The dollar rallied against the yen and euro in NY trading Friday, while the yen and Swiss franc dropped versus most key currencies, as global stocks gained on better-than-expected earnings from Google and Citicorp. The EUR/USD fell the most in two weeks and did some technical damage as the pair broke its short-term uptrend. Sterling was supported by continued speculation the Bank of England will take mortgages off lenders’ balance sheets. The EUR/GBP was weak as its uptrend was broken today following an all-time high just two days ago. The Canadian dollar headed for its biggest weekly gain since February on advances in crude oil and stocks, and the Australian dollar advanced versus the yen this week as risk appetite rose.

The EUR/JPY rose to a 3-month high on speculation financial firms will weather credit-market turmoil, encouraging investors to purchase higher-yielding assets funded by loans in Japan. The pair (like most yen pair) follows stock-market development closely. Both the EUR/JPY and stocks are now at important resistance levels. The pair, modestly overbought, is at resistance from the upper band in its short-term trading channel and also from the long-term downtrend. We expect some consolidation. A penetration of the 1400-1420 resistance at the S&P 500 stock index would be bullish for the pair.

Financial and Economic News and Comments

US & Canada

No major US economic indicators scheduled for today.

Canada’s leading economic indicators index was unchanged in March, matching consensus forecasts, after falling a revised 0.2% in February, data from Statistics Canada showed.

Canada’s wholesale sales unexpectedly fell 1.8% to C$42.6 billion ($42.3 billion) in February erasing January’s 2.6% gain, mainly due to a 4.9% decline in Ontario to C$20.7 billion, Statistics Canada reported.

Europe

Germany’s producer price inflation accelerated faster than expected to 4.2% y/y in March, the highest year-on-year rate since 4.4% y/y in December 2006, due to higher energy prices, compared with 3.8% y/y in February and 2.5% y/y a year ago, data from the Federal Statistical Office showed. Excluding energy, March producer price index rose 2.8% y/y. The PPI grew a faster-than-forecast 0.7% m/m, unchanged from February.

The euro-area 2007 budget deficit, narrowing to a 7-year low, declined to €55 billion ($87.7 billion) or 0.6% of GDP, from €111.5 billion or 1.3% of GDP in 2006, Eurostat reported.

The UK budget deficit widened to a record £10.2 billion ($20.4 billion) in March, a third more than expected, driven by higher capital investment and an increase in spending by state-owned companies, the Office for National Statistics said. The deficit was the largest for the month since records began in 1993 and widened from £7.1 billion a year earlier.

Asia-Pacific

Japan’s consumer confidence rose in March with the sentiment index rising to 36.7, from a 5-year low of 36.1 in February, the Cabinet Office said. The gauge for willingness to buy durable goods increased to 36.2. The small gain in March consumer confidence, just a rebound from declines in the previous months, may not be sufficient to spur consumer spending as inflation outpaces growth.

The Japanese government cut its assessment of business sentiment for the first time in four months. "Firms are becoming more cautious about the current business conditions," the Cabinet Office stated in its April economic report, after saying companies showed "signs of caution" in March. However, the government left its overall assessment of the Japanese economy unchanged in April, saying "[t]he economic recovery appears to be pausing recently," after lowering its assessment in March.

FX Strategy Update

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

©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C.

The Dollar surged today against the yen reaching 104.43, and according to the ActionForex Technical Team, it remains strong: “Break of 103.59 cluster resistance, as well as 55 days EMA (now at 103.30) indicates that a medium term bottom is already in place at 95.77. At this point, intraday bias remains on the upside as long as 103.15 minor support holds.” The ActionForex technical team expects the trend to remain: “Further rally is now expected to be seen towards 108.59 resistance first. Below 103.15 will turn intraday outlook neutral first.”
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Week beginning 21 April 2008

• Australia: CPI to be high but no rate response from the RBA
• RBNZ to hold but with a more dovish tone?
• US data focus: home sales, durable goods orders previewed
• Key economic & financial forecasts

Australia: CPI to be High But No Rate Response from the RBA

The March quarter Consumer Price Index will be released at 11:30am on Wednesday April 23. For the first time in about five years markets will be reasonably relaxed with the announcement. The Governor of the Reserve Bank has made it very clear in a number of recent statements and speeches that he is expecting the annual rate of inflation to climb to 4% for the year to the March quarter. That will require a 1.1% read on headline inflation for the quarter and 1% for the underlying measure.

