Weekly Fundamental Preparation of Currencies

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The 663,000 jobs lost in the U.S. in March have brought the number of jobs lost in the current recession to 5.1 million, and economists say the pace of deterioration isn’t going to let up.

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He said job losses generally don’t tend to improve until six months after business improves. By that measure, he said, the U.S. economy is still nine months off from a recovery in the labour market.

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“Unlike other parts of the economy, there are no signs of any improvement in labour market conditions,” he said.
Going forward, economists at Commerzbank said the continued deterioration will have a serious impact on consumers’ purchasing power.

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Rob Carnell, economist at ING, said considering that bond yields showed little reaction to the release, the Fed may have to step up its purchases of long-term Treasuries, “or risk recent slight improvements in the data being undone by rising mortgage and other lending rates.”

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The Fed may have to do more to restore the flow of credit, Fed Vice-Chairman Donald Kohn said on Friday. U.S. policymakers and central banker must remain “very flexible and open to policy actions that had no precedent,” Kohn said, pledging that policy-makers would “continue to adapt our policies as necessary to accomplish,” a recovery of the financial system and consequently the broader economy.

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Nevertheless, many financial market sectors remain under “considerable stress” and much has to be done before things return to normal, he said during his speech at Wooster College in Ohio.
Furthermore, current monetary policies by the central bank, although effective, could have important implications for inflation down the road, he added.

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The pound rose, posting gains over the week versus the euro and the dollar, as a gauge of services industries climbed to a six-month high in March, adding to optimism the recession may be easing.

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Sterling had its biggest weekly advance against the euro since the end of January after the Group of 20 nations pledged yesterday to pump $1 trillion into the global economy. The FTSE 100 Index climbed 3.5 percent this week, led by an 8.9 percent gain in banking stocks. Two-year gilts posted their first loss in three weeks as demand for the safest assets waned.

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“The key for sterling is that we have to digest the reaction to the G-20 meeting, and that’s still an open question,” said Michael Klawitter, a currency strategist in Frankfurt at Dresdner Kleinwort. “There’s generally a high correlation between financial services and sterling, given the importance of the sector to the economy as a whole.”...

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Canada’s dollar headed for a weekly gain after U.S. economic data that suggested the worst of the recession is over spurred investors toward such riskier assets as stocks and commodity currencies.

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“We’re seeing very clear signs that the slowdown in global manufacturing is beginning to slow,” said Todd Elmer, a currency strategist at Citigroup Global Markets Inc. in New York. “That’s positive for commodities and positive for the Canadian dollar.”

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Eight of the 10 most-active Asian currencies outside Japan rose in the week after economic reports in China, the U.S. and the U.K. fuelled speculation that demand will improve for Asia’s exports. The Bloomberg-JPMorgan Asia Dollar Index, which tracks their performance, was close to a two-month high as regional stocks rallied.

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Goldman Says Buy Emerging-Market Currencies, Sell Yen
Emerging-market currencies will strengthen against the dollar, euro and yen as developing nations gain access to new sources of international funding and an economic recovery in China boosts commodities, Goldman Sachs Group Inc. said.

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Investors should use forward contracts to buy an equal- weighted basket of Brazil’s real, the Mexican peso, South Africa’s rand, the Russian ruble and Indonesia’s rupiah, while selling short the dollar, euro and yen, London-based Goldman Sachs analyst Thomas Stolper wrote in a note e-mailed...

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“We have seen growing international policy consensus to provide liquidity to EM countries with funding problems,” wrote Stolper. “Emerging currencies are very unlikely to underperform G-3 currencies and, on the contrary, we see sizable potential upside.”

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Investors should buy commodity-based currencies including the Australian and New Zealand dollars and the Norwegian krone as policy makers’ efforts to revive the global economy fuel inflation, according to JPMorgan Chase & Co.

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Breakeven rates in the U.S. and U.K climbed since the Federal Reserve said March 18 it would buy as much as $300 billion of Treasuries and step up purchases of mortgage bonds. The Bank of England and Bank of Japan are also buying securities as they seek to revive their shrinking economies. Commodities such as oil gained in the period.

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“Commodity currencies correlate with inflation since the sort of cyclical environment which lifts prices also improves the trade balances of commodity producers,” John Normand, global head of foreign-exchange strategy in London at JPMorgan, wrote today in a report. “Since quantitative easing re-entered the lexicon last fall, most real assets have been on a tear,...

