Bank of England announces plan to increase liquidity. US dollar weakens as sentiment dampens.

CURRENCY TRADING SUMMARY

U.S. Dollar Trading (USD) was softer against the other majors other than sterling despite no significant data being released, leaving the market to find its own direction based on sentiment. US Fed officials Kroszner and Evans both spoke on Monday, avoiding the topic of monetary policy in their comments. Kroszner touched on transparency in lending standards and standardization aiding the sub-prime mortgage market, but suggested the financial markets remained “bogged down by unease.” Troubled news continues to flow from the financial sector as the second largest U.S bank, Bank of America Corp., reported a 77% drop in Q1 profit brought about by US$6bn of credit write-downs. Speculation has mounted that Citigroup may cut its dividend again following on from billion dollar write-downs. Chicago Board of Trade (CBOT) has cut its predictions of a 50bps rate cut when the Fed meets at the end of the month, however believes there is a 92% chance of a 25bps rate cut. In share market news, Bank of America’s shares fell 2.5%, whilst National City Bank’s shares fell 27%. As a result, the Dow Jones stalled 24 points (-0.2%), whilst the NASDAQ gained 5 points (0.2%). Oil prices hit fresh record highs as Nigerian supply concerns remain high, rising US79c a barrel to US$117.48.  Looking ahead, Existing Home Sales for the month of March and the Housing Price Index for the month of February will be released on Tuesday with forecasts of a decline in Home Sales to 4.92 million compared to 5.03 for the month of February. The Fed Manufacturing Index for April will also be released on Tuesday following an index of 6.0 for March.

The Euro (EURO) rallied to within a cent of a record high against the dollar as ECB officials reiterated the concern of an accelerating inflation on the Euro, increasing the chances interest rates will stay at six-year high for some time yet. The Euro gained momentum after policy maker Liebscher stated that record oil prices are beginning to push up wage demands and maintain a high inflation level. The EURUSD traded at a high of 1.5946 and a low of 1.5793 before closing at 1.5927 in New York. Looking ahead, the focus is on Wednesday’s data releases with German and Euro PMI Manufacturing figures for the month of April with forecasts of 54.8 for Germany and 51.5 for the Euro Zone, after March saw a level of 55.1 in Germany and 52.0 for the Euro Zone. PMI Services is also to be released on Wednesday with expectations of a similar level to March’s figure of 51.6.

The Japanese Yen (JPY) strengthened on Monday as weaker U.S equity profit results dampened investors’ initial optimism that companies may escape the global credit crisis relatively unharmed. The USDJPY traded at a high of 104.06 and a low of 103.00 before closing out at 103.18 in New York. Japan’s Trade Balance for the month of March is to be released on Tuesday with expectations of the deficit growing to US$1400bn compared to US$970bn for February.

The Sterling (GBP) fell against the majors as the BoE confirmed speculation by announcing a plan to relieve the liquidity problems in the UK financial network by accepting at least 50 billion pounds of mortgage-backed securities in exchange for UK Treasury bills to lower credit costs and help revive lending by banks. British Finance minister Darling further commented the plan will help resolve the problems in the wholesale financial markets. He went on to suggest, “We expect the BoE to undertake gradual easing in the coming quarters, bringing the Bank Rate to 4.5% by year end.” UK house prices were down 0.1% in April. The GBPUSD traded at a high of 2.0026 and a low of 1.9778, before closing at 1.9812 in New York. 

The Australian Dollar (AUD) powered through US94c as Core PPI easily surpassed forecasts rising 1.9% m/m and 4.8% y/y for Q1 compared to expectations of 1.0% m/m and 3.9% y/y. This highlights the remaining inflationary concerns facing the RBA, with all eyes focused on the CPI Q1 figure to be announced on Wednesday with forecasts of 1.1% q/q. The AUDUSD traded at a low of 0.9330 and a high of 0.9443, before closing at 0.9443 in New York.

The Canadian Dollar (CAD) is expected to move on Tuesday as the BoC has a rate announcement scheduled. Forecasts suggest the BoC will slash rates by up to 50bps from 3.5% to 3.0%.

Gold (XAU) prices gained only slightly on Monday following a weaker dollar, rising by US$2.40 an ounce to close at US$917.60.

 
TECHNICAL COMMENTARY

Currency	Sup 2	Sup 1	Spot	Res 1	Res 2
EUR/USD	1.5659	1.5712	1.5915	1.5958	1.5983
USD/JPY	101.71	102.26	103.20	104.65	105.58
GBP/USD	1.9692	1.9777	1.9820	2.0027	2.0048
AUD/USD	0.9250	0.9272	0.9440	0.9445	0.9473
XAU/USD	873.00	903.40	916.00	946.80	953.00

 
 
Euro – 1.5915
Initial support at 1.5712 (Apr 18 low) followed by 1.5659 (Apr 14 Low). Initial resistance is now located at 1.5958 (Apr 18 high) followed by 1.5983 (Apr 17 trend).
 
Yen – 103.20
Initial support is located at 102.26 (Apr 18 low) followed by 101.71 (Apr 17 low). Initial resistance is now at 104.65 (Apr 18 high) followed by 105.58 (76.4% retracement of the 108.61 to 95.76).
 
Pound – 1.9820
Initial support at 1.9777 (Apr 21 low) followed by 1.9692 (Apr 17 low). Initial resistance is now at 2.0027 (Apr 21 high) followed by 2.0048 (Apr 4 high).
 
Australian Dollar – 0.9440
Initial support a 0.9272 (Apr 18 high) followed by 0.9250 (Apr 16 low). Initial resistance is now at 0.9445 (Apr 21 high) followed by 0.9473 (Mar 13 high).
 
Gold – 916.00
Initial support at 903.40 (Apr 9 low) followed by 873.00 (Apr 1 reaction low). Initial resistance is now at 946.80 (Apr 18 high) followed by 953.00 (Apr 17 high).