Weekly Fundamental Preparation of Currencies

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Looking beyond economic data, the Australian Dollar will face added downward pressure if the market’s recent taste for risky assets should be reversed. As we had mentioned some weeks ago, there are substantial reasons to believe that the current rebound in risk appetite is temporary: the dismal outlook for global economic growth in 2009 bodes ill for demand and will almost certainly be reflected in poor earnings reports, renewing downward pressure on...

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The initially supportive effects of the G20 summit in London may quickly fade as a detailed look at the final communiqué reveals policymakers actually offered little substance, reveling in lofty promises but committing to a relatively few tangible actions to deal with deepening global economic turmoil. Technically,...

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(CEP News) - Euro zone annualized inflation fell beyond expectations to reach a new record low in March, and is, according to economists, likely to dip below zero by the summer, before recovering by the second half of 2009. However, they argue, consumer prices growth will remain well below the European Central Bank (ECB)'s target, even in 2010.

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While a detailed breakdown of the CPI figure will not be available until April, UBS economists believe that the sharp deceleration in the headline figure was due to easing core inflation, as well as declines in both food and energy prices.

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Looking ahead, Calyon Credit Agricole economist Olivier Bizimana expects that inflation in the euro zone will likely maintain its downward trend and dip below zero by the summer as base effects continue to weigh on both energy and food price growth over the coming months.

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The Pound Yen also gives us a “Similar” View with Risk Appetite and the struggling Yen…

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If the BOE were to surprise the markets with a 25 bps rate cut to 0.25%, the reaction would probably be limited given the current focus on alternative monetary policy rather than interest rates, he said.

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On the other hand, if the bank were to announce a widening of its asset purchases, Cole said the British Pound stands to sell off by as much as two pence against the euro in a short-lived, knee-jerk reaction.

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Such a scenario is unlikely, however, given that the BOE has only deployed about one third of its total QE operations and consequently has time to decide whether more is needed, he noted.

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Although the BOE rate decision in itself is not likely to be a significant event, “I would rather be long than short,” said Moyeen Islam, fixed income strategist at Barclays Capital.

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Despite some uproar against Fed measures due to fear of high inflation, LeBas said he’s “not necessarily of that camp.” He said that while printing money at this scale is the textbook recipe for inflation, current U.S. price pressures are at unusually low levels.

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Most strategists are not expecting the bank to announce new quantitative easing measures or cut interest rates. According to SONIA implied rates, markets are pricing in a 26% chance of a 25 basis point cut on Thursday.

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In more data, markets will receive the final print of German CPI for March. Economists are expecting inflation to continue to fall, showing decline of 0.1% following the previous increase of 0.6%. The European harmonized rate is expected to remain stable at 0.2%.

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The final report of interest will be German industrial production for February, which is expected to show more declines. Economists are expecting production to fall 3.0% for the month following a 7.5% decline in January.

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"The MPC members have made it very clear that they are reluctant to bring interest rates down below 0.50%, primarily due to the negative impact that this would have on banks' spreads and profitability, and hence potentially their lending," said Howard Archer, chief UK and Euro- pean economist at IHT Global Insight.

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"Consequently, we suspect that interest rates are set to stay at 0.50% well into 2010 as we believe that GDP (gross domestic product) will contract through this year before the economy hopefully stabilises in early 2010 and then starts to gradually recover."

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"I lived through the Great Depression. I remember people standing in bread lines. It was hard to get a job, any job, back then. But now, you see the restaurants are still full. People are still spending money. They may be worried and they may be beginning to save, but there's no sense of urgency. And there's a rally on Wall Street. You know, every bear market produces a rally. You can expect the market to retrace its steps by one- to two-thirds.

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"The primary trend is down," says he. In the end, he continues, no matter what Obama and Bernanke do, the primary trend will have its way. The bear market will continue until it "has fully expressed itself."

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Richard is probably right. After so many years of watching markets, he's developed an instinct for what is really going on. This is going to be worse than people expect, he says. Because despite all the whining and bellyaching in the press, most people still do not expect the worst. Over the last quarter century, they've learned to look for bottoms...and buy. Every time it looked like real trouble was coming, the Fed cut rates...and soon, it was off to the races again. Now, they're afraid of missing this opportunity for another boom.

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But Richard is old enough to be able to look back much further than a quarter of a century. He's seen the Great Depression...WWII...the bear market and stagflation of the '70s. He knows that sometimes it pays to be extra cautious. "Cash and gold," says Richard, are the only investments you should be holding now; we're a long way from the bottom.

