Geithner Comments Help Ease Stress Test Concerns

Daily Forex Fundamentals | Written by AC-Markets | Apr 22 09 07:55 GMT |

Market Brief The Usd was stable in the Asian session, as the rally in risk failed to gain traction in local equity markets. The EurUsd traded between 1.2970 to 1.2911, while the UsdJpy traded between 98.92 to 98.08. A statement by Treasury Secretary Geithner, that most banks have sufficient reserves to protect against possible losses, gave US equity markets a boost. He also noted that the majority of US banks have adequate capital to be defined as well-capitalized and financial stability plan has roughly $109bn remaining in TARP, should capital be required. The reaction to the positive statement was unmistakable, with the equity markets reversing early losses and closing higher. However, Asian regional indexes have been unable to sustain the momentum. Meanwhile, the IMF's Global Financial Stability Report was released and estimates that total write-down's on US assets would reach $2.7 trn up from $2.1trn forecasted in January. Overall, we expect risk aversion to remain elevated near term ahead of corporate earnings and actual results of the US banks stress test. This risk averse environment should support Usd and Jpy trades. Yesterday, the Bank of Canada cut its overnight rate by 25bp to 0.25% vs. consensus expectation of no change.. In addition, the central bank suggested that rates are expected to remain unchanged until mid-2010. Given that rates are practically zero, we suspect the BoC will follow the lead of other central banks and begin buying or lending against a range debt in the near term. We expect any Cad gains to renewal of risk appetite to be tempered by the effect of unconventional policy. In Australia, consumer prices fell to 2.5% vs. 2.8% y/y exp. The data in our mind supports our theory that the RBA will be on hold for the foreseeable future and the Aud will be supported in the mid term. In addition, comments from several US industrial companies that China's stimulus plans, primarily in infrastructure investment, will give earnings a boost and should spill over to Aud and local firms. In Japan, the trade balance for March was released today and showed fairly balanced trade with a surplus Y11bn versus expectations of a deficit of Y5bn. Exports for Japan fell by 45.6% y/y, while imports fell by 36.7% y/y. European sessions focus will be squarely on the UK and should put pressure on the Sterling. First will be the release of public finances. In the 11 months to February, public borrowing totaled £75.2bn, so even a March deficit similar to last year's £11.5bn would put the year figure of around £87bn, arround £10bn above the November PBR forecast. This news will not help Alistair Darling and the release of his second budget and his attempt to instill much needed confidence ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.