The U.S. dollar gets a fresh fillip from the unexpected 8,000 jobs increase by the ADP’s forecasts for March, versus expectations of a 70,000 decrease. The ADP survey’s effectiveness in predicting the official BLS figure for private payrolls remains sketchy over the past three months, but some market participants are welcoming today’s figures as another sign that the worst of the credit crisis maybe reaching an end. We have yet to see tomorrow’s release of the employment index of the services ISM.
The week’s data flow will be temporarily interrupted by what promises to be a spirited debate between Federal Reserve Bank Chairman Ben Bernanke and lawmakers (9:30 a.m. EST) about the Fed’s liquidity lifelines to brokerage firms at today’s testimony on “the economic outlook” before the Joint Economic Committee.
Factory orders seen falling 0.8% in February from January’s 2.2% decline.
The accelerating decline in Spain’s housing market maybe the wildcard that will make the difference in transitioning the euro’s recent moves from stabilization to accelerating losses. S&P points to the 27% decline in home sales in January from 12 months prior, while permits for residential housing tumbled 41% in the 12 months to September 2007. With housing permits being instrumental in determining housing starts and construction spending, the erosion in Spain’s real estate may take a swift deterioration as early as this quarter. But the time factor will emerge as homeowners delay taking price cuts right away, hoping to see stability, or a rebound.
We reiterate that we do not consider the current euro decline to be part of any major correction mainly due to the consistently staunch insistence by the European Central Bank to combat increased inflationary pressures. Currency markets will not be quick to confound losses by European banks with macroeconomic weakness in the Euro zone; especially weeks after the IFO business sentiment survey hit a seven-month high. We also expect the current slide in commodity prices to stabilize after smaller speculators are shaken out and the smart money returns to seek the favorable fundamentals of supply and demand.
EUR/USD is expected to test the $1.5500 support, followed by the four-week trendline support at $1.5470. The major point of support remains at $1.5340, which is the March 24 low and the 38% retracement of the rally from the February low. Upside seen capped at $1.5650 and $1.5720.
Yen drops on stocks, Japan funds
We view the current yen sell-off as a combination of an increasingly typical bear market rally in U.S. equities unfolding on factors that are more related to words of encouragement from investment banks seeking to increase their share offering rather than any material improvement on the data front. On the equity front, we have yet to see a test above the 1,380, without which the currency equity rebounds will continue to lack conviction and pave the way for renewed yen upside. We should remind that the speed of the yen pullback occurred on a rare combination of dismal Tankan survey, expanded offering from Lehman Bros and smaller than expected deterioration in the manufacturing ISM.
Having broken the previous support, now resistance, trendline from the Nov. 27 low through the 105 low, USD/JPY faces pressure at 102.60. 103 acts as the 38% retracement of the decline from the Dec. 27 high to the March 17 low. More bullishness is conveyed on the weekly chart as the recent spike can potentially extend towards the Trendline resistance at 103.70. Support seen stabilizing at 101.50, backed by 101.15.
Sterling eyes $1.9730 retest
The four-hour chart suggests renewed bearishness from current $1.98 towards $1.9760, which will extend to a major foundation at 1.9720-25. Resistance stands at 1.9840 trend line resistance, while 1.9880 should provide significant pressure.
Ashraf Laidi
Chief FX Strategist
CMC Markets US
a.laidi@cmcmarkets.com
