’s 2010 GDP to 9.5% from 8.7% and its inflation forecast of 3.7% from 2%. The World Bank encourages China to revalue the Yuan. Continued strong growth outlook in China is a positive for the AUD. The outlook for RBA policy will be key to the direction of the AUD.

The technical outlook for the AUD is positive as the AUD trades above 9200. Expect AUD support at 9175 the March 17th low with resistance at 9378 the November 17th high.

US Morning Notes - USD lower, GBP rallies as UK labor market improves

Posted by admin as Forex News

FX Highlights

• The USD and JPY are trading lower with the USD pressured by the Fed’s decision to maintain low interest rates for an extended period and JPY pressured by the BOJ’s decision to expand quantitative ease, GBP rallies in reaction to report an unexpected drop in UK jobless claims, EUR gains limited by report of slowing EU labor costs, commodity currencies rally supported by steady Fed policy decision and in cross trade to the JPY in reaction to BOJ ease, AUD supported by hawkish comments from the RBA’s Debble and strong housing data
• Focus turns to today’s release of US PPI and Canada’s wholesale trade
• The Fed kept exceptionally low language for an extended period in its March policy statement, the Fed said that the economic activity continued to strengthen and the labor market is stabilizing, inflation to remain subdued and policy tools will be used to promote recovery, the vote was 9-1 to keep policy unchanged with Hoenig the lone dissenter, Hoenig said low rates for an extend period is no longer warranted
• BOJ raised quantitative ease to ¥20trln and left monetary policy and its economic assessment unchanged, BOJ’s Shirakawa says the latest policy move by the BOJ is not directed at Forex, Japan’s January tertiary industry index rose by 2.9%, JPY lower
• Australia’s Q4 dwelling unit starts rose by 15.1%, RBA watcher of McCrann says odds slightly favor RBA pause in April, RBA’s Debble said interest rates may need to rise a bit more, AUD higher
• UK February claimant count declined by 32,300, this was the biggest monthly drop in UK jobless claims in 13 years, BOE minutes show the MPC voted 9 to 0 in favor of leaving rates and quantitative ease unchanged in March, GBP higher
• EU Q4 labor costs rose 2.2%, this marked the slowest rate of labor cost rise in four years, EUR higher
• According to Lender Processing Services US mortgage delinquencies hit a record high 7.4mln with 10% of all US mortgages are delinquent
• IMF chief says the Yuan is undervalued, pressure builds in the US Congress to label China as a currency manipulator
• US equity markets set to open higher, European equities 0.5% higher, Nikkei closed 125 points higher

Upcoming Events

• US - Wednesday, February PPI will be released expected at -0.2% compared to 1.4% last month
• CAN - Wednesday, January wholesale trade will be released expected at 0.5% compared to 0.7% last month

Daily Forex Outlook - US Rates Remain Low for an ‘Extended Period’

Posted by admin as Forex News

CURRENCY TRADING SUMMARY - 17th March (00:30GMT)

U.S. Dollar Trading (USD) was on the back foot as the FED held rates at 0.25% and included the statement ‘extended period’ for holding rate lows. The stock market reacted positively to the low rate environment and commodities rallied in anticipation of economic expansion. In US stocks, DJIA +45 points closing at 10685, S&P +8 points closing at 1159 and NASDAQ +15 points closing at 2378. Looking ahead, February PPI Core Output forecast at 0.1% vs. 0.3%.

The Euro (EUR) was already well supported before the FOMC announcement with the S&P affirming its current rating on the back of EU Financial Ministers general agreement to support Greece. German ZEW fell to 44.5 vs. 43.7 forecast in March and this helped underpin the move above 1.3700. Overall the EUR/USD traded with a low of 1.3638 and a high of 1.3776 before closing at 1.3780. Looking ahead, Q4 Labor costs previously at 3.2% Q/Q. Also, BUBA President Weber Speaks.

The Japanese Yen (JPY) was stronger on weak USD/JPY in Asia before staging a major reversal of fortune in the European session. GBP/JPY put on 2 Yen and EUR/JPY reclaimed the Y124 level as global stocks pushed to fresh highs. Overall the USDJPY traded with a low of 89.97 and a high of 90.76 before closing the day around 90.30 in the New York session. Looking ahead, BOJ Decision Today.

