Dollar extends rally vs. yen, off highs vs. euro

The dollar extended a rally against the yen on Thursday after the Bank of Japan aggressively stepped up easing measures, while the euro rebounded after falling to four-month lows against the greenback earlier in the session.

During U.S. morning trade, the dollar extended gains against the yen, with USD/JPY advancing 3.33% to 96.13.

The yen fell across the board on Thursday after the BoJ implemented aggressive easing measures aimed at spurring growth and combating deflation in the world’s third largest economy.

The central bank, under the leadership of newly appointed Governor Haruhiko Kuroda, said it plans to double its asset purchase program over the next two years and extend the maturities of the bonds it purchases.

The dollar erased gains against the euro, with EUR/USD edging up 0.08% to 1.2860, after touching session lows of 1.2747.

The euro plumbed four-month lows against the dollar after European Central Bank President Mario Draghi said the bank was ready to act to cut rates if needed, adding that monetary policy will remain accommodative for as long as is needed.

The comments came after the ECB left interest rates on hold at 0.75%.
The single currency recovered after the ECB chief said the bank’s commitment to the single currency is largely underestimated.

The dollar was lower against the pound, with GBP/USD rising 0.39% to 1.5191.

The Bank of England left interest rates on hold at 0.5% and the size of its asset purchase program unchanged at GBP375 million after its policy meeting on Thursday.

The decision came on the heels of data showing that the U.K. service sector expanded at the fastest pace in seven months in March, fuelling hopes that the economy will narrowly avoid a triple-dip recession.

The dollar was almost unchanged against the Swiss franc, with USD/CHFedging up 0.04% to 0.9456.

The greenback was broadly higher against its Canadian, Australian and New Zealand counterparts, with USD/CAD dipping 0.06% to 1.0140,AUD/USD dropping 0.60% to 1.0397 and NZD/USD losing 0.44% to trade at 0.8379.

The Australian dollar was trading close to two-month highs during the Asian session after official data showed that Australian retail sales rose 1.3% in February, far exceeding forecasts for a 0.3% gain.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.36% to 83.18. 

In the U.S., the Department of Labor said the number of people who filed for unemployment assistance last week rose by 28,000 to a seasonally adjusted 385,000, compared to expectations for a decrease of 7,000 to 350,000.

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Forex - EUR/USD rebounds from 4-month lows

The euro rebounded from four-month lows against the dollar on Thursday, erasing losses made during a dovish press conference by European Central Bank President Mario Draghi.

EUR/USD pulled back from 1.2747, the pair’s lowest since November 21, to hit 1.2869 during U.S. morning trade, rising 0.17%.

The pair was likely to find support at 1.2747, the session low and resistance at 1.2954, the high of March 21.

The euro dropped to session lows against the dollar after Draghi said the ECB was ready to act to cut rates if needed, adding that monetary policy will remain accommodative for as long as is needed.

The economic outlook for the euro zone remains weak, but a gradual recovery should take hold in the second half of the year, subject to “downside risks” Draghi said.

The ECB left interest rates on hold at 0.75% in a widely expected decision on Thursday.

Draghi also said the bailout for Cyprus was not a template and added that it was “not smart” to propose a levy on deposits of less than EUR100,000 held in Cypriot banks.

The euro recovered after the ECB chief said the bank’s commitment to the single currency is largely underestimated.

Elsewhere, the euro was fractionally lower against the pound, withEUR/GBP dipping 0.06% to 0.8484 and extended its rally against the broadly weaker yen, with EUR/JPY advancing 3.25% to 123.39.

The Bank of England left interest rates on hold at 0.5% and the size of its asset purchase program unchanged at GBP375 million on Thursday, in a widely expected decision.

The decision came on the heels of data showing that the U.K. service sector expanded at the fastest pace in seven months in March, fuelling hopes that the economy will narrowly avoid a triple-dip recession.

The yen fell across the board on Thursday after the Bank of Japan implemented aggressive easing measures aimed at spurring growth and combating deflation in the world’s third largest economy.

The BoJ, under the leadership of newly appointed Governor Haruhiko Kuroda, said it plans to double its asset purchase program over the next two years and extend the maturities of the bonds it purchases.

In the U.S., the Department of Labor said the number of people who filed for unemployment assistance last week rose by 28,000 to a seasonally adjusted 385,000, compared to expectations for a decrease of 7,000 to 350,000.

