Tides Shift for the Federal Reserve and ECB (page 2 of 2)

Pound Sterling could fall victim to housing market data

The Sterling has strengthened against both the US dollar and the Euro on news that HBOS could raise up to GBP4bn in a rights issue.

Although the mortgage lender faces up to GBP3bn worth of write downs, the new capital infusion is news that is very much welcomed by Sterling traders.

Unfortunately, trouble in the UK housing market is not behind us. Tomorrow we have a number of housing market reports due for release including mortgage approvals, net lending and consumer credit. The CBI Distributive Trades report is also expected and there is only a slim chance that spending would have increased given the problems in the financial sector, the slowing housing market and the prospect of a further deterioration in the labour market.

Unconvincing rally in Canadian, Australian and New Zealand Dollars

The Canadian, Australian and New Zealand dollars strengthened against the greenback but their rallies are unconvincing.

All of the three currencies failed to rally above its high on Friday and could now be vulnerable to more losses given the afternoon sell-off in US stocks.

The main reason why commodity currencies rallied on Monday is the move in oil and gold, which have continued to edge higher. The New Zealand trade balance is due for release this evening along with money supply. The market expects the trade surplus to increase given the rise in commodity prices but the risk is to the downside given the drop in New Zealand PMI. A

ustralia on the other hand will be reporting business confidence and new home sales, both of which could reflect slowing growth. There are no releases expected from Canada.

US stocks give back gains, dragging carry trades lower

The rally in USD/JPY is getting tired. Having moved from a low of 100.31 two weeks ago to a high 104.82 on Friday, the currency pair is vulnerable to a correction.

US stocks moved into negative territory near the end of the trading session and economic data tomorrow is expected to be dollar negative. With the Euro having its own share of problems, weak US numbers may be better reflected in USD/JPY instead of the EUR/USD, especially since we had some good news from Japan.

Large retail sales increased 0.2% in March while sales in general rose 0.5%. There is a good article the financial papers talking about how the pickup in inflation that Japan has been craving is coming from the worst place possible. Instead of prices being driven higher by growing demand, they are rising because of speculative interest.