The Sterling (GBP) tested 1.5000 but the level held and the market rallied hard for the rest of the day on massive short covering and weak USD. GBP/JPY buying was noted in Europe along with central bank bids at the lows. Overall the GBP/USD traded with a low of 1.4975 and a high of 1.5262 before closing the day at 1.5230 in the New York session. Looking ahead, February Claimant Count forecast at 8k vs. 23.5k previously.

The Australian Dollar (AUD) tracked stocks and commodities higher to break above resistance at 0.9200 and trade at 2 month highs. March RBA minutes talked of gradual rate rises ahead but the market is still bullish on general strength of the Australian economy. AUD/NZD reversed from above 1.3000 to test 1.2900 as the NZD/USD surged. Overall the AUD/USD traded with a low of 0.9118 and a high of 0.9219 before closing the US session at 0.9200. Looking ahead, Assistant RBA Governor Debelle speaks.

Oil & Gold (XAU) broke above the recent downwards trend line to rally $20 on the weaker USD. Overall trading with a low of USD$1107 and high of USD$1129 before ending the New York session at USD$1127 an ounce. Rallied $2 a barrel on expectations of strong demand. Crude Oil was down $1.90 ending the New York session at $81.70.

TECHNICAL COMMENTARY

Euro - 1.3765

Initial support at 1.3640 (Mar 15 low) followed by 1.3621 (Mar 11 low). Initial resistance is now located at 1.3796 (Mar 12 high) followed by 1.3839 (Feb 9 high)

Yen - 90.35

Initial support is located at 89.99 (Mar 16 low) followed by 89.63 (Mar 9 low). Initial resistance is now at 91.09 (Mar 12 high) followed by 91.29 (Feb 23 high).

Pound - 1.5235

Initial support at 1.4947 (Mar 11 low) followed by 1.4873 (Mar 10 low). Initial resistance is now at 1.5259 (Mar 16 high) followed by 1.5317 (Feb 26 low).

Australian Dollar - 0.9190

Initial support at 0.9096 (Mar 15 low) followed by the 0.9056 (Mar 4 low). Initial resistance is now at 0.9243 (Jan 20 high) followed by 0.9280 (Jan 18 high).

Gold - 1127

Initial support at 1098 (Mar 12 low) followed by 1094 (0.5 of 1044.85-1144.98). Initial resistance is now at 1144 (Mar 3 high) followed by 1161 (Jan 11 high).

Oil - 82.10

Initial support at 80.00 (Intraday Support) followed by 78.00 (Intraday Support). Initial resistance is now at 83.20 (Intraday Resistance) followed by 85.00 (March High).

Special FX Report - BOJ may ease policy Wednesday

Posted by admin as Forex News

The Bank of Japan (BOJ) will complete a two day policy meeting on March 17th. The BOJ has been under significant pressure from the Japanese government to take action to combat deflation and boost the Japanese economy. Japan’s consumer prices declined for the 10th month in a row in December with CPI declining by 1.3%. The CPI report confirms that deflationary pressures continue in Japan. Recent Japanese economic data has been mixed but generally points towards improvement in the economy. Exports rose more than expected in January reported up 40.9%. This marks the third biggest monthly gain in Japanese exports on record. Imports rose for the first time in 15 months reported up 8.6% in January. Japan’s industrial production rose by 18.5% in January. Machine tool orders rose at a record pace last month. Japan’s unemployment rate posted a modest decline to 5.1% in December from 5.2% in November. Consumer confidence and business confidence posted a slight improvement in January. Japan’s Q4 GDP however grew at a slower annual rate reported at 3.8% compared to 4.6% in the preliminary report. In February the BOJ elected to hold monetary policy unchanged, said that the economy is picking up and that the pace of improvement in the economy is likely to remain moderate until the middle of fiscal 2010.

