Mid-Day Report: Persistent Strength in USD/JPY in Otherwise Ranging Markets after Poor US Data

The forex markets are generally mixed with consolidation continuing in most pair, with the exception of persistent strength in USD/JPY. Another round of poor data was released from the US. Durable goods orders dropped sharper than expected by -5.2% in Jan versus consensus of -2.5%. Ex transport orders also dropped -2.5% versus expectation of -2.1%. Jobless claims surged another 36k to 667k. New home sales dropped more than expected by -10.2% to 0.31m annualized rate. But after all, markets are just so 'used to' bed data from US and paid little attention to it. Stocks open higher and recovers another 100pts in DOW. Meanwhile, Canadian dollar is lifted sharply higher in early US session with crude oil rebounding further to above 44 level.

BoE Governor King said earlier today that the UK government must work to improve market confidence by propping up banks, underpinning the balance sheets. Chancellor Darling took a step closer to nationalizing UK banks by allowing its stake in RBS to climb to 84% in return for guaranteeing 255b pounds in toxic assets. Lloyds is believed to be assessing the assets protection program too. Released earlier, UK nationwide house price dropped more than expected by -1.8% mom, -17.6% yoy in Feb.

The number of unemployment in Germany rose for the 4th consecutive month, by 40K, in February, less than consensus of 60K and the upwardly revised 59K in January. Unemployment rate rose to 7.9% during the month. Although the employment condition in Germany seems to be better than other countries in Europe, intentions for corporate to hire people have declined severely and there’s risk that unemployment may rise more significantly in coming months.
In the Eurozone, January’s M3 money supply slowed further to 5.9% yoy from 6.9% as market anticipated and in December, suggesting inflationary pressure has moderated in the region. Business climate in February plunged to -3.51, worse than consensus of -3.2 and January’s -3.16, while economic sentiment slid to 65.4, the lowest level in the index began in 1985, from the revised 67.2 a month ago. Industrial and consumer confidence dropped significantly due to weak business activities, lower international trades and deteriorating job market. In the coming few months, confidence is expected to remain vulnerable as global recession deepens.

Technically speaking, the retreat in dollar index is inline with our expectations. As mentioned before, the index has completed a five wave sequence from 77.69. Consolidation from 88.24 is still expected to extend further. Hence, the current rise from 85.64 will likely be limited by 88.24 and bring another fall to continue the consolidation. Below 86.57 will bring fall towards 83.58 . Though, downside is expected to be contained by 83.58 and bring up trend resumption. On the upside, however, sustained break of 88.24/88.46 will confirm that short term and medium term up trend are both resuming for 90 psychological resistance next.


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