FOCUS TOWARD G-20

The U.S. Dollar finished the day lower against most majors with the exception of the Japanese Yen. Renewed interest in higher-yielding currencies following Monday’s hard break in the equity markets supplied the bearishness. Traders seemed a little more optimistic today about the global economy.



Yesterday’s rally in the Dollar was triggered when the U.S. rejected financial aid pleas by General Motors and Chrysler. While the decision may have seemed harsh, traders were a little more optimistic on Tuesday that a viable plan could be worked out even if it involves bankruptcy.



Additional optimism and confidence was provided by the news that the World Bank will create a new $50 billion fund to fight the decline in global trade and to encourage trading between nations.



The Euro traded higher in light trading and short-covering following Monday’s hard break. Renewed trader demand for more risk encouraged traders to lighten up on the short-side on perceptions that Monday’s reaction to the U.S. government’s rejection of plans to bailout GM and Chrysler may have been overdone to the downside.



News that the World Bank will create a fund to stimulate global trade provided additional support for the Euro because it took some of the heat off the European Central Bank to provide additional aid to weaker European Union nations.



Gains were limited as traders were hesitant to push this market much higher ahead of the European Central Bank’s expected 50 basis point interest rate cut on April 2.



British Pounds closed up on short-covering in light trading. The rally was definitely not being driven by the U.K. economy as it is still showing signs of a widening and deepening recession. A falling housing market, declining employment and the lack of consumer spending are three reasons why the British economy is not even close to a recovery.



Tuesday’s rally was triggered by increased demand for higher risk and optimism over a new plan by the World Bank to provide stimulus to the global economy. Gains were limited by the possibility of new quantitative easing plans by the Bank of England.



Stronger equity markets and firmer commodity markets supported the Canadian Dollar on Tuesday. News that the GDP contracted in the fourth quarter in 2008 and is expected to worsen even further in the first quarter of 2009 encouraged some selling. Industrial prices rose for the first time since August 2008 mainly on the strong surge in metals and energy markets. These reports contradicted each other leading to a flat trade.



Concerns are building that the Bank of Canada is poised to make another interest rate cut later in the month. This may limit gains to the upside as traders will be reluctant to chase any rallies. This should be the last cut of the year and will likely lead to quantitative easing in a few months. Look for the BoC to make a statement later in the month outlining its plan.



The Japanese Yen traded weaker all day as traders reacted negatively to a bearish employment report. Investors also reacted negatively to the news that the Japanese government is proposing a third economic stimulus plan in an attempt to revive its struggling economy.



Predictions are for this new $600 billion plus stimulus package to create new demand for Japanese goods as well as about 2 million new jobs. Traders sold the Yen as this new plan amounts to flooding the market with cash to jump start the economy.



The Bank of Japan and the Japanese government want to see a weaker Yen to encourage demand for Japanese exports. Choosing to provide stimulus is not what the market expected. Most traders are looking for something more dramatic such as quantitative easing or intervention. Stimulus takes too long to move through the economy. Easing and intervention would have had a more dramatic effect on the currency and would have sent a stronger message to the global community.



The new fiscal year begins in Japan on April 1. Don’t be surprised if the Yen gets hit hard as traders are expected to begin chasing higher yields after selling Yen.



The weaker Dollar helped encourage short-covering in the Swiss Franc. The dominant trend remains down however. This negative tone was set by the Swiss National Bank weeks ago when it told market participants that it favors a weaker currency. Traders are likely to be looking for rallies to sell as the odds seem to favor more downside movement over the short-run.



The AUD USD traded better on Monday in light trading. Although the yield is attractive to investors, some traders feel the recent rally is overdone and vulnerable to a correction. The main focus should be on reviving the economy. Look for the Aussie to continue to weaken over the near-term especially if the stock market falls apart. Poor economic reports may cause the Reserve Bank of Australia to schedule quantitative easing or an intervention in an effort to jumpstart the economy.



The New Zealand Dollar traded higher most of the day but collapsed into the close of the New York session. Talk is circulating that the Reserve Bank of New Zealand is poised to intervene soon. This talk stopped the rally in its tracks. The economy is the wildcard for this market. Production is down, unemployment up and the housing sector is worsening. This means the RBNZ is going to have to act aggressively to prevent a freefall in the economy.








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dollar down vs euro

Yen down sharply as Japan fiscal year comes to an end

* Euro gains vs dollar; European stocks rise 2 pct

* Focus on G20, ECB meeting; euro gains seen limited (Recasts, updates prices, adds quotes, data; changes byline, dateline, previous London)

By Steven C. Johnson

NEW YORK, March 31 (Reuters) - The yen fell on Tuesday as the end of Japan's fiscal year and more poor economic data spurred investors to deploy funds abroad while stocks rose, helping the euro gain on the dollar ahead of a G20 meeting.

The yen, which rose a day earlier as risk aversion and year-end pressure prompted Japanese investors to bring money home, reversed course on Tuesday as traders closed the books on the fiscal year. A spike in Japanese unemployment also put pressure on the currency.

The dollar was last trading up 1.2 percent at 98.41 yen and was on track for an 8.7 percent gain in the first three months of the year, the yen's worst quarter since 2001.

The world financial crisis has devastated Japanese exports and led to a sharp contraction in the fourth quarter, leaving Prime Minister Taro Aso's government vulnerable to collapse.

"Fiscal year-end had been holding people back from selling yen. But the fundamentals are absolutely horrendous, there's policy gridlock, and this lets Japanese investors continue to invest money abroad in droves," said Samarjit Shankar, global FX strategy director at The Bank of New York-Mellon in Boston.

EURO USD Forex Trading Tips

Rate holds point of indecision so far today; late break fails to attract more bids but still solid above the 100 day MA. Traders note strong offers above the 1.3330 area but bids are absorbing those for now with a foothold over the 1.3300 handle to signal a short-squeeze.

Rate has two-way action suggesting a try for stops above. Rate likely has stops building in both directions but shorts have taken minor control of the market as the rate gives back gains over the 1.3400 area last week late. Action remains two-way; any move lower is likely supported on dips.

Overhead resistance of 1.3330/50 area now back in play; expect sellers in that area on a rally. Possibly more official and semi-official bids overnight with traders noting Middle-eastern names on the bid. Long-term bulls are likely still in control of the market and this significant pullback is a buying opportunity in my view.

EUR/USD Daily

Resistance 3: 1.3400/10
Resistance 2: 1.3380
Resistance 1: 1.3330
Latest New York: 1.3240
Support 1: 1.3150
Support 2: 1.3100
Support 3: 1.3080

Data due Thursday: All times EASTERN (-5 GMT)

7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
10:00am EUR ECB President Trichet Speaks.

forex losses till ’11

In a big relief to India Inc, the Government is believed to have accepted the recommendations of the National Advisory Committee on
Accounting Standard (NACAS) to defer the mandatory implementation of accounting standard 11 (AS-11) that deals with foreign exchange differences.

According to official sources, the government will shortly issue a notification, giving corporates an option to not report numbers as per AS11 that stipulates them to recognise foreign exchange losses in the profit and loss (P&L) accounts every year. "The Government has agreed with the recommendations of NACAS that suggested deferring the implementation of AS-11 to 2011," the sources said.

AS-11 deals with mark-to-market provisioning in corporate profit and loss accounts for foreign exchange-related gains and losses. Refusing to take a hit on their profits, many corporates were complying with Schedule VI of the Companies Act that allows them to forego AS11. Already reeling under recession, a majority of the firms are reluctant to show the losses originating from rupee-dollar rate fluctuations in their balance sheets as it will further damage their credibility.