The BOJ policy decision is close call with BOJ members divided over whether additional easing is justified in light of the recent uptick in Japanese economic activity. The BOJ could expand its lending auctions, elect to buy more government bonds, focus on intervention or do nothing at Wednesday’s policy meeting. After an emergency meeting in December the BOJ elected to expand its liquidity auctions by ¥10trln offering loans to commercial banks at 0.1%. Japanese press reports that the BOJ may elect to expand its liquidity measures to ¥20trln at this week’s policy meeting. Some of the BOJ board members question whether further ease will do much to combat deflation or boost the economy and the BOJ may want to focus on actions that would weaken the value of the JPY. The BOJ could buy more government bonds or intervene to try to weaken JPY. There were reports in the Nikkei Tuesday that the Japanese government may be considering tapping FX reserves to increase spending. Japan’s Finance Minister Kan denied these reports but if the Japanese government were to tap FX reserves to increase spending it would increase the risk of a downgrade of Japan’s sovereign debt rating. Depleting the reserves would make physical interventions more difficult. BOJ officials may be reluctant to expand quantitative ease by buying bonds in light of the uncertainty about the Japanese government spending plans and because of the current improvement in Japan’s economy. If the BOJ elects to expand its liquidity operations the JPY would likely experience short-term selling pressure. If the BOJ elects to buy government bonds it essentially would be printing money and JPY could experience a more significant decline.

Last Friday, Japan’s PM Hatoyama warned that Japan was ready to act if the JPY moved sharply and he called for international cooperation to contain JPY appreciation. Hatoyama’s comments increase the risk of intervention to try and weaken the JPY. A strong JPY tightens monetary conditions and contributes to deflationary pressures. As noted above the BOJ upgraded its outlook for the Japanese economy which makes a monetary policy ease less likely.  In response to Japanese government pressure on the BOJ to combat deflation the BOJ policy decision may be more targeted at the JPY than the Japanese economy. Best guess is that the BOJ may elect to leave monetary policy unchanged and look to the April meeting for its next policy change with a greater focus on targeting JPY strength. Market consensus is the BOJ will likely elect to expand its funding auctions but stop short of announcing a plan to buy Japanese government bonds.

Daily Forex Report - USD lower, housing starts and import prices drop

Posted by admin as Forex News

• USD: Lower, housing starts, building permits and import prices decline, stocks and commodity prices rally
• JPY: Lower, BOJ ease speculation, report Japan may tap FX reserves to support government spending
• EUR: Higher, EU ministers agree on the Greek aid plan, German economic sentiment beat forecast
• GBP: Higher, house prices rise, election polls suggest Conservatives will win a small majority in parliament
• CAD and AUD: AUD & CAD higher, RBA rate hikes to be gradual, strong Canadian mfg. shipments

Overview  
The USD started out higher in overseas trade supported by report that over 100 US members of Congress want China to be named as a currency manipulator. The USD traded lower in the US trading session pressured by report that the EU ministers have a plan to aid Greece if needed and in reaction to report of better than expected German economic sentiment and UK election polls which suggest the Conservatives will win a small parliamentary majority. Commodity currencies edged higher supported by firmer equity market trade and a rally in commodity prices. AUD gains were partly limited by the release of March RBA policy minutes which read a bit dovish. CAD was supported by a statement from Canada’s Finance Minister Flaherty that the CAD was competitive at parity with the USD and in reaction to report of strong Canadian manufacturing shipments and productivity. JPY traded lower pressured by BOJ ease speculation and a Nikkei report which says that the Japanese government may tap FX reserves to boost spending plans. Japan’s Finance Minister Kan denied the Nikkei report Nikkei report but JPY remains on the defensive. US economic data was mixed with housing starts and building permits coming in lower but close to expectations. Import prices dropped by less than expected. The trade awaits today’s FOMC policy statement. The FOMC is expected to reaffirm its commitment to low yields for an extended period. Investors will be monitoring whether there is any change in the FOMC policy language and the Feds assessment of the strength of the US recovery.

Today’s US data:
February housing starts declined by 5.9% to 575k, a reading of 580k was expected. February building permits declined by 1.6% to 612k, a reading of 610k was expected. Q4 import prices declined by 0.3%, a reading of -0.4% was expected.

