• US Treasuries have a range-bound session, while curve steepens
  Weak eco data and somewhat softer equities failed to give Treasuries sustainable upward momentum on Tuesday. Given the recent pronounced flattening of the curve, some new steepeners were set up. However, flows were thin, casting doubts whether it is the start of a new trend. The calendar is unattractive today, suggesting range-trading to continue
• European yield curve steepens again
  The Bund is coming ever closer to the important support level at 114.69. A sustained break lower would further damage the technical picture and suggest the correction has further way to go. We are still skeptical about such a break lower and see current levels as a good opportunity to go long again, especially at the short end of the curve.
• Sterling hammered by poor UK housing data
  With no data on the agenda, both USD/JPY and EUR/USD traded in a wait-and-see mode and only showed marginal changes in a day perspective. A similar trading pattern might develop today. A sharp drop in UK house prices reinforced the doubts on sterling. EUR/GBP comes very close to the psychological barrier of 0.80.

The Sunrise Headlines

• US equities declined moderately yesterday (-0.3-to-0.7%) driven weaker homebuilders (pending home sales) and financials (Washington mutual slashing dividend)
• Asian equities trade down overnight, but are now off the lows
• BOJ keeps rates unchanged (unanimously). Election of Shirakawa as next BOJ governor is now very likely
• IMF puts cost of global credit crisis at 945 billion $, the highest estimate until now
• Morgan Stanley Mack says crisis could be over soon
• Thin market calendar today , but UK production data worth looking at

Currencies: Sterling Hammered By Poor Housing Data

On Tuesday, EUR/USD showed some ’strange’ swings, but at the end of the day, the picture was completely unchanged. In Asian trading, the euro spiked higher to the 1.58 area on rumoured Japanese buying interest at the start of the new fiscal year. However, this kind of euro movements during the Asian trading hours always have to be confirmed in European/US trading and that was not the case. Throughout the morning session, EUR/USD drifted lower to the 1.57 area and closed the day at 1.5712, unchanged from the previous day. The Minutes of the previous Fed meeting painted a bleak picture for the US economy for the whole of 2008. However, this only had a limited and temporary impact.

Today, the calendar is again very thin, both in the US and in Europe, with only some Fed speakers on the agenda. The market focus will already shift to tomorrow’s ECB meeting. This decision could be interesting for EUR/USD trading. The ECB will leave rates unchanged at 4.00% and markets expect the Bank to maintain a hawkish tone. Of course, the ECB will warn on inflation. However, maybe there is some chance that the bank starts to give some more weight to the slowing of growth in (some parts) of the euro zone. If true, this could help EUR/USD try to build a more sideways pattern.

We have a standing USD negative view and were/are reluctant to change tactics just after a few day days of correction. Last week there were some tentative signs that the dollar could become somewhat more resilient to negative news, but this ‘improvement’ is not yet confirmed by a strong technical signal. So, for now we assume that a dollar correction/rebound, if any, will continue to be slow and difficult, as long as it is not supported by an improvement in fundamentals and/or in the interest rate balance between the euro and the dollar. The jury is still out as to whether the USD has found a bottom.

Looking at the graphs, the short term technical picture of EUR/USD showed a first, albeit very cautious ‘warning signal’ as the MTMA moving average (today at 1.5700) came under test. However, even this first resistance proves difficult to break for the dollar. The 1.54/1.5340 area remains the key reference area short-term as a break lower would point to a deeper correction. However, as long as this level holds, some further consolidation in the 1.5340/1.59 range looks the most likely scenario for now.

EUR/USD: consolidation ahead of ECB meeting.

Support stands at 1.5673 (Reaction low hourly), at 1.5638/28/25 (Daily envelope/ST low/Break-up hourly), at 1.5543 (Break-up + Weekly envelop), at 1.5510 (Last week low) and at 1.5341 (Reaction low + Potential Neckline double top).

Resistance is seen at 1.5744 (Breakdown hourly), at 1.5783 (Daily envelope), 1.5799 (ST high), at 1.5889/1.5905 (Boll top/All-time high).

The pair is still slightly overbought short-term.

