Over the past 24 hours we have seen a massive shift in risk sentiment and the result for the broader currency market was volatility. Does this move stand as a temporary reversal or a reestablished trend? Regardless of which category you fall into, it is a speculative bet that poses an ongoing threat to potential range setups. The fundamental and technical buffers for USDCHF are about as good as they come.

The optimism surrounding “green shoots” has taken a back seat to concerns over the financial sector. However, the equity markets have reversed early losses and US stock futures are pointing to a higher open. Commodities are following what seems to be a rapid reversal of negative sentiment with gold and crude currently trading higher. The USD and JPY, both primary recipients of the risk aversion trades, are now coming under significant selling pressure. The EURUSD rallied off the 1.2900 level and is currently trading at 1.2957, while the AUD is making daily highs against the USD after yesterday’s weakness. Overall we do not see the recent rash of risky asset selling to be the reversal of the last month’s trend, but just a much needed short term correction (in light volume). Despite the signs that global growth stabilization are spreading (although Market News reported that the IMF will downgrade global growth significantly from its forecast presented at last month's G20), and corporate earnings printing higher then expectations, the concerns over US ‘stress tests’ has sparked this most recent bout of risk-reduction. US banks' have been trying to convince investors of their liquidity positions but ongoing worries over solvency are hurting the sector and confidence. Sentiment was also hurt after a major Bank of America reported strong profits but warned of worsening conditions in the near future and the need to increase provisions for credit losses. In addition, rumors that the treasury and regulators are arguing about how to actually release the results scheduled for May 4th give the impression that there are some dark spots. US officials are well aware of the systemic risk should even a few of the banks fail to pass, especially since the methodology of the stress test have not been fully disclosed to the markets satisfaction. Yesterday, Fed's Kohn warned that while there were signs of a recovery in the US, house prices remained weak and a restructuring of the US car industry would add to problems in the economy. In Australia, the RBA today released the minutes to the April Board Meeting, when the bank delivered a 25bp rate cut taking the cash rate to 3.00%. Although the minutes highlight a Board being divided over whether to cut rates by 50bp or hold, which likely resulted in the 25bp compromise, the tone of the minutes now leads us to believe the RBA will be on hold in the coming months. Despite downgrades in the economy Australia still is fairing better than developed markets peers and should keep the AUD supportive. The Bank of Canada will deliver its rate announcement today and markets are expecting policy makers to hold at 0.50% and limited comments on QE to emerge. As pressure to exploit the unconventional options increase, we expect to see the CAD come under selling pressure.

Euro higher but confined to inside day price action. Dollar/Yen well supported on dips; eyes break above 99.00. Cable in search of lower top ahead of next drop. Dollar/Swiss price action warns of pullback into Wednesday. Dollar/Cad reverses sharply in whipsaw session after poking above 1.2500. Australian Dollar very well bid but still inside day. New Zealand Dollar recovery not expected to last.

EUR/USD

The New Zealand dollar saw a reversal in momentum this past week despite better than expected retail sales and growing risk appetite. After reaching as high as 0.5934 the “kiwi” steadily descended, ultimately falling below 0.5700. The island nation has continued to see growth slow as the current global downturn has dried up demand for its exports.