Recall that the announcements of 1% (0.92% in Q2; 0.93% in Q3 and 1.09% in Q4) for the previous three quarters have elicited an immediate tightening response from the RBA. Rates were raised in August; November and February following those 1% underlying inflation announcements. This time we do not expect a 1% announcement to trigger another tightening. Coincidentally our forecast for underlying inflation in the March quarter is 1% with a 1.1% forecast for headline inflation.

Our assessment of the key components of underlying inflation is for a broad continuation of the trends over recent quarters. The largest component, house purchase (11.3% of the trimmed mean) which increased by 1.3% in Q4 is expected to rise by 1.4% reflecting the lagged effect of rising materials prices and wages. Rents (7.7% of trimmed mean) are expected to rise by 1.7% following a 1.6% rise in Q4. Motor vehicles prices (6.5% of the trimmed mean) are expected to fall by 0.5% compared to a 0.7% fall in Q4. Other financial services (4.9% of the trimmed mean) are expected to rise by 1.5% following 1.9% in Q4.

The biggest shift will be in ‘deposit and loan facilities’ (up 4% and normally 6.3% of the trimmed mean) and petrol (up 5%) compared with 2.7% and 7.3% respectively in Q4. Neither of these components will be included in the trimmed mean and we definitely expect there will be upside risk to ‘deposit and loan facilities’.

We have allowed for weakness in some retail consumer items - clothing (-1.6%); furniture and furnishings (-2.7%); appliances (-1.3%); and overseas holidays (-3%). This weakness reflects some softening in demand and seasonality. Our food forecast is 0.5% and we assess upside risks to this component.

Overall we consider it unlikely that the report will reveal a number either to the upside or downside that might unsettle markets.

The Bank has indicated that it will now be focussing on inflation in the medium term. The key determinant for the medium term outlook will be domestic demand rather than current inflation. When the Bank next releases its inflation forecast on May 9 it is likely to forecast that inflation will be back inside the 2-3% band by December 2010. That will be sufficient to allow it to hold rates steady rather than requiring the RBA to raise rates again.

Everything will now hinge on the growth in domestic demand through 2008. If demand slows markedly then the Bank will be able to credibly further lower its inflation forecast. However there are limits as to how quickly inflation is likely to fall. The biggest fall that we have seen in inflation over a year was in 1996 when inflation fell from 3.1% in 1995 to 2.2% in 1996. That was in lagged response to a slowdown in domestic demand in 1995 from 6.5% in 1994 to 2.8% in 1995. Despite the solid slowdown in demand in 1995 the RBA held rates steady between December 1994 and July 1996. It needed to be confident that inflation was slowing before it could cut rates despite the slowdown in demand and the collapse in employment growth through 1995(H2) and 1996.

The 20 month period of rates being held at the 7.5% peak over that period has some possible lessons for the current situation. Demand growth in 2007 was 5.7% and that is expected to hold inflation up in 2008 in the 3.5%-4% range despite the likely slowdown in demand. We expect demand growth in 2008 to slow to 3% mainly through a slowdown in consumer spending from 5% in 2007 to 2.5% in 2008. Business investment will also slow (falling business confidence and tight credit conditions) to around 5% although housing cannot slow markedly because it has been weak for the last four years and record housing shortages will ensure the house building cycle remains muted.

The other issue for the Reserve Bank will be the state of the labour market. The unemployment rate currently stands near 33 year lows. As with previous cycles the slowing in employment growth will lag the demand slowdown keeping the unemployment rate extremely low in 2008. Risks to wages will persist in 2008.