USD/JPY

The tentative signs of some more dollar resilience as mentioned in the EUR/USD part, still are better visible in the USD/JPY currency pair, even if the pair failed to clear the 102.80/95 resistance several times over the previous week. Also yesterday, USD/JPY trading was dominated by technical considerations. The dollar recouped some early losses later in the session and the pair closed the day at 102.65, little changed from the previous close.

The Japanese Parliament approved Mr. Shirakawa as the new head of the Bank, but this had no impact on the currency markets. As expected, the BOJ this morning left its target policy rate unchanged at 0.50%. Markets now look out for the BOJ monthly report, to be released later today. Japanese stocks again lose ground this morning and this slightly supports the yen, but after all USD/JPY still holds up rather well and remains within striking distance of the short-term highs in the 102.80/95 area;

Recently, the downside in USD/JPY has become better protected and the re-break above the 101.04 level paints a short-term double bottom pattern on the charts. We amended our short-term bias for USD/JPY from negative to neutral. If tensions on the stock and credit markets continue to ease, the yen might be vulnerable to additional losses. Medium term, the 104.95 level (Previous reaction low) remains the next key point of reference in this pair. In a day-to-day perspective, the 102.95 area is the first important hurdle for this pair.

USD/JPY preserves recent gains

Support stands at 102.11/01/99 (Break-up/Broken LTMA/daily envelop), at 101.74/43 (Reaction low + Daily flag bottom/reaction low), at 101.08 (Neckline double bottom), at 100.89 (Break-up), at 100.19 (Breakup).

Resistance comes in at 102.85/95/98 (ST highs + 38% retracement), at 103.15 (Daily envelope), at 103.28/34(Weekly envelope/daily Boll Top), at 102.52/60 (1st target Double bottom/11 Mars high), at 104.20 (Previous high) and at 104.95 (Previous reaction low).

The pair trades in overbought territory

EUR/GBP

On Tuesday, the sterling was again hammered after a report showing that UK house prices in March dropped a much larger-than-expected 2.5%. The publication of the report almost immediately sent EUR/GBP to the 0.7980 area, within striking distance of the life-time highs in this pair and the sterling was unable to make any comeback worth mentioning. The pair continues to trade in that area this morning and even set a new minor high. Overnight, UK nationwide consumer confidence dropped to 77 from 78. This was slightly less negative than expected, but was not able to give the sterling any relief.

Today, the UK eco calendar contains the Industrial production data. Also for sterling trading the market attention will turn to tomorrow’s BOE meeting. The recent flow of bad news only reinforces the market feeling that the BOE can’t do anything but cutting rates tomorrow.

Early last week, the improvement in global market sentiment also slowed the longstanding decline of sterling against the euro. However, the sterling ‘rebound’ had no strong legs. A deteriorating UK eco picture and the prospect for more BOE rate cuts in the short-to-medium term continue to weigh on the UK currency and the poor housing data only reinforced the doubts about sterling. So, we continue to remain sceptical on the rebound potential for sterling against the euro. The 0.7750 area is the first important reference and we expect this level to give strong support. A break above the 0.80 even could trigger some additional stop loss buying in this pair. Once again, we don’t try to catch the falling sterling knife.

EUR/GBP: sterling hammered (again) by poor housing data.

Support stands at 0.7970 (Reaction low hourly), at 0.7844 (Daily envelope), at 0.7921/15 (STMA/break-up daily), at 0.7822 (reaction low/Equality C-wave), at 0.7808 (Previous reaction low) and at 0.7746 (correction low).

Resistance comes in at 0.7992/94 (Daily channel top/new high), at 0.8010/16 (Daily boll top/Daily envelope), 0.8050 (Daily Starc top) at 0.8106 (Daily channel top).

The pair is still in overbought territory.

New

US:Pending Home sales drop in February

Pending Home sales fell a larger-than-expected 1.9% M/M in February, following a 0.3% M/M increase in January, earlier reported as flat on the month. On a Y/Y basis, sales are still down 21.4%. Markets counted on a 1% M/M decline. The report suggests that the bottom in the housing sector has not been reached. Pending Home sales precede Existing Home sales and a surprise rise of the latter in February raised hopes that the worst might be over. This is now certainly not the case.

