by: TheLFB Trade Team
Overall, the majors enjoyed strong momentum during the early part or the Asian session, but some of the pairs lost the momentum as we headed into the Asian close. During the European session, the majors, with the exception of the pound and cad, traded mixed, unable to develop a solid direction. This will most likely change as the market heads towards the U.S. open.
The Euro (Eur/Usd) was sold during the overnight session, falling around 70 pips near the 20-day simple moving average. In the last two days of trading, the euro has traded mixed, reversing, during the U.S. session, the moves made earlier in the day. Tomorrow morning the ECB is expected to announce a cut in interest rates by 50 basis points.
The unemployment rate in the Euro-area continues to rise. The latest release, for the month of February, shows that the unemployment rate reached 8.5%, more than was expected. The unemployment rate for the month of January was also revised higher, to 8.3%. About 13.486 million persons were unemployed in the Euro-area, up by 319K from one month earlier. The PMI release shows the euro-area manufacturing side of the economy has contracted for ten consecutive months. The release number of 33.9 is slightly smaller than analysts' expectations of 34.0.
The Pound (Gbp/Usd) tested the low of Tuesday's trade during the Asian session, after falling 80 pips. However, the pair reversed direction and recovered the lost ground during the European trading hours, and advanced to the 1.4400 level. Currently, the pound is trading above the 50-day simple moving average. The U.K. Manufacturing PMI unexpectedly rose in March, after posting the second weakest read in its recent history, in February. Despite the better than expected read, weaker global demand still outweighs any benefit from sterling's fall against major currencies, and domestic conditions were especially poor due to the crises affecting car making, construction and retail.
The Aussie (Aud/Usd) traded mixed during the overnight session, near the neutral pivot point (0.6885), after falling 50 pips in the early Asian session. The aussie may continue to trade mixed over the coming period, as the Australian economic outlook had deteriorated over the last period. Retail sales in Australia have decreased by 2.0 percent in February which is higher than analysts' forecasts of a -0.5 percent decrease. This is the largest decline seen in the retail sales report in the past 12 months. Over half of the Australian economy is related to consumer spending. The building approvals from Australia rose a seasonally adjusted 7.8 percent, month over month, in February. This is the first increase seen in the index since June 2008
The Cad (Usd/Cad) advanced 100 pips during the Asian session, but shed most of the gains during the European trading hours. The cad is again trading slightly above the 20-day simple moving average, near where the pair opened the new trading day.
The Swissy (Usd/Chf) retraced a big part the declines seen in the last day of trading during the overnight session. However, if the swissy continues to advance, the resistance area formed by the 20 and the 100-day simple moving averages may prove to be a challenge. The pair will need strong momentum to break higher. The Purchasing Managers Index shows the industrial sector contracted in Switzerland for the seventh consecutive month. The PMI number was released at 32.6, as expected. The Swiss PMI confirms that the economy is taking a similar path as the Euro-area and the U.S. economies, which are in recession. The index sits at multi-year lows, showing that inflationary pressures are almost zero.
The Yen (Usd/Yen) started the Asian session in volatile fashion, but soon lost most of its momentum. Since the new trading day started, the yen has declined 40 pips, and struggled to hold above the neutral pivot point, at the 98.50 area. The same area acted as a resistance level during Tuesday's overnight session. The Tankan business confidence survey, which includes some of the largest companies in Japan, has fallen to a new low of -58. This is a sign that the country may be in for an extended recession as companies cut jobs and limit spending. Japans exports plummeted in February by 49.4 percent as consumers worldwide curb spending.
European Markets Decline, But Asia Closes Higher
Current Futures: Dow -65.00, S&P -8.10, NASDAQ -12.50
European Trade: European markets fell during the early trading session, in-line with the U.S. futures. However, Asian markets found the strength to close higher for the first time in four days, as the Japanese government pledged a third consecutive stimulus package.
Most stocks traded below the break-even line in the European session. On the German Dax, the car-manufacturers are trading mixed, even though the sector rose strongly during the Asian session. BMW gained 2.50%, the best performer on the Dax today, while Volkswagen and Daimler, the maker of Mercedes, were pushed somewhat lower. On the U.K.'s Ftse, the financials and commodity stocks led the declines, as oil fell, once again, below the $50 a barrel benchmark. Additionally, Vodafone recorded huge volumes today, as Goldman Sachs added the company to its “conviction buy” list.
Japan's Prime Minister, Taro Aso, announced a third stimulus bill is in the works, as the economy is set to contract at a record pace this year. The new package is likely to be announced before mid-April.
In the new stimulus package, the government aims to create about 2 million jobs and help the economy recover from the credit crisis. However, the Prime Minister did not provide any additional details about the size of the stimulus, or how it will be implemented. Analysts' estimate that that with the new fiscal package, Japan will exceed the 2% fiscal deficit that the IMF recommended. The announcement helped Asian equity markets stay positive, even though the U.S. futures were pointing to a weak start on Wall Street, during the Asian session.
Later today, two very important U.S. reports are scheduled for release. First, the ADP report is expected to show that companies shed more than 600K jobs for a fourth consecutive month. The downturn in the labor market started 14 month ago, in which time the economy lost 4.38 million jobs. Today's ADP report will most likely show that the downturn continued in March, shedding another 660K jobs. The ISM manufacturing report will probably confirm that the manufacturing sector continued to struggle in March.
Tonight, the Nikkei rose 242.38 points (2.99%) to 8,351.91. The Australian S&P/Asx slipped 2.40 points (0.07%) to 3,579.70. The U.K. Ftse fell 42.16 points (1.07%) to 3,883.98, while the German Dax shed 57.51 points (1.41%) to 4,027.35
Crude oil extended the decline seen in the last period. Crude oil for April delivery fell $1.20 to $48.50
Gold continues to trade within the range seen during the last few days of trading. Bullion for immediate delivery fell $4.40 to $920.60.