Thursday, March 14th Forex Fundamentals

Wall Street moved modestly higher yesterday after recovering from an early move on the downside. The Dow closed slightly higher, recording its first nine-day winning streak since November of 1996 and setting another new closing record high. Before the start of trading, the Commerce Department released a report showing a strong jump in retail sales in February, although the increase was largely due to higher gas prices. Most of the European markets were down on Wednesday.

The currency markets were fairly benign yesterday with little direction currencies responded to regional data but there was not much market conviction. The US dollar remained strong after the release of retail sales traders had predicted that retail sales would miss their target due to payroll tax increases and consumer uncertainty with the “sequestered” budget cuts looming, but to their surprise retail sales exceeded expectations. Positive eco data continues to print in the US which now weighs on the FOMC decision due next week. There is a big question looming, will the Fed’s continue their current policies as Mr. Bernanke has indicated, will they decide to start a slow reduction of stimulus to begin cutting their positions, or will the FOMC vote to stop stimulus all together or give a date or goal that they will stop.

The euro remains flat against the US dollar this morning trading at 1.2962 with the EU Summit beginning in Brussels. With the lack of data news flow from the Finance Ministers could move the markets, although nothing is really expected.

The Great British Pound climbed a few pips to trade at 1.4944 as speculator took advantage low prices to buy the depressed currency. Ratings agencies warned the UK government if they falter from their current austerity course they might be subject to another downgrade.

The Japanese yen is trading on a positive note as Prime Minister Abe’s Bank of Japan nominees are easing through the process to receive their appointments. All three of Mr. Abe’s nominees are expected to pass through quickly. The JPY is trading on a positive note as Prime Minister Abe, noted in a recent interview that the government is closely watching inflation and would balance easing programs to keep it in hand. The JPY is trading at 95.88 against the US dollar while it is at 124.28 against the euro.

The big market mover this morning is the Australian dollar which is steadily gaining after employment data surprised traders. 1,500 jobs in February has confounded economists and left unemployment steady at 5.4 per cent. That is the largest monthly rise in the Bureau of Statistics estimates of job creation in almost 13 years, since July 2000. Economists surveyed by Reuters had on average expected only 9,000 jobs to be added in total and unemployment to tick up to 5.5 per cent. The AUD climbed to trade at 1.0366.

Currency markets will closely watch eco data due in the US today, including the current account, PPI and unemployment numbers.