ICSC weekly retail sales were up 0.7% W/W in the most recent week, following sharp declines in the previous two weeks. However, on a yearly basis, sales fell sharply to 0.3% the weakest since early April 2003. It seems that consumers continue to keep their wallets closed, a negative for the economy going forward. The IBD economic optimism survey, a gauge for consumer confidence, weakened further. The headline index dropped to 39.2 from 42.5

Other: UK house prices plunge in March

In the UK, the Halifax house price index showed house prices falling by 2.5% M/M, the largest monthly drop since 1992. On an annual basis, house prices are now barely rising (1.1% Y/Y). Following the awful data, Halifax lowered its forecasts for UK house prices and now expects them to fall modestly this year instead of a previous forecast of steady prices. The abrupt slowing in the UK housing market will be another argument in favour of a rate cut at this week’s meeting.

Download entire Sunrise Market Commentary

Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

• British Pound Plunges As Housing Data Hints At A 50bp BoE Cut
• Risk Headlines Feeding The Buildup To A Potential Yen Breakout

Fed Considers A Contraction In GDP ‘Likely’

The dollar found little support from fundamentals Tuesday, but cross market currents helped to keep the currency elevated among the majors. Topping headlines for the day were unexpected highlights in the minutes from the Federal Reserve’s March 18th meeting. Few analysts and traders were expecting any substantial changes from the report; but there were more than a few notable remarks. The most dramatic change was made in reference to the outlook for growth. Considering the disappointing cut of data that has crossed the wires since the January meeting, it wasn’t surprising that the Fed’s forecast for the economy ‘weakened considerably.’ However, what was startling was that ‘many’ members considered a contraction in growth as ‘likely.’ What’s more, the pessimists among the Board saw the risk for a ‘prolonged and severe’ downturn. This clearly reflects a concern from the policy authority that the world’s largest economy is - at the least - heading for recession. And, while these comments were feeding bearish sentiment, the statement didn’t come without its silver lining. The two dissenters in last month’s 75bp rate cut (Fed Presidents Plosser and Fisher) voted for a less aggressive move, arguing that the previous 225bp of cumulative easing haven’t fed through the market and that the future risk to inflation in the medium term outweighs an economic cooling in the near term. Outside of the Fed’s influence, the greenback was jostled by mix fundamentals. Well before the open of the US session, the UAE central bank governor announced that he would not drop the dollar peg even as a number of countries in the region look to speed up the creation of a monetary union. Countering this promising news was the NAR’s pending home sales figure for February. Though it is a lagging indicator for the sector, the report’s worst reading since records began in 2001 is a potent reminder of the condition the housing market is in - not to mention it supports the Fed’s suggestion that there is ‘little indication’ a bottom is forming.

British Pound Plunges As Housing Data Hints At A 50bp BoE Cut

The outlook for the Bank of England’s rate decision has gone to the doves; and the shift in sentiment has shown through price action. After a surprisingly sharp drop in housing prices from the HBOS indicator, GBPUSD proceeded to drop 250 points through the course of the day, slipping below major support seen around 1.9750 in the process. According to the data, housing inflation tumbled 2.5 percent through March, the sharpest monthly contraction since the UK’s last recession in 1992. What’s more, the 1.0 percent drop in prices through the first quarter from the same period a year before marks the worst pace the indicator in 12 years. This is a fully loaded piece of data. For the market, this data boosts speculation of a rate cut from the Bank of England on Thursday - with a number of traders entertaining the possibility that the MPC will cut by 50 basis points (though we see this as a very low likelihood). For the long-term, fundamental outlook, this data adds another facet to the concern that the UK housing market is looking a lot like its US counterpart a few years back. Looking ahead to the next 24 hours, we will monitor the Nationwide Consumer Confidence and industrial production numbers to see whether the data can add to rate speculation and maintain the pound’s recent volatility.