This scenario makes it almost impossible to frank the market’s expectation that rates will be cut by year’s end. The RBA would need to be able to cut its 2009 inflation forecast from the current 3.25% to 2.5% and the 2010 forecast to 2%.The slowdown in domestic demand through 2008 would need to be much sharper than we are currently forecasting, probably to less than 1%.

Demand growth did slow to -0.3% in 2000 prompting the RBA to cut rates in February 2001 after tightening for the last time in the cycle as recently as August 2000. But much of the sharp slowing in 2000 was due to a collapse in house building following the introduction of the GST. House building will contribute little to the expected slowdown in 2008.

Indeed our forecast of a slowdown to only 3% growth in domestic demand in 2008 might prove to be overly pessimistic. Substantial stimulus associated with tax cuts and the new boom in commodity prices will lift disposable incomes from 2008H2. A period of stable interest rates may well calm consumers. Conditions in credit markets are easing.

Our view is that the RBA will resist the need to cut rates until it sees a second year of slowing demand growth (2% in 2009) and the associated easing inflationary pressures. However with the unemployment rate still below 5% by mid 2009 we think the Bank will struggle with the case for rate cuts until well into 2009H2. That timing of 20 months on hold at cyclically high rates will be much closer to the 1994/96 period than 2000/01.

Bill Evans, Managing Director, Economics & Research

Australia: Data Wrap

Feb housing finance approvals

• The number of housing finance approvals fell 5.9% in Feb after an upwardly revised 3.1% rise in Jan and vs expectations of a small 0.5% rise. The 100bp increase in official rates and 25bp+ market driven rise in mortgage rates since August last year are clearly starting to bite.
• The sharp decline in Feb was concentrated in finance for established dwellings (-6.6%mth). However this segment had previously been surprisingly strong (rising 8.3% in the three months to Jan led by a 23.8% rise in refinancing).
• Finance for the construction of new dwellings remained firm in Feb, up 0.6% in the month. This tallies with other data for Feb that suggests construction may hold up well in early 2008. However, lending for the purchase of new houses remains weak, down by over 25% since mid-2007.
• Both banks and non bank lenders recorded declines in Feb (-6.1% and -4.7% respectively) Over the last six months, approvals by non-bank lenders have declined by 21.9% while approvals by banks have risen 3.8%.
• Looking forward, further declines in housing finance look likely with the follow on rate increases in February and March - both official and market driven - yet to impact.

Feb RBA Board meeting minutes

• The minutes from the Reserve Bank’s monetary policy meeting of the Board on April 1 provided few surprises. There was a general feeling that demand conditions had deteriorated somewhat since the March Board meeting and the most specific evidence related to business and consumer confidence, household and business credit growth.
• Most importantly, results from the Bank’s own liason reports were highlighted, and indicated that the weakness in retail for which official data was only available for January, had extended through March.
• The discussion on inflation confirmed that the Bank is likely to further lower its key inflation forecast, which will be the forecast for 2010, from "slightly below 3% by mid-2010" (March 4 Board meeting) to "fall a little more than earlier thought over the next two to three years".
• Our reading of the Bank’s approach to inflation forecasts is that as long as it can predict a movement in inflation back to within the 2% to 3% band by the end of its forecast period (either mid or end 2010) then there is no requirement to change policy. That forecast appears to be predicated on the Bank’s assumption that the next CPI measure on April 23 will show that inflation has reached 4% (both headline and underlying). That will imply a 1% rise in underlying inflation for the quarter. We believe that the 1% forecast is appropriate, although we see risks to the upside.
• The wording around policy that did change was the assessment that inflation risks "were significant …. in both directions". That somewhat dovish comment replaced the more encouraging remark in the March minutes that referred to "the higher setting of the cash rate leaving adequate flexibility". At the time, the obvious implication of "flexibility" implied some preparedness to cut rates. Overall, there was no real encouragement in these minutes for the markets which are predicting the beginning of the rate cut cycle to be as early as October this year.

