Update − Euro up slightly, awaiting ECB views on quantitative easing

Economic Calendar

Market Update

• Nikkei average gained 4.1 percent on Thursday as automakers surged on growing optimism about the U.S. economy after a string of better data than expected.
• Hong Kong's Hang Seng index jumped 4 percent, with HSBC leading the gauge up nearly 7 percent.
• Stocks rallied, driving the MSCI World Index higher for a third day
• Treasuries and the yen declined as the Group of 20 met amid growing speculation that the worst of the global recession is over.

News Summary

• The European Central Bank may cut its key interest rate to a record low of 1 percent today, increasing pressure on policy makers to use new tools to fight the worst recession in more than 60 years.
• World leaders will strive to reach an agreement on how to confront the worst global financial crisis since the 1930s at the G20 summit in London, amid signs that the world economy is stabilizing after months of freefall.
• Stocks climbed on Wednesday as factory activity in March fell at a slower rate than the month before, while pending home sales rose more than expected in February, sparking a broad advance.
• Timothy Geithner said global economies are showing “traction” amid widening stimulus efforts. Geithner’s remarks reflect the view of some analysts that the worst of the economic downturn may be past, even as some banks are likely to fail and unemployment is set to worsen.
• U.S. auto sales fell 37 percent in March, a smaller-than-expected drop that encouraged hope that the world's largest car market is nearing a bottom after a freefall that has pulled the industry into a deepening crisis. Toyota's U.S. sales fell less than analysts predicted last month as the world’s largest carmaker offered near-record incentives to spur demand.
• Commercial property loans in default or foreclosure grew in the first quarter as the U.S. recession cut occupancies and the credit crisis stymied refinancing.
• Companies in the U.S. cut an estimated 742,000 workers in March, pointing to no relief in sight for the labor market amid the longest recession in seven decades, a private report based on payroll data showed yesterday.
• Although the U.S. economy is expected return to growth later this year, there is a danger of a second recession if monetary easing and a weak dollar leads to increased inflation expectations, a report said on Wednesday.
• Changes to General Motors Corp's contract with the United Auto Workers union could save the automaker $1.1 billion or more in hourly labor costs, GM said in a report to the U.S. Treasury released on Wednesday.
• The UK manufacturing sector declined at a slower pace in March, adding to signs that the recession may be near its deepest point, data published on Wednesday suggested.
• China’s leaders, increasingly concerned about the nation’s $740 billion of U.S. Treasuries, are making it easier for trading partners and consumers to do business in yuan.

U.S Market Update

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- With another extremely light economic calendar stock investors continue to turn their attention to the upcoming earnings seasons and are lightening up in equity holdings in the early going. The US indices are down about 1.5% a piece, although they are off their worst levels mid morning. PIMCO CEO Mohamed El-Erian had plenty to say to CNBC ahead of the open, noting that he would not be surprised if equities retested lows and that government bonds are "not worth owning." Front-month crude is below $50, around $1.50 off overnight highs, while natural gas is making six-year lows around trading below $3.60. The Colorado States latest forecast for the upcoming hurricane season only confirmed the early weakness in the energy complex when they lowered the number of named storms expected to 6, with only 2 major.

- Pessimism over upcoming earnings at leading financials is sending the banks down 2-4% in early trading. Overnight "Heard on the Street" wrote that after a strong start in 2009, banking shares may be due for a pullback due to uncertainty over book values, which may fall amid uncertainty of banks being able to earn ROE above the current 13% cost of equity. Meanwhile, the IMF has said that the toxic assets held by financial companies could rise to $4T, with the deterioration in US-originated assets to reach $2.2T by the end of next year. Citi is an exception this morning, spiking up 2.5% in early trading.

- There has been a smattering of guidance reports and profit warnings ahead of earnings season, but nothing like the deluge of highly negative guidance seen ahead of last quarter's earnings season. Two consumer-facing names offered strong guidance this morning, restaurateur Brinker International and electronics retailer HH Gregg, with EPS forecasts for the coming quarter that blew out consensus estimates. Shares of EAT+6% and HGG+10% have lost a little altitude in early trading. March same-store sales come on Wednesday and Thursday, and the analysts are out talking up retailers. Yesterday Needham was positive on the sector, while Merrill raised price targets on multiple names. But today most retail names are down with overall indices and headed lower in early trading.

- Managed healthcare names traded off somewhat in the premarket after being granted a substantially lower baseline rate increase for Medicare Advantage (0.8% rather than the approx 4% increase in recent years), although the cuts are slightly less severe than those initially proposed in February. Humana, Aetna, UNH, Cigna, Wellpoint and Health Net slipped 2-3% before quickly heading back toward positive territory, with HUM, AET and UNH up 2-3%.

- Currency markets are still seeing the effects of some risk aversion trades, but the Pound Sterling is showing some relative strength late in the NY morning. Cable has paired nearly all if its losses for the day to trade back towards 1.4750 after trading below 1.46. EUR/GBP has droped below 0.90 for the first time in roughly a month. JPY has also exhibited some relative strength trading pretty much higher across the board. The EUR.USD pair has been down more than 1% for most of the session trading below 1.33.

Forex Trading − Greenback Gains as Market's Optimism Fades

The European single currency came crashing on Tuesday after data showed the Euro-Zone economy recorded its deepest ever quarterly fall in the 4-quarter of 2008. As a result, the currency market moved back to the U.S currency after optimism regarding the European economy faded. The USD which is seen as a safer bet than others currencies in times of market stress will likely keep drawing demand as investors stay away from riskier assets.