Oil was little changed near $49 a barrel, after falling the past two days, as U.S. crude stockpiles climbed amid signs of further economic weakness in the world’s biggest energy consumer.
U.S. retail sales unexpectedly fell 1.1 percent in March, the Commerce Department said yesterday. The industry-funded American Petroleum Institute said that oil inventories rose last week to their highest since 1990. The weekly Department of Energy report today will probably show that stockpiles increased to the highest since 1993.
“The fundamentals still don’t suggest any strength,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “The supply levels are still at really high numbers for crude and that’s unlikely to change with the refinery capacity rates still very low.”
Crude oil for May delivery was at $49.48 a barrel, up 7 cents, in electronic trading on the New York Mercantile Exchange at 11:34 a.m. Singapore time. It earlier fell as much as 49 cents, or 1 percent, to $48.92 a barrel.
Oil is up 11 percent this year after tumbling 54 percent in 2008. Yesterday, crude dropped 64 cents, or 1.3 percent, to settle at $49.41 a barrel.
The U.S. used an average of 18.9 million barrels a day in the four weeks ended April 3, down 4.4 percent from a year earlier, the Energy Department said April 8, the lowest level since October.
Gross domestic product will contract by 3.8 percent in North America in 2009, the International Energy Agency said in a report April 10, dropping an earlier forecast for a recovery in the economy and oil demand in the second half of the year.
Increased Output As OPEC nations make their biggest oil production cuts on record, Brazil, Russia and the U.S. are pumping more, which may push crude further below $50 a barrel as demand slows.
U.S. imports fell by 148,000 barrels a day in January just as America’s production increased by 153,000, according to data compiled by the Energy Department in Washington. More oil is flowing just as the slowing economy causes consumption to contract for the second consecutive year.
Crude’s highest closing price this year was at $54.34 a barrel on March 26, up from a low of $33.98 a barrel on Feb. 12.
“Some of that optimism that we’re turning a corner economically has run its course,” said Toby Hassall, an analyst at Commodity Warrants Australia Ltd. in Sydney. “We’re not seeing enough good news flowing to extend the rally in oil prices.”
Equities Market An Australian leading economic index fell in February to contract at the fastest annual pace since 1982.
The index, a gauge of future economic growth, dropped 0.3 percent to 248.6 points from 249.4 in January, Westpac Banking Corp. and the Melbourne Institute said in Sydney today. The index shrank at an annualized rate of 5.1 percent.
U.S. equities dropped for the first time in four days yesterday as declines in retail sales offset optimism from Federal Reserve Chairman Ben S. Bernanke that the pace of the economy’s slump may be slowing.
The Standard & Poor’s 500 Index slipped 1.3 percent to 847.16. The Dow Jones Industrial Average dropped 94.7 points, or 1.2 percent, to 7,963.11.
Asian stocks dropped for the first time in five days as the outlook dimmed for earnings for companies in Japan, the world’s third-largest oil user.
“There are concerns that the equity market gains can’t be sustained now that we’re near 8,000 in the Dow,” said Commodity Warrant’s Hassall. “If we see equities come off after this recent rally it will be difficult for crude oil to stay at this level.”
Inventories Gain The API reported yesterday that oil supplies increased 6.51 million barrels to 371.2 million last week.
Oil-supply totals from the API and DOE moved in the same direction 76 percent of the time over the past four years, according to data compiled by Bloomberg.
An Energy Department report today may show supplies rose 1.75 million barrels last week, according to the median of 14 responses in a Bloomberg News survey. Stockpiles in the week ended April 3 were the highest since July 1993 as refiners shut units for maintenance and producers outside the OPEC countries increased shipments.
“Obviously we’ve got a big overhang in inventories,” said Commodity Warrants’ Hassall. “Demand still remains very weak.”
Brent crude oil for May settlement was at $51.99 a barrel, up 3 cents, on London’s ICE Futures Europe exchange at 11:07 a.m. Singapore time. It declined 18 cents, or 0.3 percent, to end the session at $51.96 a barrel yesterday. The May contract expires today. The more-active June contract was at $52.90 a barrel, down 3 cents, at 11:33 a.m. Singapore time

The State Bank of Pakistan's reserves rose to $7.86 billion from $7.80 billion a week earlier while reserves held by commercial banks marginally fell to $3.36 billion from $3.37 billion, the bank said.
Pakistan recently received $500 million from the World Bank and $848 million from the International Monetary Fund, which was reflected in the data last week.
Foreign reserves hit a record high of $16.5 billion in October 2007 but fell to $6.6 billion in November last year, largely because of a soaring import bill.
Pakistan agreed in November to an IMF emergency loan package of $7.6 billion to avert a balance of payments crisis.

