Asian Session - Lack of US Bailout Details & AUD GDP Weighs on Markets

Market Brief

The Usd was stronger in the Asian session, as equity markets continue to collapse as the hopes of a near term stabilization are dissipating. However, at the time of writing equity markets have been moving higher.The EurUsd fell (shortly) under the 1.2500 handle but rallied to 1.2541, while the UsdJpy trended for most of the session before charging to 99.34. Commodity currencies fell, with the UsdCad heading higher with key resistance at 1.3020. A failure to hold there should trigger a move towards 1.3370, from a technical perspective. The UsdZar headed higher within resistance level at 10.8000. The UsdMxn pierced 15.50 briefly, where the Central Bank of Mexico was rumored to be waiting to intervene. Equity markets are being pressured by a combination of weak economic data, media headlines but perhaps the biggest weight is the lack of detail in the US bailout plan. The move lower in markets can be easily traced back to the disappointment in US Treasury Secretary Geithner bailout framework. The Obama Administration, including the President himself, attempted to put a positive spin on the recent developments by expressing hope for a proactive approach and confidence that the policy measures would eventually succeed. However, the markets shrugged off the remarks. In these uncertain conditions we are expecting further Usd strength.

Bernanke and Geithner’s testimony yesterday fell well short of providing the details the markets have been yearning for. Overall, the comments mirrored previous remarks from a week ago. Bernanke stated the US may need to expand the $700bn bank rescue program depending on the outcome of the bank stress test.

Yesterday, The BoC cut the official rate 50bp as expected to 0.50% and referred to quantitative easing for the first time in the accompanying statement. The statement noted that the Canadian economy was being pulled down by the global slowdown and expects the official rate to move close to zero. These comments were a shift in BoCs sentiment and now clearly looking at unconventional policy tools.

Australian GDP data dropped by 0.5 % qoq in Q4, well below market expectations and was the worst reading in almost 20 years. However, the data are not as dreadful as the headlines suggest as two factors weight heavily on GDP growth. A 2% q/q decline in private sector inventories and a statistical discrepancy, which detracted 0.5ppts from q/q GDP growth.

The Shanghai Composite Index was higher (6.11%) on the back a story indicating additional stimulus and expectations that Premier Wen Jiabao might make an announcement as early as tomorrow.

Later today, the US ISM non-manufacturing index probably fell back slightly in February, putting it at a level consistent with the severe recession persisting through the first half of the year at least. In addition, the ADP survey will be of particular interest ahead of Friday’s payroll report and expect to increase the downside risk to employment.

Currency Tech

AUDUSD
R 3: 0.6555
R 2: 0.6482
R 1: 0.6463
CURRENT: 0.6379
S 1: 0.6287
S 2: 0.6249
S 3: 0.6077

EURJPY
R 3: 126.08
R 2: 125.56
R 1: 124.23
CURRENT: 124.27
S 1: 121.75
S 2: 119.08
S 3: 117.91

USDSGD
R 3: 1.5841
R 2: 1.5653
R 1: 1.5594
CURRENT: 1.5525
S 1: 1.5464
S 2: 1.5286
S 3: 1.5130

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot