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Commercial crude oil inventories in the US, excluding those on the Strategic Petroleum Reserve, have increased by 6.2 million in the week of March, 7 from the previous week, according to the Energy Information Administration.

The US crude oil inventories amount 311.6 million barrels, a level in the medium of the average range of this time of the year. Motor gasoline inventories have increased by 1.7 million barrels, while distillate oil inventories have decreased by 1.2 million barrels, and Propane/propylene inventories decreased by 1.3 million.
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Key News

• China’s retail sales climbed 20.2 percent, matching the fastest pace in at least nine years. (Bloomberg)
• Japan’s economy grew more than economists estimated in the fourth quarter as exports helped the nation weather a housing slump. (Bloomberg)

Key Reports Due (WSJ):

• 7:00a.m. MBA Mortgage Refinancing Index. Previous: +4.5%.
• 2:00p.m. Feb Federal Budget. Expected: -$160B. Previous: +$17.84B.

Quotable

‘Given that the mark-to-market theology would, without much of a stretch in interpretation, tell you that some major institutions would already have something less than the capital they need to support their business, one might reasonably ask why the investing public would give them more money. After all, you can buy big piles of mouldering securitised paper on the open market, without the management value subtracted offered by the Citigroup board.’

FX Trading - A Few Questions

Where was Robert Rubin’s great council and wisdom during this ongoing meltdown at Citi?

Is it coincidence the Fed’s major pumping campaign coincided with the potential (and still possible) meltdown of a key asset of the super-power-elite Carlyle Group?

Does anyone else believe the next major debacle, which is already starting to play out, will be the hedge fund arena?

With $29 trillion notional value in credit default swaps and a cool $292 trillion in interest rate derivatives on the books at the end of 2006, does the $200 billion Fed move cover the problem?

Why does Hank Paulson still repeat the ’strong dollar policy’ pabulum? When will Gulf States abandon their dollar pegs?

With 20% retail sales growth, can’t China afford to let its currency run a lot faster, especially with imported commodities cost soaring?

When will more talking dollar bears turn into acting dollar bears i.e. when will open interest surge into extreme category? Notice in the euro-$ futures weekly chart below that despite the new high in euro, the open interest level has not stretched into what we would consider ‘extreme’ category.

Does our monthly Elliott Wave chart of the US $ Index make sense with a target of 6750; we are beginning to believe it looks too optimistic for dollar bulls?

Jack Crooks Black Swan Capital
http://www.blackswantrading.com

Currency Currents is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to forex and futures should be strictly the money you can afford to risk. While every effort is made to evaluate the actual experience of subscr ibers, all performance figures must be considered hypothetical, and past results are no guarantee of future performance. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

European Mid Morning Update

Releases from Europe:

Slightly better than expected CPI figure from France but with oil well above $100 pb no one is taking this as a sign that inflation has peaked. This is very unlikely to have any impact today.

The following economic releases are due today:

January

U.K. Visible Trade Deficit GBP -7.50bn
U.K. Total Trade Deficit GBP -4.60bn
Euro-zone Industrial Production (MoM) +0.4%
Euro-zone Industrial Production (YoY) +2.6%

March

Swiss ZEW Survey: Expectations
Bloomberg Global Confidence

Overnight euphoria following the central banks’ announcement of a temporary injection of over US$200 bn funding to allow primary bond dealers to swap the mortgage-backed securities that they can’t currently sell for highly liquid Treasuries has abated somewhat in Asia.

Without a doubt it is a good alternative, and probably addition, to simply cutting interest rates. The market is now talking of a small rate cut from the Fed at next week’s FOMC meeting but most participants are still talking of 50bp.

Already traders are talking of selling pressure again and while there may be some it shouldn’t reach new lows with the prospect of the FOMC meeting on Tuesday next week. That in itself will restrain the market from pushing strongly one way or the other.

However, the market doesn’t like uncertainty and that provides a window for the Dollar to continue its recovery, shallow as it may well be.

There is little on the agenda to provide any great surprises either today.

Bottom picking should be the name of the game today but the problems with this is the risk of a fairly sizeable pullback following yesterday’s gains. However, over the next few days we should see the Dollar reach 104.63-80 Dollar-Yen, 1.5072-1.5144 Euro-Dollar, 1.0183-1.0215 Swissie and 2.0125-45 Pound and these should provide a cap for additional losses.

Note important support and resistance areas:

Ian Copsey
Global Forex Trading
http://www.gftforex.com

DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

The British pound continued to struggle in the face of mixed economic data.

The RICS house price balance was lower than expected but the DGLG house price report was stronger. The BRC sales monitor on the other hand was firm, but the divergence between the best and worst performing retail sectors continued to grow. The trade balance is due tomorrow; we expect the number to be pound bullish.

