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Asian Morning Update

European releases overnight:

Rather scattered news from Europe overnight. The ECB published its monthly bulletin with the headline statement: ‘The firm anchoring of medium- to long-term inflation expectations is of the highest priority… the Governing Council believes that the current monetary policy stance will contribute to achieving this objective.’

It was nothing more than has been repeated many times by Trichet who reiterated by commenting: ‘If we were no longer credible in ensuring price stability, households would loose confidence, and the financial markets themselves would be more turbulent.’

With gold hitting record highs at $1,000 per ounce and oil hitting $111 pb at one time the world is going to face a long period of above average inflation. It beckons likening the situation to the U.K. in the 1970’s which brought union unrest, high wages demands and strikes during the oil crisis that took inflation into double digits.

With European banks still expected to announce much greater writedowns due to the subprime debacle credit spreads are going to remain higher and credit screening tighter.

The prospect for a return to growth levels of the past 5 years is very slim.

States releases overnight:

The U.S. almost looked like returning good numbers but fell at the last fence. Higher than anticipated business inventories should be seen in the light of total sales at +1.5% over the month which kept the stock-to-sales ratio (1.25:1) slightly below December’s level. A year ago the ratio was 1.3:1 and suggests that U.S. businesses are fighting the slowdown with a combination of improved productivity and cost controls.

For all that mildly encouraging news retail sales slumped in February which really reflects what the MasterCard’s SpendingPulse reported with February spending taking a -1.1% dive.

And so the Dollar was sold again.

It has almost become a daily habit now, the easy route and just about self-fulfilling. That is why the central banks are becoming more concerned.

A 10% drop in the Dollar versus the Euro in three months is by any definition excessive and this makes the 15% drop against the Yen even worse.

Without a doubt the Dollar is oversold but habits die hard with every additional bad release causing a 1% drop it seems. The Dollar is overdue for a correction but the problem is now one of fear.

Every attempt the Dollar has made at generating a meaningful correction over the past 3 months has been muted and rapidly turned into a new rout. Market players are creatures who like a simple life. Long Dollar positions have made their life difficult. Short Dollar positions have been comfortably profitable.

Until there is cause to doubt the downside they will shun the upside.

With increasing rhetoric from central bankers on exchange rates it could be argued that the market is being prepped for concerted intervention. However, until – or unless – it actually happens long Dollar positions are plainly out of favor.

More later once the daily analysis has been done…

There are no economic releases due from Asia due today:

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

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