Date
Time
Country
Event
For
Forecast
Actual
Apr 21
12:00 AM ET
RU
Unemployment
Mar
8.5
-
Apr 21
12:30 AM ET
SE
Riksbank rate
8yr
0.25
0.5
Apr 21
1:00 AM ET
IT
Global trade balance
Feb
-
-0.837
Apr 21
1:00 AM ET
IT
Trade balance EU
Feb
-
-0.105
Apr 21
1:30 AM ET
GB
RPI yy
Mar
-0.5
-0.4

The dollar fell against the euro on Tuesday as data showing a sharp improvement in German investor confidence lifted stocks and helped the European common currency rebound from a recent one-month low.
Uncertainty surrounding the European Central Bank's next policy move and an International Monetary Fund report warning that asset writedowns at global banks may exceed $4 trillion limited the euro's gains, though, and kept investors on edge.
In mid-afternoon trade, the euro was up 0.3 percent at $1.2955 after hitting a one-month low of $1.2883 on Monday. Germany's ZEW survey of investor sentiment rose to 13.0 this month from -3.5, the first positive reading since 2007.
The euro also rose 0.7 percent to 127.80 yen , while the dollar added 0.7 percent to 98.65 yen . The yen tends to struggle when investor risk appetite increases, and it's also been hurt by news of Japan's weakening economy.
"We got a euro bounce after ZEW and there's consolidation after a horrible day yesterday in stocks, but my view is this is an opportunity to sell euros," said T.J. Marta, chief market strategist at Marta on the Markets in Scotch Plains, New Jersey.
Analysts said an IMF report that banks worldwide will have to write down assets by $4.1 trillion to restore global stability suggests the financial crisis is far from over, which will boost safe-haven demand for the dollar. For more see[ID:nN21456999].
Euro gains are likely to be limited by uncertainty about what unconventional policy steps, if any, the ECB takes to combat a euro zone recession, analysts said.
The ECB is expected to cut interest rates from 1.25 percent to 1 percent in May, but it's unclear whether it will follow the Federal Reserve and other central banks and create money via other means such as buying corporate or sovereign debt.
Either way, Marta said the euro is likely to suffer. "If the ECB comes together on quantitative easing, the euro will go down because the U.S. has already started," he said. "If they don't, the euro will be punished because the ECB will be accused of not reacting to the crisis."
Quantitative easing is the process of flooding the banking system with money when interest rates are already at or near zero in order to stimulate growth and boost lending.The Bank of Canada on Tuesday cut rates to 0.25 percent, an all-time low, and said it will outline on Thursday its strategy for possible nonconventional measures

American Dollar 0.698685 1.43126

Argentine Peso 2.60463 0.383932

Botswana Pula 5.29307 0.188926

Brazilian Real 1.56961 0.637101

British Pound 0.48009 2.08294

Brunei dollar 1.05487 0.94798

Bulgarian Lev 1.05667 0.946369

Canadian Dollar 0.867194 1.15314

Chilean Peso 406.705 0.00245878

Chinese Yuan 4.77356 0.209487

Colombian Peso 1629.12 0.000613827

Croatian Kuna 3.98935 0.250668

Danish Krone 4.02462 0.248471

Estonian Kroon 8.45346 0.118295

Euro 0.540276 1.8509

Hong Kong Dollar 5.41481 0.184679

Hungarian Forint 162.272 0.0061625

Iceland Krona 90.792 0.0110142

Indian Rupee 35.2644 0.0283572

Iranian Rial 7049.73 0.000141849

Israeli New Shekel 2.94086 0.340037

Japanese Yen 68.5178 0.0145947

Kazakhstani Tenge 105.033 0.00952079

Kuwaiti Dinar 0.204365 4.8932

Latvian Lat 0.383218 2.60948

Libyan Dinar 1.35012 0.740676

Lithuanian Litas 1.86547 0.536058

Malaysian Ringgit 2.54638 0.392715

Maltese Lira 2.10468 0.475131

Mauritius Rupee 23.8078 0.0420031