| /24/2008
2:54 PM: EUR/$..1.5682 $/JPY..104.34 GBP/$..1.9736
$/CHF..1.0352 AUD/$..0.9396 $/CAD..1.0144
USD Extends Rebound
The economic reports released in the Thursday
session were initially dollar positive, with the
greenback bouncing to 1.57 against the euro and
rising to 104 versus the yen. Although the headline
reading for durable goods orders was slightly
weaker than expected at -0.3%, versus calls for
a flat reading, it still marked an improvement
from the -1.1% drop in February. The excluding
transports durable goods orders posted a sharp
improvement from the prior month, increasing by
1.5% in March, compared with a 2.4% decline. Weekly
jobless claims also improved, falling to 342k
down from 372k a week earlier. However, March
new home sales posted a larger than expected drop,
plunging by 8.5% to 526k units, versus 590k units
in February.
The housing market continues to weigh on the
economy Fed funds futures are currently pricing
in an 82% probability for a 25-basis point rate
cut to 2.00% when the FOMC meets next week. We
expect the Fed to ease policy next week but possibly
signal a pause in any further moves.
Euro Retreats
The euro pulled back sharply, breaching the 1.57-level
to 1.5639 prompted on a combination of upbeat
US reports and weaker than expected Eurozone data.
Germany’s Ifo index disappointed consensus
forecasts, with the current conditions index falling
by more than expected to 108.4 from 111.5. The
expectations component fell to 96.8 versus 98.4.
The Eurozone current account balance improved,
posting a 4.3 billion euro surplus versus a deficit
of 10.6 billion euros in February.
EURUSD will find support at 1.5640, backed by
1.56 and 1.5550. Additional floors are seen at
1.55, followed by 1.5460 and 1.5420. Gains will
target interim resistance 1.57, followed by 1.5740,
followed by 1.5780. Subsequent ceilings are seen
at 1.58, backed by 1.5830 and 1.5860.
Sterling holds on data
The sterling held steady following a report on
UK retail sales revealed a smaller than expected
decline. Consensus estimates were calling annualized
retail sales in March for fall to 4.3% from 5.5%,
instead the figure fell to 4.6%. Meanwhile, on
a monthly basis, retail sales posted a 0.4% decline
from 1.0% in February.
Nonetheless, we still expect the Bank of England
to cut rates in by 25-basis points in the coming
months and as such, look for the sterling to continue
to underperform against the dollar and euro.
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