Risk Headlines Feeding The Buildup For A Yen Breakout

Risk trends were on the move again Tuesday morning. The highly visible credit crunch was fed by a number of reports today that both added to concerns that the crisis will deepen and conversely that conditions are improving. Suggesting things will only get worse before they get any better, the IMF produced its most in-depth report of the financial market crisis since it began last summer. In the report, the lender projected total losses from the sub-prime-borne crisis could cost financial institutions as much as $945 billion - well beyond the current level of writedowns already reported by the banking industry. Officials at the IMF suggested that the world’s banks should disclose all looming write downs and once again called for a coordinated effort by central banks to stamp out the credit crisis once and for all. On the other side of the coin, the Fed made another $50 billion injection through its auction facility and Washington Mutual was able to raise $7 billion in a market that is still very risk adverse. Despite these reports though, USDJPY was pushed even further into a technical wedge that begs for a breakout. Looking ahead, a BoJ rate decision is on tap; but considering the instability in the group’s ranks and the muddy Japanese fundamentals, there is little chance for a change in policy.

Euro: The Calm Before The Storm

The euro was little moved against most of its major counterparts Tuesday with no economic indicators available to produce fundamental waves. The lack of price action is fitting though considering the ECB rate decision is little more than 18 hours away. The market’s expectations for Trichet’s policy stance is best reflected in EURGBP, which reached a record high today. With the UK succumbing to the same growth and financial market problems as the US, it only further acts to highlight the appeal of the euro. The European Central Bank is expected to hold rates steady, and can do so with inflation elevated and growth still very strong.

Demand For Yield Saves New Zealand Dollar, Canadian Data Questionable

The commodity bloc was pushing higher against the greenback Tuesday. The Canadian currency was able to regain its footing thanks to a stronger than expected March housing starts report. Developers broke ground on 254,700 homes in Canada on an annual basis, a modest slip from February pace. However, we should remember permits data showed its worst trend since 1990. For the kiwi, demand for yield must be strong indeed. The NZIER business sentiment report for the first quarter dropped to a 33-year low as rate hikes slow the economy.

DailyFX

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Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

Mainly the dollar has managed to acquire back some strength especially as the focus this week is on other central bank’s to take the stand, while today’s FOMC Minutes are not expected to be of great impact since Mr. Bernanke’s testimony has provided markets with what’s needed, and the sentiment is that the Feds are to continue cutting yet on a less aggressive pace that seen before which is helping the dollar hold up.

The euro in the US session gave up its gains to the dollar as it declined to reach as low as 1.5680s support area which offers good demand on the pair, rebounding from those area’s with the help of the deeper than expected fall of US pending home sales the euro now is trading at 1.5710s, the euro remains bullish and the focus will be the press conference after the decision.

The pound was hammered further today after housing prices dropped much more than expect intensifying the need for the BoE to cut rates, and expectations of a 50 bp is now roaming the markets. The pound’s plunge took sterling through major support levels breaching the 61.8% Fibonacci Level and then was able to continue through the historical support for the upside wave at 1.97s settling below the level after reaching 1.9665.

The equities drop spurred buying back the yen which supported it to settle in the European session as the euro and the pound dropped against the yen, while the dollar strength in the US session helped the pair incline to set the new intraday high of 102.68 settling now at 102.50s.

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

US pending home sales have resumed falling in February after a slight increase in January, according to the latest survey by the US National Association of Realtors.

Pending homer sales, a forward looking indicator to assess future trends in existing home sales, have posted a 1.9% decline in February to a level of 84.6 from the upwardly revised 86.2 in January. In the last 12 months pending home sales have declined 21.4% from the 107.6 level in February 2007.

According to Lawrence Yun, NAR chief economist, existing home sales will increase in the last quarter of the year: “The slip in pending home sales implies we’re not out of the woods yet, though an era of successive deep sales declines appears to be over.”
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According to the National Association of Realtors, US pending home sales fell more than expected in February at a seasonally adjusted rate of 1.9 percent led by falling sales in the South, West, and Midwest. Meanwhile, the unadjusted annualized change reflects a 17.4 percent plunge from a year earlier, highlighting the dismal status of the US housing sector. With supplies still far too numerous for low levels of demand, prices falling, and lendng standards remaining tight for those who want mortgages, the collapse of the sector is still far from bottoming out.

DailyFX

Disclaimer

Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.