Feb Westpac-MI Leading Index

• The annualised growth rate of the Westpac-Melbourne Institute Leading Index of Economic Activity, which indicates the likely pace of economic activity three to nine months into the future, was 3.3% in February, well below its long term trend of 4.1%. The annualised growth rate of the Coincident Index was 3.9%, just above its long term trend of 3.8%.
• Growth in the Index has slowed markedly in the last few months. After peaking at a solid 6.5% in November last year it has slowed to 3.3% - appreciably below long run trend for the first time since October 2005.
• Factors linked to overseas economic conditions have been notably responsible for that slow down. Two components of the Index - share prices and US industrial production - have contributed 1.5 percentage points of the total fall of 3.2 percentage points in the growth rate between November and February. Other significant contributors to the fall were dwelling approvals (0.6 percentage points) and overtime worked (0.8 percentage points).

Mar merchandise imports

• Australian merchandise imports rose 0.7% unadjusted in March to $16.759bn following a 1.4% unadjusted fall previously. The AUD/USD appreciated a further 1.2% on average in the month, so volumes were likely stronger still.
• The Statistician advised that the data is consistent with a rise in seasonally adjusted goods imports on a BoP basis of 1.0%mth, following February’s 0.3% increase.
• The breakdown of the 0.7% unadjusted rise in the month showed strong gains in capital goods, suggesting business investment in equipment is resilient for now, but the clear softening in retail sales through the beginning of 2008 has led to a softening in consumer goods in February and March, with that softening more pronounced in March. Consumption goods imports fell 4.4%mth unadjusted after a 0.7% fall previously, led by weakness in textiles and clothing. Capital goods imports rose 12.8%mth unadjusted after a 4.3% rise previously, despite only a 2.4% rise in civil aircraft. Ex-aircraft capital goods imports rose 14.2%mth unadjusted, more than reversing their 7.4% fall previously.

Q1 export and import price index

• Export prices jumped 3.5% in Q1 after a 0.6% fall previously, with gains in gold, cereals, meat and gas partially offset by falls in non-ferrous metals, and metalliferous ores and metal scrap.
• Import prices surged 2.7% in Q1 after a 0.2% rise previously. Petroleum prices rose 11.0%, slightly higher than our 10.0% forecast, while food prices rebounded 5.6% after a 2.1% dip previously. After abstracting from these non-core items, core import prices were surprisingly strong, rising 1.1% in a quarter where the import weighted TWI rose 1%.
• The data has no implications for our CPI forecast - the link between import prices for consumer goods and the CPI is poor - although the jump in imported food prices suggests upside risks for the food group in the CPI. However, the data adds upside to our PPI forecast. The unexpected rise in core import prices necessitates an upward revision to core import prices in the PPI (we had expected a fall on the stronger AUD), and with the stronger rise in petroleum, lifts our Q1 PPI forecast to 1.3%qtr and 4.1%yr.

Round-up of local data released last week

New Zealand: The Week ahead & Economic Wrap

Devil in the detail

There was something for everyone in the data this week, with sharply lower car sales, robust inflation, and lower world growth forecasts.

Total retail sales fell 0.7% m/m in February, considerably weaker than expected, but the detail showed it was driven by very weak car sales (-5.8%) with the ex-auto measure rising 0.2% m/m. This result is within the bounds of what the RBNZ has factored in for consumer spending in Q1. Automotive retailing is suffering more than most from higher petrol prices and tightening credit. Supermarket sales put in another strong month, up 1.6% - probably mostly reflecting higher food prices. Not surprisingly, housing-related retail sales fell with appliances down 1.1% and hardware down 1.4%. The urban consumer is under more pressure than their rural counterparts, given the current mix of influences on spending. Urban retail sales fell 2.3% in February, while rural sales fell only 0.3%.

CPI data confirmed that annual inflation in New Zealand is high and rising. The headline 0.7% increase in the CPI over Q1 brought annual inflation to 3.4%, up from 3.2% in the last quarter of 2007. The Q1 result was a tick lower than the 0.8% that we and the market forecast, although exactly as the RBNZ had factored in.

