Daily Report

Dollar Up Modestly - Is This The Week of the Rebound?

Talking Points

• Japanese Yen: hovers near 100 as equities stabilize
• Euro: Drops below 154.00 on Swissie sell-off
• Swiss Franc: sells of sharply on news of UBS offering
• Pound: marks time around 1.9800
• US Dollar: Existing Homes on tap

Another very quiet night in the currency market as Easter holidays continue in Europe leaving both UK and EZ calendars essentially empty. The dollar however, received a modest boost against the Swiss franc on announcement that UBS is gearing for a major rights offering, only several months after securing a massive capital injection from Sovereign Wealth funds. After so much focus on the problems in US capital markets in the past several weeks, the currency traders may be turning its attention to Europe as they take a more skeptical view of the European financial sector.

The UBS announcement along with the news that CSFB will register its first quarterly loss in 5 years, dented the franc’s reputation as a safe haven currency and the decline in the Swissie dragged EURUSD along with it below 1.5400 figure. Overall however, as we noted last week, “The market appears at a standstill as EURUSD consolidates its gain in the 1.5300-1.5500 area and traders wait for the next theme to develop.”

With US financial markets pacified for the time being, the currency market will cast its eye on European data, the most important of which will be the IFO survey on Thursday. Any serious weakness in the report is likely to push the EURUSD lower on concerns that the ECB may have to finally relent and consider a rate cut in H1 of this year.

The US calendar today carries only Existing Homes Sales data. The markets expect yet another decline to 4.85MM units from 4.89MM the month prior. However, the greenback may benefit from low expectations, and is unlikely to react negatively to the data unless the number shows massive deterioration in demand.

With markets at full force tomorrow, the true tone of trade should become more evident by then. With EURUSD having run out of stream at 1.5900 early last week, near term momentum has shifted to dollar bulls. They will however, need further negative surprises out of the Eurozone in order push the pair to 1.5000 level of support. Otherwise, assuming there are no additional exogenous shocks, the currency market may simply meander aimlessly for the rest of the week in very narrow trading range.