Upcoming US data:
On March 17th February PPI will be released expected at -0.2% compared to 1.4% last month. On March 18th February CPI will be released expected at 0.1% compared to 0.2% last month. Q4 current account, initial jobless claims for week ending 03/13, leading indicators for February and March Philly Fed will also be released on March 18th. The current account is expected at -120bln compared to -108bln last quarter. Initial claims are expected at 457k compared to 462k last week. Leading indicators are expected to rise by 0.2% compared to 0.3% last month. Philly Fed is expected at 18 compared to 17.6 last month.

JPY
JPY traded lower pressured by BOJ ease speculation and a Nikkei report which suggests that Japan may tap its FX reserves to fund government spending programs. The BOJ will complete a two-day policy meeting Wednesday. The BOJ has been under significant pressure from the Japanese government to take additional action to combat deflation and weaken the JPY. The BOJ policy decision is close call with BOJ members divided over whether additional easing is justified in light of the recent uptick in Japanese economic activity. Market consensus is the BOJ will likely elect to expand its funding auctions but stop short of announcing a plan to buy Japanese government bonds. Japan’s Finance Minister Kan denied the Nikkei report and said that Japan has no plans to use its FX reserves to boost government spending. Ratings agencies have warned that if Japan continues to expand spending the Japanese sovereign debt rating may be downgraded. Tapping FX reserves to boost spending could result in Japan’s sovereign debt rating being cut and would also make it more difficult for Japan to intervene to try to weaken the JPY. Focus turns to the BOJ policy meeting on March 16th and 17th.

This week’s Japanese economic calendar includes the March 17th release of January tertiary activity expected at 0.4% compared to -0.9% last month. On March 18th January revised leading indicators will be released expected at 2.5% compared to 3.8% in the original report. On March 19th January all industry activity will be released expected at 0.8% compared to -0.3% last month.

Key technical levels to watch in USD/JPY include support at 89.99 the March 16th low with resistance at 91.30 the February 23rd high.

EUR
EUR traded higher supported by report that the EU ministers have agreed on a plan to aid Greece if necessary and in reaction to higher than expected EU inflation and better than expected German economic sentiment. EU ministers gave few details of the plan to aid Greece but indicated that there would be no loan guarantees and that no further aid was required at this time. According to a Bloomberg report the EU ministers agreed to pool government funds to extend direct loans if needed for Greece but did not specify which countries would offer loans, how long the loans would be and what they would cost. European equities rallied after the news of the Greek aid plan and this sparked support for the EUR. EU February inflation rose by 0.3% and the German March ZEW economic sentiment fell less than expected reported at 44.5, a reading of 43.7 was expected. The slightly better than expected reading on the German ZEW index is unlikely to change the outlook for steady ECB policy. EUR consolidated early gains after the release of US housing starts and building permits as these reports came in close to market expectation. EUR traded to the day’s highs in reaction to report that S&P affirmed its Greek debt rating. The trade awaits this afternoon’s Fed policy announcement.

On March 17th EU Q4 labor costs and wages will be released expected at 3.3% and 3% respectively. On March 18th EU January current account will be released expected at 9.1bln compared to 9.4mln last month. EU January foreign trade will also be released on March 18th expected at 3.8bln compared to 4.4bln last month.

The technical outlook for the EUR is mixed as support holds above 1.3600. Expect EUR support at 1.3620 the March 11th low with resistance at 1.3796 the March12th high.

GBP
GBP traded higher supported by report of rising UK house prices and the latest UK election polls which suggest that the Conservatives may gain a small majority in parliament. UK January house prices rose by 6.2%. The rise in UK house prices may dampen speculation that the BOE will be forced to expand quantitative ease. The UK is expected to hold a general election on May 6th. The election is seen as key the outlook for the UK budget deficit and the governments AAA sovereign debt rating. Recent UK election polls have suggested that the election would end in no party gaining a significant majority in parliament. The lack of a parliamentary majority would likely limit the scope of UK budget deficit reform. An election poll in today’s Daily Express suggests that the Conservatives may win a 40 seat majority in the UK general election. The Conservatives have stated that they plan to take action to reduce the UK deficit. If the Conservatives do gain a strong majority in parliament it could reduce fears about the UK sovereign debt rating. GBP has been underperforming because of concern about the UK economy and election uncertainty. Focus turns to Wednesday’s release of the BOE policy minutes for the March policy meeting. The trade will be looking at the minutes for clues to whether the BOE is considering a change in its asset purchases and expand quantitative ease.