Importantly, non-tradable inflation was chunky at 1.1% over Q1, matching the RBNZ and our forecasts. This kept non-tradable annual inflation at 3.5%. This, in its own right, is too high for the RBNZ to be comfortable. Underlying non-tradable inflation is even more worrisome - when we remove the effect of the increases in government subsidies for health and education through 2007 annual non-tradable inflation is running at 4%. The main contributors to Q4 inflation were as expected: food (+1.8%), housing (+1.0%), petrol (+4.0%) and education (+3.9%). Over the quarter, we were mildly surprised by the extent of the decline in prices for clothing, footwear, furniture and floorcoverings, and household appliances. It appears either the strong exchange rate has exerted more downward pressure on prices than we thought or firms have discounted more than usual in the face of slow consumer spending. We also expected electricity prices to rise by more than the 0.8% increase observed; we wonder if this will show up in Q2.

On an annual basis, price increases for basic items make some scary reading: food up 5.1%, petrol up 20.5%, electricity up 6.0%, and rents up 3.0%. These increases are putting considerable strain on the weekly household budget. Annual inflation pushing further above the top of the target band will refocus attention on the intense inflation pressures in the NZ economy. These pressures will not abate anytime soon, despite growth stalling. The economy is operating with scant spare capacity and immense cost pressures.

We think annual CPI inflation will be approaching 4% in Q3 2008. We are not sure inflation expectations are anchored well enough to withstand a stream of annual inflation outcomes above the top of the target band, especially because inflation is currently being driven by goods and services that people buy frequently - providing continuous reinforcement that prices are accelerating. This is not an environment in which to cut the OCR early.

Consensus forecasts for growth in our major trading partners were again revised down this month. While growth is still expected to be robust, Asia and Australia forecasts have now been revised down fairly substantially compared with the Reserve Bank’s March MPS forecasts - and this does imply, all else equal, that less interest rate pressure is required.

The RBNZ reviews interest rates on Thursday. All are in agreement that the Reserve Bank will leave the OCR on hold, as this has been clearly signalled in recent speeches and presentations. The main interest is therefore in the tone of the accompanying statement. We believe there will be something for everyone, with an acknowledgement that the downside risks to growth both in NZ and our trading partners have intensified, but that upside inflation risks have evolved to some degree as well. On balance, the data since March is consistent with a more dovish tone than the March Monetary Policy Statement. This will foreshadow a June MPS that forecasts interest rate cuts occurring earlier than previously indicated (end-2009 in the March MPS). However, the RBNZ will still project rate cuts occurring much later than the market expects (October this year, according to current pricing).

Other data out next week is fairly minor. Migration data on Monday is expected to show migration finding a floor. Credit card (Mon) and electronic card transactions (Wed) are likely to be lacklustre, confirming that consumers are in retrenchment mode.

Round-up of local data released last week

Data previews

Aus Q1 PPI

Apr 21, Last: 0.6%, WBC f/c: 1.3%

Mkt f/c: 1.0%, Range: 0.8% to 1.4%

• The Q4 PPI rose 0.6%qtr and 2.8%yr. Non-core items added less than expected (0.3ppts) with strong fuel price gains partially offset by an unexpected dip in food prices. Core import prices fell 2.1% with the AUD TWI up 3.2%, while a fall in motor vehicle mfg prices kept core domestic ex-construction prices subdued (0.4%) allowing a more moderate rise in the overall core PPI of 0.4%qtr and 2.2%yr.
• In Q1 despite a higher AUD, the import price index data implies higher core import prices (0.7%), and we look for a rebound in domestic core ex-construction prices (0.7%) plus still firm building construction prices (1.4%). This gives a 1.0%qtr core PPI. Food prices are expected to rebound (0.9%) and with a further rise in petroleum (9.6%), this lifts the total PPI 1.3%qtr, boosting the annual rate to 4.1%yr.

