Sunday, May 1, 2011

Forex Week in Review: April 24-29

It was a trading week with the broad dollar sell-off finding few obstacles in the calendar. The absence of hawkish innovations from the FOMC has been taken by the market as an all-clear to add to bearish USD momentum and carry trades. It seems that its only immediate savior is a renewed Euro-zone crisis. The technicals are again showing that most currency’s are in overbought territory now that many of the short term targets have been printed. Maybe it will be left up to Central Banks to protest, just like the RBNZ did by stating that their currency strength was ‘unfavorable’. Below are some of the highlights of the week:


  • Trichet stating that a stronger USD was in the interest of the United States fell on deaf ears this week.
  • Greek, Irish and Portuguese spreads continue to widen to Germany. Spain is showing signs of decoupling from the trend. Systemic fears associated with the peripheral funding outlook remain on the backburner.
  • UK CBI total factory orders index fell sharply in Apr. to -11 from 5 in Mar. Activity outlook index was mixed with steady business optimism but weaker export confidence. Data is failing to show any evidence of a strong pick-up in the first half.
  • UK GDP grew +0.5%, q/q in 1st Q after contracting -0.5% in 4th Q. Construction remained particularly weak, the rebound was driven by strong services performance, up +0.9%.
  • EUR Industrial new-orders index rose +0.9% in Feb., following a sharp upward revision to the Jan. print. Net of revision, new orders rose +21.3%, y/y, suggests continued strong growth momentum.
  • Swedish consumer and manufacturing confidence indices moderated in Apr. The economic tendency survey fell to 109.8 from 112.3 in Mar. as a result.
  • True Finns party were quoted emphasizing the need for compromise in negotiating to participate in the next government, reducing concerns about Finland blocking negotiations for a Portugal EFSF program
  • Flash Euro-zone Apr. CPI came in at a +2.8%, y/y. Mar. M3 data showed an acceleration in the y/y rate of increase to +2.3%, which puts the growth rate at its fastest pace in two years. This increases the risk that the ECB will signal a June rate hike at its May meeting.
  • Swiss KOF indicator rose to +2.29 from an upwardly revised +2.25.


  • US Sales of New Homes in Mar. increased from an all time low in Feb. (+300k or +11.1% from a revised +270k). However, on an annual monthly basis they are down -21.9% from Mar. 2010. Median prices continue to struggle and are down -2.9%, y/y.
  • US Consumer’s current assessment of economic prosperity, fueled by job prospects, edged up +1.6 points this month to 65.4 from Mar.’s unrevised print of 63.4.
  • Feb.’s S&P/Case-Shiller House Price Index printed a -3.3%, y/y, decline, deteriorating from a -3.1%, y/y, decline in Jan.
  • As expected, Fed kept rates steady. The FOMC statement indicated that the Fed will end its QE2 program as scheduled in June. Policy makes will closely watch inflation, thought the Fed believes the effects from rising oil prices are temporary. They do not seem to be worried about the weakening in the dollar. They argue that by fulfilling its dual mandate, the Fed can cause a stronger recovery which will lead to a stronger dollar.
  • US durable goods report was solid on its details. New orders surprised to the upside in Mar. (+2.5%) while Feb.’s report was revised up substantially (+0.7% vs. -0.9%), leading to a positive gain in the first quarter (+2.1%).
  • In Canada, a recent poll sees the Liberal party being pushed into third place ahead of next week’s general election by the left wing NDP. An NDP-led minority government is a likely negative for the loonie, as their political mandate and agenda tends to be ‘a little less business friendly, a little less fiscal austere than under a Conservative majority’.
  • US economy hit the breaks in the 1st Q, as higher prices, especially gas and food, curtailed consumer spending, limiting seasonally adjusted GDP to print +1.8%.
  • US pending home re-sales climbed +5.1% after a revised +0.7% increase the previous month.
  • US initial jobless claims increased by +25k to +429k, w/w. The four-week moving average, capable of smoothing out volatility, rose by +9.2k to +408.5k.
  • Canada’s economy shrinks in February by -0.2%. Early expectations stood on +0%.
  • US consumer sentiment in April rose by +0.2pts, above expectations, coming in at 69.8
  • The Fed.’s favorite inflation measure, core-PCE reported as expected +0.1%


  • Singapore’s CPI-inflation was flat at +5.0%, y/y, in Mar. However, the elevated CPI inflation rate should keep the year-on-year pace of SGD NEER appreciation at around +5.0%-5.5%.
  • An FT article flagged critical labor shortages in Australia. They also reported that the Chinese sovereign wealth fund, CIC, will soon receive $100-200bn in new funds from a Chinese government trying to further diversify away from US Treasuries.
  • Singapore’s industrial output, seasonally adjusted, rose +22.0%, m/m in Mar.
  • Australia’s CPI inflation rose +1.6%, q/q in the 1st Q, pushing the year-on-year rate to +3.3% from +2.7%.Flood related food price spikes and higher oil prices drove the headline. Underlying inflation was also high, rising +0.9%, q/q to +2.3%, y/y in the 1st Q from +2.2%.
  • Asian Cbank’s were believed to be intervening moderately to prevent currency strength this week, adding to expectations for more diversification flows out of USD and into other reserve currencies.
  • RBNZ made it explicit in its new policy statement that the recent appreciation of the NZD was “unwelcome.”
  • Japan’s industrial production data for Mar. revealed much more significant disruption from the earthquake than previously thought. Production plunged -15.3%, m/m, much worse than the -10.6% consensus. On year-on-year basis, it has dropped -12.9%.
  • The BOJ left their rate policy unchanged, like the dollar, rate differentials will likely continue to move against the JPY.
  • Australia, housing credit rose +0.4%, m/m in Mar. following a +0.5% increase in Feb., taking the y/y rate to +6.6%.
  • PBoC again fixed USDCNY to a new low, 6.499, reflecting broad-based dollar weakness rather than CNY strength.

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