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Forex - GBP/USD erases losses on BoE statement, U.S. data

The pound erased losses against the U.S. dollar on Thursday, after the Bank of England left its monetary policy unchanged, while disappointing U.S. jobless data weighed on the greenback.

GBP/USD pulled away from 1.5034, the pair's lowest since March 20, to hit 1.5167 during U.S. morning trade, adding 0.23%.

Cable was likely to find support at 1.5034, the session low and resistance at 1.5258, the high of April 2.

The BoE left interest rates on hold at 0.5% and the size of its asset purchase program unchanged at GBP375 million in a widely expected decision.

The minutes of the bank’s last two policy meetings showed that three policymakers, including Governor Mervyn King, voted in favor of more easing.

The decision came on the heels of data showing that the U.K. service sector expanded at the fastest pace in seven months in March, fuelling hopes that the economy will narrowly avoid a triple-dip recession.

The Markit/CIPS services purchasing managers’ index rose to 52.4 from a reading of 51.8 in February, compared to expectations for a decline to 51.5.

The report said that service sector growth looked likely to offset contractions in the manufacturing and construction sectors, with PMI data pointing to overall economic growth of 0.1% in the first quarter.

In the U.S., the Department of Labor said the number of people who filed for unemployment assistance last week rose by 28,000 to a seasonally adjusted 385,000, compared to expectations for a decrease of 7,000 to 350,000.

Jobless claims for the preceding week rose by an unrevised 357,000.

Sterling was fractionally higher against the euro with EUR/GBP easing 0.07%, to hit 0.8484.

Also Thursday, European Central Bank President Mario Draghi said the bank would closely monitor incoming data and was ready to act to cut rates if needed.

The comments came after the ECB kept rates on hold at 0.75%.

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U.S. stocks opened higher on Thursday, despite the release of disappointing U.S. jobless data and following downbeat comments by European Central Bank President Mario Draghi. 

During early U.S. trade, the Dow Jones Industrial Average added 0.16%, the S&P 500 index edged up 0.13%, while the Nasdaq Composite index eased up 0.01%. 

The U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending March 30 rose by 28,000 to a seasonally adjusted 385,000, hitting a 16-week high, compared to expectations for an decrease of 7,000 to 350,000.

Jobless claims for the preceding week rose by an unrevised 357,000. 

Meanwhile, ECB President Draghi voiced concern over the euro zone’s economic outlook, saying that the recovery in the second half of the year is subject to “downside risks”.

Draghi’s comments came after the ECB left rates on hold at a record low 0.75%. 

Global stocks found support earlier, after the Bank of Japan, under newly appointed Governor Haruhiko Kuroda, said it plans to double its asset purchase program over the next two years and extend the maturities of the bonds it purchases. 

In the tech sector, Apple shares added 0.31%, even as Samsung Electronics said it will staff mini-stores at Best Buy's U.S. locations to showcase how its tablets, smartphones and televisions work together. 

Among software-linked companies, Google tumbled 1.12%, as it was reportedly preparing to challenge a demand by the U.S. government for private user information in a national security probe. 

Facebook was on the upside, jumping 1.18%, amid reports it will unveil a new Android product. 

Meanwhile, financial stocks were broadly higher, as shares in Goldman Sachs rose 0.29% and Bank of America gained 0.34%, while Goldman Sachs and JP Morgan climbed 0.47% and 0.49% respectively. 

Bloomberg reported earlier that Matthew Taylor, a former Goldman Sachs trader, pleaded guilty to concealing an unauthorized USD8.3 billion trading position in 2007, causing the bank to lose USD118 million. 

Separately, Bank of America and Citigroup were said to have selected new managers to help run the firms’ rates-trading desks. 

Across the Atlantic, European stock markets were mixed. The EURO STOXX 50 added 0.13%, France’s CAC 40 slipped 0.11%, Germany's DAX inched up 0.01%, while Britain's FTSE 100 declined 0.78%. 

During the Asian trading session, Japan’s Nikkei 225 Index surged 3.23%, while markets in Hong Kong and mainland China remained closed for a public holiday. 

Later in the day, Federal Reserve Chairman Ben Bernanke was to speak.

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Forex - EUR/USD hits fresh 4-month lows after Draghi

The euro fell to four-month lows against the dollar on Thursday after European Central Bank President Mario Draghi said monetary policy will remain accommodative for as long as is needed.

EUR/USD hit 1.2747 during European afternoon trade, the pair’s lowest since November 21; the pair subsequently consolidated at 1.2788, shedding 0.46%.

