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Yen Pressured on Growth Forecasts, Euro and Pound Give Back Overnight Gains

Thu, Apr 30 2009, 22:55 GMT
by Nick Nasad

CMS Forex

USD/JPY - Dollar Climbs vs Weak Yen, BOJ Downgrades Growth Forecast

The Dollar-Yen pair which broke out of a downward sloping channel yesterday, followed through with another rally today. The pair first retested the 97.15 area in Asian trading, but then climbed 160 pips to test the area right below the 99 level. Stocks soared in Asia and Europe today, though US stocks after opening higher were mainly flat during today's session. The continuation of risk appetite in equities weakened the Yen as did a downgrade in expectations for growth from the Bank of Japan. The Bank of Japan reduced its expectations for growth in 2009, saying that GDP would contract 3.1% for the fiscal year that began in April, compared with a forecast made in January for a contraction of 2.0%.

JPN Industrial Production Increases for First Time in Six Months

Japanese industrial production rose for the first time in six months in March, preliminary data showed. Output increased 1.6%, doubling the forecast of economists. Companies seem to have finally run down their inventories and are ready to purchase goods from factories once again. The expectations for April's and May's output confirms that notion as they are expected to increase 4.3% and 6.1% respectively.

JPN Manufacturing PMI Increases to 41.4

In another good sign, the manufacturing PMI for April increased to 41.4 from March's 33.8. Though the sector remains in contraction as the index is still below 50, it does indicator that the pace of decline is slowing.

UK Nationwide Shows Pace of Decline in Annual Home Prices Slowing 

In the UK, the nationwide house price index showed prices down 0.4% in April, which was a much smaller decline than anticipated. The annual pace showed a second straight month of improvement though prices were still down 15% compared to a year ago.

GBP/USD - Pound Reverses Overnight Gains

The Pound-Dollar pair rose higher in the first part of the session, hitting the 1.4950 area in the wake of the housing price data. After hitting that high though, the pair gave up its earlier gains, and fell about 250 pips to reach the 1.47 level. The pair seems to be forming an upward sloping channel as of April 22nd.  

GBP/JPY - Pound Reaches 147 Level vs Yen

Despite the up and down movement of the Pound-Dollar pair, the Pound-Yen climbed higher for a second session, peaking it a high a few pips shy of the 147 level. Since reversing at the 139 level the pair has rallied about 760 pips. Late yesterday the pair broke above a downward sloping line of resistance.

EUR Inflation Stays at Record Low, Unemployment Rises

In the Euro-zone, the flash version of April's CPI showed the annual rate remaining at 0.6%, holding at its record low. Low inflation is a reflection of weak activity and will hurt revenues for stores and firms. A second release showed the unemployment rate climbing to 8.9% in March, the highest level in more than three years.

GER Unemployment Increases, But Job Losses Smaller Than Forecast

German unemployment increased for a sixth straight month in April, with the economy shedding 58K jobs. The figure was lower than expected, and smaller than the 71K of job losses seen in March.

EUR/USD - Euro Retraces Gains Following Test of 1.3385

The Euro-Dollar pair, like the Pound, hit a new high overnight near 1.3385 and reversed course, falling below its open, and setting a low near 1.32. The Euro managed to hold most of its gains from yesterday, but today's action is a clear indication that the recent rally is correcting.

US Jobless Claims Ease to 631K

In the US, the number of Americans filing for first-time claims for unemployment benefits fell by 14K to 631K, a result that beat forecasts. A slower pace of unemployment claims suggests the recession may be easing and could foreshadow the revival in consumer spending that would be essential to any recovery. On a darker note, the total number of people continuing to receive unemployment benefits rose to 6.27M, meaning its hard for the newly laid off to find new jobs.  

US Personal Spending Declines More Than Expected in March

Consumer spending fell more than expected in March, declining 0.2%, following two months of gains and an upwardly revised 0.4% in February. The data tempers some of the optimism around consumer spending following the 1st quarter GDP release that showed personal consumption up 2.2%. Incomes dropped 0.3% in March, which may have led to a bigger than expected decline in personal spending. Firms are able to keep wages depressed as the recession creates a very loose labor market.

US Chicago PMI Jumps in April

The Chicago PMI jumped in April, increasing close to 9 points to 40.1 as new orders saw a significant increase. Still, any reading below 50 means business activity contracted, but that contraction is easing. The report adds another piece of data showing that the worst of the US recession may be over.

USD/CAD - Loonie Tests 1.1860

We've already see the Dollar against the Yen, Euro and Pound, so we end with the US Dollar-Canadian Dollar pair, which broke below the 1.20 level that was support yesterday. The Loonie, after climbing to 1.2050 to start the session, declined nearly 200 pips from that high to test the 1.1860 level, the lowest this pair has been since January 12th. The Loonie was boosted by risk appetite for commodity currencies as signs emerge that the worst of the global recession may be behind us. The Loonie pared some of its gains in NY trading as US stocks erased advances after news came out that Chrysler will fill for bankruptcy today.

Upcoming Releases

Tonight Japan will reveal data on inflation, household spending, and employment and overnight the UK will post reports on manufacturing, consumer lending and mortgage approvals.

Tomorrow, the US finished the week off with data on consumer sentiment, the ISM manufacturing index, and factory orders.

Published on  Thu, Apr 30 2009, 22:56 GMT