This week’s UK economic calendar includes the March 17th release of January unemployment weekly earnings and the February claimant count. Unemployment is expected at 7.9% compared to 7.8% last month with the average earnings unchanged at 0.8% and claimant count at 27k compared 23.5k last month. BOE policy minutes will be released on Wednesday. On March 18th February money supply and public-sector borrowing will be released. Money supply is expected at 0.8% compared 0.6% last month. Net public-sector borrowing is expected at -13bln compared to -11.7bln last month. Also on March 18th March CBI orders will be released expected at -34 compared to -36 last month.

The technical outlook for GBP is mixed as GBP holds above 1.5000. Expect near-term support at 1.4947 the March 11th low with resistance at 1.5218 the March 15th high.

CAD
CAD traded near a two year high versus the USD supported by improving risk sentiment as equity markets and commodities post a modest rebound and in reaction to a statement from Canada’s Finance Minister Flaherty. Flaherty said that CAD at parity to the USD is competitive. His comments reduce the risk of intervention from the BOC to try and limit CAD gains. CAD was also supported by report of better than expected Canadian manufacturing shipments and productivity. Canada’s January manufacturing shipments surged by 2.4% and Q4 productivity increased by 1.4%. The stronger manufacturing shipments and productivity data follow last weeks report of better than expected employment growth in Canada. These reports may encourage speculation that the BOC will hike interest rates earlier than expected. CAD has been outperforming supported by last week’s decision by the BOC to maintain steady monetary policy and signal a shift in its policy bias. In the BOC policy statement the BOC dropped reference to inflation risks being to the downside. This has encouraged speculation that the BOC may hike interest rates sooner than the Fed. The trade will be closely monitoring today’s FOMC policy statement for clues as to whether the Fed will leave interest rates at record lows throughout most of the year. Today’s slight improvement in risk sentiment appears to be related to the announcement that the EU ministers have agreed to a plan to aid Greece if needed. CAD is expected to test parity to the USD in the weeks ahead. This week’s main focus is the CPI report due for release Friday.

On March 17th January wholesale trade will be released expected at 0.4% compared to 0.7% last month. On March 18th January net foreign investment will be released expected at 8bln compared to 11.2bln last month. On March 19th January retail sales will be released expected at 0.7% compared 0.4% last month along with February CPI. CPI is expected at 0.4% compared to 0.3%.

The technical outlook for CAD is positive as USD/CAD trades below 1.0200. Look for near-term support at 1.0130 the July 25th low with resistance at 1.0334 the March 5th high.

AUD
AUD traded higher supported by a slight improvement in risk sentiment as equity markets and commodities rally in reaction to report that the EU has agreed to a plan to aid Greece if needed. AUD rally was limited by the release of the RBA minutes for the March policy meeting. The RBA minutes suggest that the pace of future RBA rate hikes will be gradual. The RBA minutes were seen by some as slightly dovish and contribute to uncertainty about whether the RBA will hike rates at the April policy meeting. Diminished speculation of aggressive rate hikes from the RBA may limit demand for the AUD. Last week, Australia reported weaker than expected employment growth. Thursday Australia reported that February unemployment rose by just 400 with unemployment unchanged at 5.3%.  The weaker Australian employment growth may dampen RBA rate hike speculation. The RBA paused in its rate hike cycle during February. At the beginning of the month the RBA hiked interest rates 25bps to 4%. In the statement accompanying the RBA rate hike the RBA appeared to have a balanced outlook towards inflation, growth and future policy decisions. This has sparked speculation that the RBA may pause its rate hike cycle in April. The outlook for RBA policy will be key to the direction of the AUD. Focus turns to this afternoon’s FOMC policy statement and conclusion of the BOJ policy meeting Wednesday.

This week’s Australian economic calendar includes the March 17th release of Q4 dwelling unit starts expected at 7% compared to 9.4% last quarter.

The technical outlook for the AUD is positive as the AUD trades above 9100. Expect AUD support at 9056 the March 9th low with resistance at 9260.