The pair was likely to find support at 1.2689, the low of November 16 and resistance at 1.2852, the session high.

The euro weakened broadly after Draghi said the bank would closely monitor economic and monetary developments and assess any impact on the inflation outlook. 

Draghi also said the bank would closely monitor financial market conditions and their potential impact on monetary policy.

The economic outlook for the euro zone remains weak, but a gradual recovery should take hold in the second half of the year, subject to “downside risks” Draghi said.

The ECB left interest rates on hold at 0.75% in a widely expected decision earlier Thursday.

Draghi said the bailout for Cyprus was not a template and added that it was “not smart” to propose a levy on deposits of less than EUR100,000 held in Cypriot banks.

The euro fell to session lows against the pound, with EUR/GBP down 0.34% to 0.8462.

The Bank of England left interest rates on hold at 0.5% and the size of its asset purchase program unchanged at GBP375 million on Thursday, in a widely expected decision.

The decision came on the heels of data showing that the U.K. service sector expanded at the fastest pace in seven months in March, fuelling hopes that the economy will narrowly avoid a triple-dip recession.

Elsewhere, the euro was sharply higher against the yen, with EUR/JPYjumping 0.2.31% to 122.34.

The yen fell across the board on Thursday after the Bank of Japan implemented aggressive easing measures aimed at spurring growth and combating deflation in the world’s third largest economy.

The BoJ, under the leadership of newly appointed Governor Haruhiko Kuroda, said it plans to double its asset purchase program over the next two years and extend the maturities of the bonds it purchases.

In the U.S., the Department of Labor said the number of people who filed for unemployment assistance in the U.S. last week rose by 28,000 to a seasonally adjusted 385,000, compared to expectations for an decrease of 7,000 to 350,000.

Jobless claims for the preceding week rose by an unrevised 357,000.

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Draghi Hints About a Rate Cut – EUR/USD Plunges

ECB President Mario Draghi used the words “monitoring very closely” in regards to the economic situation, that has deteriorated. This possible hint of a rate cut in May or June sent the euro plunging down towards the low support line of 1.2750. Draghi also cast a bit of doubt on the hopes for a recovery in H2.

Follow a live blog of the event.

Highlights

• Hint of a rate cut soon – “Monitoring very closely in the next weeks” – EUR/USD falls
• Subdued growth, subdued loan dynamic.
• Tight credit conditions will weigh on activity
• Recovery in second half subject to downside risks.
• Loose monetary here to stay.
• “We are ready to act”
• Initial Cyprus deal – not smart
• Excahnge rate not a policy target, but taken into account.
• OMT has helped contain crises and prevented them from becoming existential.
• 50% of LTRO has been repaid.
• Cyprus is not a template.