The Fed turned to a proactive approach to aid the fading economy as they offered to lend up to $200B in treasuries to financial institutions in exchange for debt, and led the US dollar to snap back from newly recorded lows. Among the major currencies, the US dollar picked up the most in six months against the yen as it rebounded from an eight year low, with the Swiss franc following closely behind as demands for carry trades picked up after the reassuring announcement from the Fed. Against its European counterparts, the euro weakened to 1.5330 after touching an all time high of 1.5496, with the British Pound also falling against the US dollar as the pair retraced back to 2.0060. As investors took on more risk, the comm dollars picked up moderate gains against the US dollar while upward pressures from rising commodity prices helped as well, as oil surged to a record high of $108.44 a barrel. 

Fresh economic data raised inflationary concerns for the US economy as the trade deficit widened to $58.2B from $57.9B due to record high oil costs. However, after taking a closer look at the data, the trade figures came out better than many had expected as rising exports eased the mounting pressures from inflation. Following the trade release, the IBD/TIPP Economic Optimism data added downward pressures for the US dollar as consumer confidence dropped to a two year low stoked by overwhelming recessionary concerns for the economy.

The stock markets advanced for the first time in four sessions as the Fed swooped in to restore liquidity in the financial markets. As a result, the DJIA rose the most in seven weeks to pick up a bolstering 416.66 points to bring the index up to 12,156.81, with aircraft giant Boeing posting the only losses of the big 30. Among the broader indices, the S&P500 advanced 47.28 points and brought the index to 1,320.65 points, with Thornburg Mortgage surprising topping the advancers, while Wellpoint Inc lead the losers.

Investors fled the save haven of US Treasuries as risk aversion got tucked into their back pockets, and sent bond prices falling. The benchmark 10-Year yield rose to 3.60 from 3.45 percent, while the 2-Year yield jumped 1.75 from 1.48.

Looking ahead, Retail Sales and Import Prices will be the main focus for Thursday and expect increased volatility for the US dollar, and will be followed by Initial Jobless Claims and Continuing Claims at 12:30 GMT.

The dollar reversed overnight losses against most key currencies after the Federal Reserve announced Tuesday it will increase its security lending program by as much as $200 billion and accept mortgage papers as collateral in an attempt to more directly address the cease up in credit markets. The Fed will also increase swap lines with foreign central banks. The Fed’s move makes it less likely the Fed will cut its benchmark interest rate before the March 18 Fed meeting. We think the chance of a 50 basis-point cut is more likely than a 75 basis-point cut. The Fed’s more direct approach and decision to accept mortgage backed securities may let the Fed ease less as the credit crunch will be more directly addressed. This should, if it works, be less inflationary, less bullish for commodity and help the dollar. The move led to a short-covering rally in stocks and decreased risk aversion, which pressured the yen and Swiss franc.

The EUR/USD reached a new all-time high after the ZEW index showed German investors were more optimistic about the German economic condition. However, the pair reversed its gain following the Fed announcement. The pair is still in an uptrend but overbought. There are resistance at the 1.55-handle and support at the 1.53. If this support is broken, the pair is likely to test the 1.49-1.50 area.

Financial and Economic News and Comments

US & Canada

The Federal Reserve announced it is expanding its securities lending program to channel liquidity more directly to credit markets. The Fed said it will hold auctions to lend as much as $200 billion in Treasury securities and increase swap lines with two foreign central banks to try to ease renewed turmoil in credit markets. The Fed plans to make the loans in exchange for private mortgage-backed securities and other debt that has plunged in value. Securities will be made available to primary dealers through an auction process. The FOMC has also authorized increases in its temporary reciprocal currency arrangements with other central banks.

The US trade deficit widened a less-than-expected 0.6% to $58.2 billion in January from a downwardly revised $57.9 billion in December, the Commerce Department said. Exports rose 1.6% m/m to a record $148.2 billion in January. Exports rose 16.6% y/y. Imports increased 1.3% to $206.4 billion, the highest ever on higher energy costs. Imports rose 11.9% y/y. Excluding petroleum, the $32.1 billion trade gap was the smallest since October 2002.

Canada’s trade surplus widened to a larger-than-expected C$3.26 billion ($3.28 billion) in January after reaching a 9-year low in December. Exports rose 3.6% m/m, led by record shipments of petroleum products. Imports increased 1.0% m/m.

Europe

The ZEW’s German investor economic expectations index increased more than expected to -32.0 in March from -39.5 in February. The gauge reached a 15-year low of -41.6 in January. The current economic situation index fell to 32.1 in March from 33.7 in February.

UK’s Royal Institution of Chartered Surveyors said the number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 64.1 percentage points in February, the most since June 1990.

Asia-Pacific

Japan’s main opposition party said it will reject Prime Minister Yasuo Fukuda’s candidate Toshiro Muto to lead the Bank of Japan, deepening a political standoff only a week before the current BOJ governor’s term expires.

Australian business rose to -2 in February from -4 in January, according to National Australia Bank Ltd. A negative number shows those expecting business to deteriorate outnumber those predicting an improvement.

China’s inflation rose a stronger-than-expected 8.7% y/y in February, the fastest pace in 11 years, the Statistics Bureau said. Food prices soared 23% y/y after blizzards.

FX Strategy Update

Hans Nilsson
Capital Market Services, L.L.C.
www.cmsfx.com

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