USD strength determines market direction ahead of EU meeting

Market Brief

The S&P 500 Index dropped 0.6% to 1,167.72 yesterday, its first decline in three days while the DJIA lost 52.68 points, or 0.5%, to 10,836.15 on concern government deficits will hamper a global recovery as Fitch cut Portugal’s credit rating and a UBS economist said Greece will default. The Nikkei rose 0.1% to 10,830.63 as Japanese stocks fluctuated as makers of cars and electronics rose after the JPY weakened to a two-month low against the USD 92.40, while commodity-linked shares fell after oil and metal prices dropped. The JPY rose from a 10-week low against the USD climbing to 91.78 earlier today on speculation Japanese exporters took advantage of its biggest slide this year to buy the currency before the fiscal year end next week. China’s stocks fell the most in a week as the Shanghai Composite Index lost 0.8% to 3,031.56 on concern the government will step up efforts to cool asset bubbles. The NZD rose 0.3% to 0.7039 from the lowest in more than a week as the GDP rose 0.8% in Q4 2009, spurring prospects for the RBNZ to raise interest rates. RBNZ’s Bollard kept the rate at a record low on March 11 and said monetary stimulus would likely be removed around the middle of 2010 amid higher bank funding costs and a “relatively sluggish” economic recovery with traders betting the RBNZ will increase its interest rate by 180 basis points over the next 12 months. AUD recovered some of yesterday’s biggest drop in seven weeks climbing 0.4% to 0.9114 as RBA’s Lowe said the mortgage rate “is still around 0.5% lower than the average of the last 15 years” and that the benchmark rate needed to move gradually toward “more normal levels” to contain inflation. The EUR was also close to a record low against the CHF trading at 1.4282 on speculation the EU will fail to agree on decisive measures to help Greece tackle its fiscal deficits at the meeting starting today in Brussels. EUR could see further downside to 1.3000 levels on speculations that Spain could be the next fiscal crisis in the EU. With Germany and France backing the help of IMF for Greece, while Greece wanting to go with the EU aid, a split in opinion on the bailout could be the focus of the meeting due to start today and continue till tomorrow while markets would be watching very closely on the developments with a bearish view on the EUR as Germany holds the key to the bailout, being the strongest member of the EU. The UK February retail sales report will be released today, forecasting a rise of 0.8% after a decline in January and a lower than estimate figure could be fatal for the GBP which is already reeling under pressure to bounce back amid pressure from inflation, housing as well as uncertainty over elections to reduce UK's budget deficit.

Currency Tech

EURUSD
R 2: 1.3530
R 1: 1.3425
CURRENT: 1.3330
S 1: 1.3280
S 2: 1.3200

USDJPY
R 2: 93.80
R 1: 92.45
CURRENT: 92.02
S 1: 90.80
S 2: 89.60

GBPUSD
R 2: 1.5278
R 1: 1.5190
CURRENT: 1.4897
S 1: 1.4784
S 2: 1.4580

AUDUSD
R 2: 0.9329
R 1: 0.9252
CURRENT: 0.9116
S 1: 0.9066
S 2: 0.8945

USDCAD
R 2: 1.0400
R 1: 1.0320
CURRENT: 1.0233
S 1: 1.0070
S 2: 1.0000

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