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OPEC may be able to live with oil prices around US$50 a barrel in 2009, its secretary general said yesterday, another sign the group has limited its price aspirations for now because of the weak global economy.

The comments are the first indication from the Organisation of the Petroleum Exporting Countries of how long it can withstand oil at US$50, below the US$70-$75 many in Opec and the oil industry say is needed to encourage investment in new supply.

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"We cannot really invest at current oil prices. Maybe we can live with it this year," Abdullah al-Badri told a conference in Paris. "The cost of adding new capacity is still high."

Badri added: "2009 is the most difficult year for the world to live."

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Many top money traders in the City believe sterling has hit bottom against the world's two major currencies and will continue to make gains, albeit slowly. During the past year or so, the pound has been pressured by a combination of lower UK interest rates, appalling economic news and by con-cerns about the solvency of the British banking system.
"We like sterling now that the pace of deterioration in the UK may be starting to stabilise," said David Woo, the head of currency strategy at Barclays in London.

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"There are compelling reasons to believe sterling may be starting to find the bottom against the euro."

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The pound was supported this week by a report from the Nationwide Building Society that showed UK house prices rose in March for the first time since October 2007, a survey indicating that a key UK manufacturing index climbed in March to the highest level in five months and fresh evidence that confidence among UK consumers increased to the highest level since May.

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The CIPS/MARKIT manufacturing purchasing managers' index improved to 39.1 in March from 34.9 in February. Analysts in the Square Mile had expected a more modest improvement to 35.

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They said although the figures were an improvement and could be a signal of mas- sive UK monetary easing taking effect, overall condi-tions remained fairly bleak.

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The CIPS data is the latest to give hope that the first tentative signs of an uplift in the economy are appearing. Earlier this week, figures from the Bank of England revealed that the number of mortgages approved for house purchase had jumped by 19% during February with a total 37.937 home loans approved.

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Poor unemployment figures in the eurozone and the decision by the European Central Bank yesterday to cut its main refinancing rate to a record low of 1.25% eroded the value of the euro against sterling. The euro region's jobless rate increased in February to 8.5%, the highest level since May 2006.
The single currency has remained stubbornly high against the pound in recent weeks, even many countries in the 16-nation eurozone are in worse economic shape than the UK. However, analysts say the euro's winning run, during which it climbed to more than...

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"We'll continue to see the euro's outlook being predicated toward lower levels," said Jeremy Stretch, a senior currency strategist at Dutch-owned Rabobank International. "Ongoing signs of the euro area's fragility will keep the market pinned down," he added.
"Euro-sterling in the mid-to-low 90s is very, very overvalued," said Martin McMahon, a Zurich-based currency strategist at Credit Suisse Group. "This quarter is probably the final leg of sterling weakness."

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High uncertainty surrounding the RBA’s interest rate decision is likely to spark volatility in the currency markets, and the Australian dollar may continue to benefit from the rise in market sentiment if the central bank signals that the benchmark interest rate has reached a bottom and plans to hold borrowing costs at the 45-year low of 3.25% going forward.

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What’s Expected
Time of release: 04/07/2009 04:30 GMT, 00:30 EST
Primary Pair Impact : AUDUSD
Expected: 3.25%
Previous: 3.25%

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Right now, I’m seeing an opportunity to do just that. There’s a transition slowly happening in the global markets that few investors have noticed yet. The media sure hasn’t been reporting on it, nor will they until after the fact.
I’m talking about commodities firming up.

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Aussie traders will find long term positives in the latest USDA report showing US farmers to reduce total acres with corn, soybeans and wheat this year. The USDA announced that planned wheat plantings were to drop 7.1% from last year when seedings were the highest in 10 years. Australias position as a leading top producer and exporter of wheat, allows it to gain from the rise in crop, as was the case in 2007 to H1 2008.

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Japan immediately called for an emergency session of the U.N. Security Council.

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The launch was a bold act of defiance against Aso, President Barack Obama, Hu Jintao of China and other leaders who pressed Pyongyang in the days leading up to liftoff to call off a launch they said would threaten peace and stability in Northeast Asia.

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South Korea's presidential Blue House called the launch a "reckless" move that poses a "serious threat" to stability on the Korean peninsula.

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The launch "will prompt the United States to take appropriate steps to let North Korea know that it cannot threaten the safety and security of other countries with impunity," State Department spokesman Fred Lash said in Washington.