PPI: qtly food, fuel, domestic core pressures

Aus Q1 CPI

Apr 23, Last: 0.9%, WBC f/c: 1.1%

Mkt f/c: 1.1%, Range: 0.9% to 1.3%

• Our headline CPI forecast is 1.1%qtr lifting the annual rate to 4.0%yr from 3.0%, the highest since 2006Q2. Rents add 0.09ppts, house purchase adds 0.11ppts, deposit & loan facilities add 0.18ppts and petrol adds 0.22ppts. Main group pluses in housing (rents, house purchase), transportation (petrol), financial & insurance services (rate hikes), health (pharmaceuticals), education (annual fee rises), food and alcohol & tobacco. Subtractions from clothing, household contents, and recreation (retail discounting with slowing sales).
• Our average RBA core CPI forecast is 1.0%qtr (vs 1.1% prev) lifting the annual rate to 4.0%yr from 3.6%, the highest since 1991Q3. Strong rises in heavily weighted petrol and deposit and loan facilities will push other items with strong increases into the trimmed mean, keeping the result historically ‘high’.

CPI inflation: RBA core to hit 4.0%yr

NZ Mar external migration ann.

Apr 21, Last: 4,600, WBC f/c: 4,400

• Net migration may be finding a floor. Over the past year the big story in net migration has been New Zealanders leaving for Queensland and Western Australia, leading to a fall in net migration. But more recently the number of foreigners arriving in New Zealand has picked up, as has the number of New Zealanders returning home from overseas.
• This pattern is in keeping with relative economic conditions, so we expect it to continue. The New Zealand economy and labour market are very strong, attracting migrants from most source countries. But the Australian economy is even stronger, causing an outflow of Kiwis.
• Monthly net migration figures have already turned positive. We expect the annual net migration total to trough at 3,000 later this year.

NZ net migration

NZ RBNZ OCR review

Apr 24, Last: 8.25%, WBC f/c: 8.25%, mkt f/c: 8.25%

• All are in agreement that the Reserve Bank will leave the OCR on hold at next week’s OCR review, as this has been clearly signalled.
• The main interest is therefore in the tone of the accompanying statement. We believe there will be something for everyone, with an acknowledgement that the downside growth risks have intensified, but that upside inflation risks have evolved to some degree as well.
• On balance, we expect a slightly more dovish tone than the March Monetary Policy Statement, foreshadowing a June MPS that has cuts occurring a little earlier but still well into next year.

NZ OCR and 90 day rate

US Mar existing & new home sales

Apr 22, Existing: Last: 2.9%, WBC f/c: -3.0%

Apr 24, New: Last: 1.8%, WBC f/c: -5.0%

• Existing home sales posted an unexpected rise in Feb, possibly a function of irregular weather conditions at the start of the year. Recall that in early 2007 there was also a "false dawn" for housing in this data series. Pending home sales figures for recent months (and indeed new home sales) suggest existing home sales will soon correct lower, so we expect a 3.0% March decline. Median prices were down 8.2% yr in Feb; the annual decline should hit double digits in March or April.
• New home sales have fallen for four months running but recent declines have been unspectacular since Nov’s 13% plunge. With housing starts collapsing 12% in Mar, there is likely to be at least some link with new house sales, so we expect an accelerated pace of decline in the March new home sales report.

US housing sales

US Mar durable goods orders

Apr 24, Last: -1.1%, WBC f/c: -1.0%

• Durable orders fell for the second month running in Feb, as a weak aircraft gain failed to offset softness in most other categories, including defence, vehicles, core capital goods.
• In March, the orders component of the factory ISM fell quite sharply to a new cyclical low. Boeing data show orders for new airliners dropping 20%. The credit market disfunction arguably reached its nadir. These factors suggest that firms will not have been in ordering mode in a big way last month.
• Defence is always a wild card but it has fallen for two months running after Dec’s 83% bounce. Three consecutive declines in the current environment would be unusual (though the starting point was very high).
• Assuming a modest defence jump we expect durable orders to weaken just 1.0%, but risks are to the downside

US durable goods orders

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Disclaimer

All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac’s financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

US stocks spiked higher on Friday (April 18) following outstanding earnings reports from both Google and Citi. The dollar…

… was also a hot buy as strong earnings from large companies is seen as supportive of the economy and the potential for a dollar rebound. Interestingly, despite the surge in the dollar, oil and gas both climbed again to new records.