Economic News

USD - USD Regains Lost Momentum from Under-Performing Stock Market

The USD has begun a moderate rally these past two days, starting from as high as 1.3575 against the EUR, the greenback is now trading near the 1.3175 price level. An even sharper price rally began this morning during the early trading hours when the release of poor stock data emerged from Wall Street. The negative economic outlook for first quarter stock performance has many traders returning to their safe-haven investments - namely, the U.S. Dollar.

After witnessing a sharp 70 point drop, the EUR/USD began to stabilize while maintaining its downward posture. Against the GBP, the greenback made similar gains, rising from 1.4950 yesterday to as high as 1.4682 in today's early hours. Surprisingly, the USD saw no significant change in value versus the Japanese Yen, which may lend strength to the notion that the JPY is also being picked up as a potential safe-haven. So long as stocks and other equities continue to under-perform, due to the weakening global economy and rising metal prices, the USD may regain its recently diminished safe-haven status and return to levels not seen in over two weeks, perhaps to the 1.3000 price by the day's end.

Looking over the economic calendar may lend some insight into how the USD will perform through the second half of this week. The ever-increasingly important report on Crude Oil Inventories is due to be released later today. If inventories continue growing it could signal a further lack of real growth in the economy and continue to push the USD higher throughout its pairs and crosses. On Thursday, of course, we will also see two highly important data releases: the US Trade Balance report and unemployment figures. Both are due to be released tomorrow at 12:30 GMT and will likely carry a heavy impact on the value of the Dollar.

EUR

EUR - EUR's Recent Depreciation May Not End This Week

The EUR has apparently taken a hit from the recent rally in the U.S. Dollar, and not just against the USD. Dropping against all of its major currency rivals, the EUR is poised to suffer a significant loss through the rest of the trading week. Trading as high as 1.3575 against the USD this week, the EUR is currently losing momentum and may continue to drop from its current location to as low as 1.3000. The 16-nation currency is witnessing similar losses to the GBP and JPY as well.

Many analysts claim that the Euro-Zone's primary currency is losing strength not because of an inherent weakness, but because the recent price rally was dependent on a resurgent stock market. As stocks and various other equities have experienced a sharp depreciation this week, the EUR's rally has begun to implode in on itself. Unless stocks begin to rebound once more, the EUR will likely continue its depreciation as other currencies, such as the USD and JPY, regain their safe-haven trading status.

As negative data continues to emanate from the Euro-Zone's regional economy, this consequential weakness for the EUR is apparently going to continue growing as well. The rest of this week's economic news doesn't appear to be offering any significant level of support either. With very few economic indicators being released during the second half of this week, there doesn't appear to be much in the way of stopping this downward momentum in the various EUR trading pairs.

JPY - JPY Pares Losses and Stabilizes as it Regains Trader Confidence

Somewhat surprising for the market this week is a sudden resurgence of support for the JPY. While continuously losing ground to all of its currency rivals in recent days, the Yen now appears to be regaining a portion of its previous safe-haven strength. As world stock markets released poor 1st quarter data, the USD witnessed a sharp appreciation against all of its currency rivals, except for the JPY. Two of the possible explanations are either that the JPY was unaffected by a rallying USD, which seems unlikely, or the Yen also received a small boost from the search for safe-haven investments.

The island currency experienced a roughly 50 point increase against all of its major pairs and crosses, save the USD, which is currently trading at 99.70. With very little information being released regarding the Japanese economy this week, the news events surrounding world stock markets as well as the U.S. Dollar are likely going to lead the market through Friday and into next week. Because of the deterioration of world stock markets, there is a distinct possibility that low-yielding, safe-haven currencies, such as the USD and JPY, are going to begin regaining some of their recent losses through next week.

OIL - Demand for Crude Oil Continues to Fall; As Does its Price

It appears that the recent steps taken by the Organization of Petroleum Exporting Countries (OPEC) to increase the price of Crude Oil have begun to lose their momentum. After 4 consecutive days of losing value, the price of Crude Oil currently sits just below $48 a barrel and could retain this downward momentum. As economic growth continues to provide data which indicates a further slump in demand, and as the USD rallies from poor stock market data, Crude Oil may devalue even further through to next week.

As U.S. Crude Oil inventories have illustrated these past weeks, demand for this commodity has witnessed a solid deterioration. This inventories report, which is due to be released at 14:30 GMT today, may indeed indicate that demand has continued to fall and traders could be seeing a decreasing price of Crude Oil through Friday and into next week. A price of $46 may be seen by the week's end.

Technical News

EUR/USD

There is a very distinct bearish channel forming on the hourly chart, as the pair is now floating in its lower section. In addition, all oscillators on the 4-hour chart are pointing down, suggesting that the downtrend might extend. Going short might be the right strategy today

GBP/USD

It seems that the Cable has limited its bullish correction after peaking at the 1.4941 level. And now, a bearish cross on the daily chart's Slow Stochastic indicates that the general downtrend might extend. Going short seems to be the preferable choice today

USD/JPY

The daily chart shows that the pair is currently range-trading within a restricted price range. However, as the RSI on the daily chart has dropped beneath the 70 line, it appears that bearish momentum might be arising. Going short with tight stops could be the right choice today.

USD/CHF

Ever since bottoming at the 1.1253 level, the pair has entered a very strong bullish trend and is currently traded around the 1.1490 level. And now, a flag formation on the 4-hour chart suggests that the bullish move has more room to go.

The Wild Card

GOLD

Gold prices are in the midst of a very strong downtrend, and an ounce of gold is currently traded for about $887. The daily chart shows that the current price has dropped beneath the Bollinger Bands' lower border, indicating that the bearish move is still quite strong. This might be a good opportunity for forex traders to join a very popular trend