Live Blog

• 12:15 GMT Press conference begins at 12:30. All times are GMT.
• 12:15 EUR/USD traded lower during the day, falling below the 1.28 line and partially recovering afterwards.
• 12:17 Mario Drgahi could provide easier collateral rules or a new program to help banks. You can watch the press conference here.
• 12:25 At the same time, the US will release weekly jobless claims. A small slide from 357K to 352K is expected.
• 12:26 It will be interesting to see how the LTRO repayments will proceed given tighter credit conditions.
• 12:30 US initial jobless claims badly disappoint with a leap to 385K.
• 12:34 Press conference begins
• 12:35 Rate unchanged, inflation have further declined as anticipated, price development remains contained, inflation expectations firmly anchored.
• 12:35 Weak economy activity has extended but recovery expected later on. EUR/USD slides.
• 12:36 “In the coming weeks, we will monitor very closely” – sign for a rate cut? 
• 12:36 We will also monitor closely money markets.
• 12:37 Euro area should recover from higher global demand. Improvement should reach real economy.
• 12:38 Weaker than expected domestic demand, due to not enough reforms
• 12:39 Environment of weak economic activity, price stability expected.
• 12:40 Activity remains subdued, quotes growth and inflation numbers.
• 12:42 Recovery in H2 subject to downside risks.
• 12:43 Inflation contained.
• 12:44 Underlying pace of monetary expansion still subdued
• 12:45 Questions begin
• 12:45 Are calls for a rate cut becoming louder? What about SMEs?
• 12:45 “We had an extensive discussion about the rates … I will give more answers later”.
• 12:47 EUR/USD dips under 1.2750 but doesn’t make a convincing break just now.
• 12:48 We cannot replace lack of capital in banks, not compensate lack of action by governments.
• 12:49 Not all results were encouraging.
• 12:50 We need to think deeply before we do something feasible, useful and consistent with our mandate.
• 12:51 Question about Cyprus.
• 12:52 Weakness extending to countries where fragmentation is not an issue.
• 12:53 EONIA is already very low, close to zero.
• 12:54 EUR/USD trading at 1.2760, unable to convincingly break 1.2750 so far.
• 12:55 On initial Cyprus deal, Draghi says it was “not smart” – an understatement!
• 12:58 The events in Cyprus have reinforced the commitment to support the euro.
• 12:58 Thanks to OMT and to positive contagion, we can now cope with serious crises without them becoming existential.
• 12:59 Target 2 balances continue to decline, 50% of the net amount injected by the LTRO has been repaid
• 13:00 “Cyprus is not a template” Draghi mentions action in Dutch bank SNS.
• 13:01 A bail in is not a problem. The problem is the lack of buffers.
• 13:02 EUR/USD recovering to 1.2770
• 13:03 The lack of rules is problematic. The commission writes the rules.
• 13:05 No comment about intervention in Italy but he says that Napolitano called him, and not the other way around.
• 13:07 Hopes to have the legal framework for the OMT on time.
• 13:10 What was wrong with Cyprus doesn’t stop being wrong if Cyprus is outside the euro.
• 13:12 Fiscal multipliers have not been underestimated.
• 13:13 EUR/USD at 1.2784, recovering.
• 13:14 Situation at the beginning of 2012 was much worse due to big redemption of bonds. Banks began contracting credit way before then at around mid 2011.
• 13:15 Loss of confidence, higher uncertainty, fiscal consolidation and credit contraction all weighed on Europe.
• 13:16 ELA is responsibility of the banks.
• 13:17 We are not acting politically, only within our mandate.
• 13:18 ESM to directly recapitalize the banks? Draghi sends reporter to the politicians. “We view positively every measure that cuts the link betwen the sovereigns and the banks”.
• 13:25 When the banking sector is very big, these countries are at a bigger risk.

Background

The precedents set in the bailout for Cyprus are problematic for the euro-zone. The mere thought of taking money out of insured accounts sent shock waves, which are still felt despite the changes afterwards.

The big move from central banks came from Japan early in the day: the BOJ presented a comprehensive program to fight deflation, and the yen reacted with a plunge. USD/JPY rose nearly 300 pips and EUR/JPT was also affected.

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EUR/USD April 4 – Lower Ahead of ECB Meeting

EUR/USD is lower in Thursday’s European session, as the pair has dipped below the 1.28 line. The markets are waiting for the ECB interest rate announcement and comments by Mario Draghi, the head of the ECB. In other economic news, Spanish and Italian Services PMIs rose slightly, but remain below the 50-point level, which indicates expansion. Spain also conducted a 10-year bond auction, which posted a lower yield than the previous auction. In the US, today’s key release is Unemployment Claims. As well, US Federal Reserve head Bernard Bernanke will address an education conference in Dayton, Ohio.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: Euro/dollar was steady, touching a high of 1.2828 and consolidating at 1.2835. The pair has weakened in the European session, dipping below the 1.28 line.
• Current range: 1.2746 to 1.2805

Further levels in both directions: 

• Below: 1.2746, 1.27, 1.2660 and 1.2587.
• Above:  1.2805, 1.2880, 1.2960, 1.3000, 1.3100, 1.3130 and 1.3170.
• 1.2746 is the next support level.
• 1.2805 is providing weak resistance. 1.2880 is stronger.

Euro dips below 1.28 ahead of ECB meeting– click on the graph to enlarge.

EUR/USD Fundamentals

• 7:15 Spanish Services PMI. Exp. 44.3 points. Actual 45.3 points.
• 7:45 Italian Services PMI. Exp. 43.4 points. Actual 45.5 points.
• 8:00 Eurozone Final Services PMI. Exp. 46.5 points. Actual 46.4 points.
• 8:45 Spanish 10-year Bond Auction. Actual 4.48%.
• 9:00 Eurozone PPI. Exp. 0.2%. Actual 0.2%.
• 9:02 French 10-year Bond Auction. Actual 1.94%.
• 11:30 US Challenger Job Cuts.
• 11:45 ECB Minimum Bid Rate. Exp. 0.75%.
• 12:30 ECB Press Conference.
• 12:30 US Unemployment Claims. Exp. 352K.
• 12:45 US FOMC Member Charles Evan Speaks.
• 14:30 US Fed Chairman Bernard Bernanke Speaks.
• 14:30 US Natural Gas Storage. Exp. -89B.
• 16:30 US FOMC Member Esther George Speaks.
• 21:00 US FOMC Member  Janet Yellen Speaks.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