The dollar surpassed 104 yen on Friday for the first time in several weeks. The dollar touched 97 yen early in March before starting a gradual move back over 100 yen. Today’s jump actually touched 104.75 before falling back below 104 late in the day. This was the strongest move by the dollar against the yen for a couple months.

The dollar also pushed up against the Swiss franc, nearly touching 1.03 francs before falling back below 1.02 francs. The Euro got just a fraction of a pip away from touching $1.60 overnight before the dollar resisted and drove the value all the back near $1.57. One Euro is now worth $1.5788. The pound had also climbed back over $2.00 before being knocked back around $1.99

The dollar has been holding up firmly in the last several weeks after its perpetual fall touched record lows against many major currencies. The dollar has been more resistant to negative news and more reactive to positive news in recent weeks. This suggests that if the US economy can improve in the second half of 2008, the dollar could see a powerful move.

An interesting paradox occurred Friday, considering recent trends in the dollar and commodities. Often, as of late, dollar gains have coincided in drops in oil and retail gas prices. The inverse has been true as well. Today was different, however, as oil and gas both spiked to new records. This was largely because of other market factors that had more effect than the dollar gain. Political unrest that resulted in damage to Nigerian oil refineries was said to be the culprit for the oil increase.

Crude oil futures climbed to $117 in New York, to set a new record. According to AAA and the Oil Price Information Service, the national average retail gasoline price was $3.445 per gallon today. This was a 2.7 cents rise overnight. Gas has jumped nearly 20 cents in the last couple weeks. Many analysts have project $3.60 for the busy summer driving season, but the more pessimistic view of $4 per gallon seems logical at the moment.

It is quite possible that if big names continue to shine with strong earnings, the dollar could continue to improve. This should generally lead to a drop in oil and gas prices, assuming political unrest, market factors, and supply and demand remain somewhat steady. Reduced crude supplies or increased demand could impact prices. The reason the stronger dollar often lowers oil and gas prices is that the US is reliant on much foreign supply for these commodities, so a stronger dollar improves buying power in the global marketplace.

US taxpayers are just a few weeks from seeing their share of the $168 billion tax rebate stimulus package. The IRS said it would process direct deposit rebates on May 2nd and checks would be mailed May 16th. Those that completed their taxes and submitted them online should receive the earlier direct deposit.

Analysts are anxious to see what Americans do with their rebates. The hope is that consumers will buy and boost the economy. This economic improvement would likely improve the dollar and should ultimately reduce consumer prices. Americans are anxiously awaiting estimates of the first quarter gross domestic product to see what the latest news is regarding a recession.

Market Recap

US equities gained sharply on Friday, mostly driven by outstanding earnings from both Google and Citi. The Dow is currently up 200 points heading into the last half hour of afternoon trade. The index is closing in on 13,000 again, currently at 12,820. The NASDAQ and S&P are up 57 and 20 points at the moment. Oil and gas both reached new records. Oil futures touched $117 per barrel, while national average retail gas prices were $3.445. The dollar surged strongly against most major currencies.

FOREX is a serious game. Play it with the pros.
Forex trading involves substantial risk of loss, and may not be suitable for everyone.

Easy-Forex? Others offer promises. WE deliver.
Forex trading involves substantial risk of loss, and may not be suitable for everyone.



Forex online. Without it, you are wasting your time (and money).
Forex trading involves substantial risk of loss, and may not be suitable for everyone.

Control your destiny.
Forex trading involves substantial risk of loss, and may not be suitable for everyone.