USD lower, new Japanese stimulus plan boosts sentiment

  • USD: Lower, pressured by a bounce in risk appetite as equity markets rebound, housing data weak
  • JPY: Lower, unemployment hits a three-year high, new stimulus plan to be announced
  • EUR: Higher, supported by gains in cross trade, German unemployment rises, EU inflation falls to record low
  • GBP: Higher , consumer confidence rises to its highest level since May, rallies in cross trade to JPY
  • CAD and AUD: AUD & CAD higher, supported by improving risk appetite , Canadian GDP weak


USD and the JPY traded lower pressured by rebound in equities and improving risk sentiment. JPY was also pressured by report that Japan's unemployment February unemployment hit a three-year high and by fiscal year end corporate selling. The Japanese government plans to announce additional fiscal stimulus in response to the deteriorating economic outlook in Japan. The global equity market recovery appeared to be sparked by news of the new Japanese economic stimulus plan and optimism about Thursday's G-20 meeting. EUR rallied despite report of higher than expected German unemployment rise and weaker than expected EU inflation. EUR was supported by gains in cross trade to the JPY and firmer equity markets. GBP traded higher supported by report of improvement in consumer confidence and sharp gains in cross trade to the JPY. Commodity currencies traded higher supported by rebound in CRB. CAD traded higher with gains limited by report of weak January GDP. It's basically all one trade with the currencies tracking equities and risk sentiment .Today's USD decline is the opposite of Monday's price action when the USD and JPY firmed as equities traded sharply lower on concern about the outlook for US automakers. There did not seem to be any significant market reaction to the bleak OECD forecasts for the global economy. The OECD forecasts that the world economy will contract by 2.7% in 2009, expects continued rising unemployment and says additional steps are needed to halt the crisis. The OECD says that the ECB needs to lower interest rates and adopt quantitative easing. The OECD expects US GDP to contract by 4% in 2009 and be flat in 2010, EU GDP is expected to fall 4.1% and rise 0.3% in 2010 and Japans economy is expected to contract by 6.6% in 2009 and fall 0.5% in 2010.

Today’s US data:

The Case Schiller Home Price Index dropped to 19, a reading of 20 was expected. This marked the worst annual house price decline in the nine year series for the index. Chicago March PMI falls to 31.4, the trade was looking for an increase of 34.4. A reading below 50 suggests that the Chicago area economy continues to contract. March consumer confidence improved to 26 compared to 25 last month. These reports suggest the US housing and manufacturing industries remain weak and there is little optimism from the US consumer. The impact of the data was limited as US equities hold on to early gains.

Upcoming US data:

On April 1st, US February Pending Home sales will be released expected at 78.1 compared to 79.5 last month. March domestic auto sales will also be released on April 1st expected at - 6.5%. On April 2nd, initial jobless claims for week ending 3/28 are due for release expected at 650K. Factory orders for February will also be released on April 2nd expected at -1.1% compared to -1.9% last month. On April 3rd, March nfp will be released expected at - 605K compared to -651K last month. March unemployment is expected to rise to 8.4% from 8.1% last month.

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