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The Dow rose again on Friday. Apparently, this is the rally we've expected since November. It could take the Dow back to 10,000 or so - before collapsing on the heads of naïve investors.

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The U.S. official national debt has jumped over $11 trillion. Wait a minute...wasn't it just a few months ago that we announced it had gone over $10 trillion? Yes, dear reader, it was...the national debt is exploding. The feds say they will borrow an additional $2 trillion this year. If the bailouts and stimuli continue as planned, the national debt will grow by almost $10 trillion in the next 10 years. In other words, the nation will add more debt each year for the next 10 years than it did in the entire first two centuries of its life.

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TOKYO, April 9 — Asian stocks are likely to rise today after Wall Street gained on hopes that spending may be reviving and relief that the US government will shore up insurers.
However, caution after the Federal Reserve lowered US GDP projections for the second half of 2009 and 2010 may keep a lid on any rises, while trading may be thin in some markets due to the approaching Easter holiday.

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The Nasdaq surged nearly 2 per cent on hopes that a recovery in business spending will boost profits at technology firms, while other indices gained after Bed Bath & Beyond reported a better than expected profit, hinting at a revival in consumer spending.
Asian stocks listed on Wall Street rose 0.8 per cent, though MSCI's measure of Asia Pacific stocks excluding Japan fell 2.9 per cent.

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The dollar slid against the yen as concerns about US corporate earnings kept risk appetite low, while oil settled slightly up but came off session highs on the Fed's
predictions.

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WASHINGTON, April 8 — US securities regulators were considering proposed curbs on short selling at a meeting today, weighing steps that could restrict a type of investing blamed by some lawmakers and executives for worsening the financial crisis and driving down share prices.

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The Cable continues to show relative strength on the back of surprisingly positive data surfacing from Britain over the past couple weeks. The GBP/USD kept its cool yesterday despite the broad selloff in U.S. equities and the Cable is running with the EUR/USD and U.S. equities Wednesday morning.

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We expect to see the Cable’s strength continue as long as Britain’s data outperforms and its major financial institutions stay out of the headlines. If U.S. equities and the EUR/USD head north today, the GBP/USD should follow. On the other hand, if U.S. equities selloff again, we may see the Cable hold up once more.

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However, we can’t forget the importance of the financial industry to Britain’s economy. Therefore, if U.S. banks hit another roadblock, the GBP/USD may have no choice but to head lower.

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Speculation set aside, the Cable is in great shape for the time being. It sits comfortably above our 1st tie uptrend line with no downtrend line in sight.

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The USD/JPY is wrestling with the almighty 100 level again today after briefly dropping below. The USD/JPY strengthened slightly after Japan released a better than excepted trade balance.

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However, the optimism is faint since a record decline in imports is responsible for the improvement. Therefore, consumers are tightening their budgets as the economic downturn picks up steam. Japan continues to be the hardest hit in the global economic crisis.

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Well, there was more news from the RBA. The RBA’s Gov. Mr. Stevens said “the recession in Australia is much milder than those in Europe and the U.S.” Hmmm, I think he was preparing to leave the rate cut table, don’t you? To me, that’s Central Bank parlance for “This is it, no more rate cuts!”
If it’s the case, the Aussie dollar should begin to see some real activity soon.

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Assuming China’s economy is on the mend, what does that mean for Australia? It would mean that happy days are here again, the skies above are clear again. Or least something like that… Why you may ask? It’s because China needs raw materials, and they have historically received the majority of those raw materials from Australia.

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One stumbling block: If currencies don’t break this trading pattern with stocks, we won’t have any Happy Days in Australia or most other countries for that matter, except Japan, which continues to act as the counter trade these days. (Remember I said above, not all currencies can drop at once – right now the Japanese yen is on top.)

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Asia Session The one big data release was in Australia, where the Unemployment number hit 5.7% with employment dropping by 34,000, both numbers worse than projected. The AUD/USD dropped a quick 40 pips to a low near 0.7050, but it was all uphill from there as the pair gradually made its way back to highs near 0.7115. With the markets slowing down for the week, the big hurrah will be the Bank of England's rate decision...

Quoting england33

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hey everyone.. i regret to inform everyone that my neck and back are out. so i might not be able to post this week because it's too hard look stuff up for one. i might post a few charts. gl trading..

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Quoting Pips_Cruiser

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April 28 (Bloomberg) -- "Crude oil, industrial metals and hog futures dropped for the second straight day on speculation that a global outbreak of swine flu will derail efforts to shore up economies, curbing demand for raw materials . . ."

Full story:

http://www.bloomberg.com/apps/news?p...d=aL7iirZorDKo

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