• Markets anxious before ECB meeting: In what has become somewhat of a routine, the markets are not paying much attention to the ECB interest rate announcement, as rates are widely expected to remain at the current level of 0.75%. What has instead become a market-mover is the follow-up press conference hosted by ECB head Mario Draghi. This time, Draghi will not be able to get away with repeating that he is fully confident that the ECB economy will improve sometime during the year. The Cyprus bailout rocked financial markets and has taken a toll on investor confidence, leaving the markets jittery. With Eurozone releases pointing to a deterioration in the economy, Draghi will be hard pressed to calm the markets.
• Cyprus deposits face huge hit: The bailout agreement may have been signed, but the drama and uncertainty surrounding the Cyprus bailout plan continue. Capital controls are still in place in Cyprus, as the government remains fearful of a run on the banks. Over the weekend, authorities revealed the plan for taxing around 60% of the money on big accounts (above 100K) in the Bank of Cyprus. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the slumping economy, Cyprus plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is painful for Cypriots, but said that failure to reach a deal would have resulted in the collapse of the banking sector and could have led to an exit from the Eurozone. Meanwhile, Cyprus finance minister Michael Sarris has resigned. Sarris said he had done so in order to facilitate a formal investigation, which will examine the events leading up to the 10 billion euro bailout.
• Eurozone PMIs falter: There has been talk of the Eurozone economy improving sometime in 2013, but so far this year, the economy has not shown much in the way of a recovery. This has been underscored by disappointing data this week. PMI numbers out of Spain, Italy and the Eurozone point to continuing contraction in the services and manufacturing sectors, with consistent readings below the 50-point level. Meanwhile, the employment situation on the continent is a disaster, as the Unemployment Rate in the Eurozone edged up to a record high of 12.0%. The euro has responded by losing ground, and will likely dip further is we don’t see better numbers out of the Eurozone.
• Italian political impasse continues: After coalition talks failed, the Italian president reportedly considered resigning in order to accelerate the path to fresh elections. However, and perhaps due to pressure from ECB president Mario Draghi, President Napolitano instead appointed a panel of 10 experts, including politicians and a member of the country’s central bank, in order to try and find another political solution. The Italian media has playfully dubbed the panel the “Ten Wise Men”. All humor aside, these “wise men” will have their hands full trying to untie the Gordian knot of the inconclusive election results, which has left the Eurozone’s third largest economy in a deep political crisis. Also Italy’s small neighbor, Slovenia, has some issues. Here is some background about Slovenia.
• US data points downward: Last week saw a host of dismal US releases, as manufacturing, housing, consumer confidence and employment figures were all weak. The month of April has not brught any relief, as PMI numbers and the ADP Non-Farm Payrolls fell way below expectations. Further weak numbers are likely to raise red flags about the health of the US economy.

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U.S. initial jobless claims rise by 28,000 to 385,000 last week

The number of people who filed for unemployment assistance in the U.S. rose more-than-expected last week, hitting a 16-week high, official data showed on Thursday. 

In a report, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending March 30 rose by 28,000 to a seasonally adjusted 385,000, compared to expectations for an decrease of 7,000 to 350,000.

Jobless claims for the preceding week rose by an unrevised 357,000.

Continuing jobless claims in the week ended March 23 fell to 3.063 million.  Analysts had expected continuing claims to fall to 3.050 million from last week’s revised figure of 3.071 million.

The four-week moving average was 354,250, an increase of 11,250 from the previous week's revised average of 343,000.

The monthly average is seen as a more accurate gauge of labor trends because it reduces volatility in the week-to-week data.

Following the release of the data, the U.S. dollar held on to gains against the euro, with EUR/USD shedding 0.18% to trade at 1.2827.

Meanwhile, U.S. stock index futures remained higher. The Dow Jones Industrial Average futures pointed to an increase of 0.2% at the open, S&P 500 futures indicated a gain of 0.2%, while the Nasdaq 100 futures signaled a 0.2% rise. 

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