• USD: Higher, risk appetite dips as PPI and retail sales fall generating concern about US economic recovery
  • JPY: Higher, supported by safe haven flows despite global equity market rise to a three-month high
  • EUR: Lower, pressured by ECB rate cut speculation and rising risk of deflation in the EU
  • GBP: Higher, supported by UK Telegraph report which says UK housing slump will end by Christmas
  • CAD and AUD: AUD lower, CAD mixed, NAB Business Index improves, copper prices drop sharply

Overview

Nervous investors bought USD and JPY despite report of better than expected earnings at Goldman Sachs and a rally in European equity markets. A modest devaluation of the Singapore dollar, and frank comments from the White House that the US economy is not out the woods yet appeared to dampen risk appetite. A senior US official said that the US will experience more job losses and weaker GDP for the next several months as the global financial crisis continues. According to Christina Romer the Head of the White House Council of Economic Advisers, the US economy is still sick and we will have several more months of job loss and GDP numbers almost surely will be very bad in Q1 and Q2. This outlook partly offset the optimism generated by improving US bank earnings and USD and JPY extended early gains. The EUR traded lower pressured by dovish comments from the ECB's Orphanides warning that the risks of deflation have increased in the EU and by selling in cross trade to JPY and GBP. GBP edged higher supported by UK Telegraph report that says the UK housing slump will end by December. Commodity currencies were mixed with the AUD trading lower despite report of improvement in the NAB business conditions. AUD was pressured by a sharp fall in the price of copper which fell to limit down in the Shanghai market. The drop in the price of copper generates concern about the global economy. CAD traded mixed tracking crude prices. An unexpected sharp drop in US March PPI and weaker than expected retail sales adds to uncertainty about the outlook for the US economy. World stock markets rallied to a three month high but investors remain skeptical about whether the rise in stocks will continue due to uncertainty about global economic outlook. US equities traded lower after the release of today's US retail sales and PPI report. Focus turns to this weeks earnings report from major US banks with J.P. Morgan due Thursday, Citi due Friday, and Bank of America due next Monday.

There is a lot of talk about why the USD was so weak Monday with equity markets lower, GM preparing for potential bankruptcy and US earnings season beginning in earnest this week. One explanation for the USD slide is US bond yields slipped as the Fed bought bonds. Another explanation is a NYT’s article which says China plans to reduce its purchase of US bonds. According to the report, China has reduced its purchase of US bonds by 95% this year. A third explanation is continued improvement in risk sentiment as China’s economy shows signs of bottoming. This explanation is a little suspect as the EIA says it expects weak demand for crude and China’s exports continue to fall. High yield currencies remain well supported by optimism about the global recovery. The main signs of global recovery include, a five week rally in US equities, hope Wells Fargo and Goldman Sachs earnings surprise foreshadows better results form this weeks US bank earnings reports. In addition there is hope China's new stimulus plans will help boost global growth. Finally, financial stocks carried US equities higher in late trade Monday and bank stocks supported European equity markets Tuesday. US retail sales, housing starts and industrial output will be key to the current improvement in risk sentiment. 14 April 2009 www.easy-forex.com 2 | Daily forex Report

Bernanke speaks:

Fed Chairman Bernanke sees tentative signs of economic improvement and he is fundamentally optimistic about the US economy. Bernanke went on to say that the Fed will have to be prepared to remove liquidity and raise interest rates to combat inflation down the road when the demand for goods and services rebounds. Bernanke's comments failed to impact FX trade as US financial stocks lead the US equity market lower.

Today’s US data:

March PPI falls 1.2% and core inflation was unchanged. March retail sales fall 1.1% and 0.9% ex-autos. February retail sales were revised up to 0.3% from original report of a 0. 1% decline. The trade was looking for a flat reading on PPI and a 0.3% rise in retail sales. The decline in the PPI index reflects a sharp drop in energy prices. NFIB small business optimism fell 1.6 points to 81 in March.

Upcoming US data:

On April 15th, March CPI is due for release expected at 0.2% compared to 0.4% last month. April Empire State Manufacturing index will be released on April 15th expected at -35 compared to -38.2 last month along with March industrial production and capacity utilization. March industrial production is expected to fall 0.8% compared to - 1.5% last month and capacity utilization is expected at 70.1 compared to 70.9 last month. Finally on April 15th, April NAHB index will be release expected at 10 compared to 9 last month. On April 16th, initial jobless claims for the week ending 04/11 will be release expected at 650 K compared to 650 K last week. March housing starts will also be released on April 16 expected at 560 K. compared to 560 4K last month along with the April Philly Fed survey expected at -31.5 compared to -35 last month. On April 17th, April University Michigan sentiment will be released expected at 59 compared to 57.3 last month.