FOPLADE- Análisis Financiero.

FED DISCOUNT MOVE GIVES USD FURTHER SHORT TERM UPSIDE IMPETUS
• US Dollar index hits its highest level since June of 2009, breaking topside resistance.
• USDCAD downside momentum sapped in the short term, look to retail sales for hope.
• EUR under pressure and breaks below 1.3500, even as sovereign risks fade.
• IMF releases staff report favouring capital controls in developing nations.

FX Market Update

The USD has retained its bid tone following the Federal Reserve’s “surprise” change to
the discount rate, announced Thursday in the late North American afternoon. The Fed
announced that the discount rate would be raised to 0.75% from 0.5% (effective
today) and that the maximum duration of primary credit loans would be shortened
to overnight (previously 90 days), effective March 18th. The market reacted by
driving the USD higher against the majors, along with US short yields as the 2-year US
government bond yield briefly peaked out at over 0.96% (1-month high), whilst equity
futures and commodities fell lower. Yesterday’s impact is still well felt as JPY, CHF and
EUR are all down against the USD, but leading the majors, while NOK, SEK and GBP are
lagging. • Despite efforts by the Fed to prepare the market for this move via repeated
indications that this would only represent a further normalization in monetary policy
along the lines of previous steps, there has been a sharp knee jerk reaction. However, if
one were to pick a bias for such a reaction it would indeed be what followed the announcement,
a stronger USD and higher US short yields, with equities/commodities
lower. The Fed noted in their release that they do not expect this move to
lead to tighter financial conditions, but rather help incent normal market function
for short term financing. However, any hint of monetary policy normalization helps to
reduce the sentiment of worry towards the longer term impact of easy liquidity provision
and loose monetary policy on inflation, thus providing the USD with a measure of support
against other countervailing forces (fiscal and external deficits). Though short rates and
the USD may move higher in the near term, this may also lead to opportunities to
eventually trade against these developments at attractive levels as it currently
appears that the market has forgotten the Fed’s message that this doesn’t signal that
tighter policy is imminent, and that policy signals are more likely to come via the interest
rate paid on reserves than anything else at this point. Fed Chief Bernanke will appear
next Thursday before a Senate panel to testify on monetary policy
(rescheduled from last week), which could provide a catalyst for a rates/USD retracement
should he take the opportunity to deflate market expectations that this current
move would lead to an imminent tightening of policy. • It cannot be denied however
that the policy measures of ‘08 and ‘09 are slowly being cast away, something that the
market has been reflecting with incrementally higher US rate pricing and a stronger USD.
For instance, the spread between 3mth USD and JPY LIBOR has been shrinking
and is currently just a hair below 0% (see top graphic), the closest to zero the
spread has been since August of 2009 when it moved negative. This stabilization and
move upwards in the spread has coincided with a stabilization in USDJPY above multiyear
lows, though volatility remains elevated. Monetary policy normalization is still proving
itself to be a strong driver of relative FX performance (and should continue to be),
with the USD perhaps having most to gain from a normalization in policy. With the USD
index reaching its highest level since June 16th and index trend support (78.90) far below
the current 81.20, it appears that the medium term USD rally is not something to get
in front of just yet. S.T.

Americas

USDCAD (1.0523) • USDCAD is up 0.4% and feeling the impact of yesterday’s Fed
move. The pair had briefly (and only marginally) broken support at 1.0410, but has been
unable to hold on to any gains. Downside momentum for USDCAD has faded and
a generally well bid USD moves the near term risk to the upside (beware
yesterday’s doji). Look to today’s Canadian retail sales to be a factor that could reverse
sentiment and boost CAD’s fortunes. S.T.

Europe

EURUSD (1.3495) • EUR dropped 100 points on the Fed’s announcement and has been relatively
stable since. Data out of Europe was mixed with services PMI coming in weaker than expected, manufacturing PMI stronger and the trade balance climbing to 1.9bn. • Greece’s CDS levels have dropped 85bpts from their late January 425bpt high, which reflects a market that is increasingly comfortablewith its the fiscal outlook - see bottom chart on page 1. According to the WSJ Greece is planning a $7bn 10-year bond sale next week, the results of which will be a key indicator of sentiment and could foreshadow EUR’s next move. Since Greek CDS spreads peaked, EUR has been unable to stabilize and has slowly drifted lower. Yesterday’s change to the Fed’s discount window combined with relatively strong data from the US have aggravated downward pressure on EUR. There is a lot of bad news now priced into EUR and fundamentally we would expect stabilization in the currency to materialize; however technicals have yet to show any signs of bottoming, which implies it is still too early to enter a long position. A close today below the psychological 1.3500 would be bearish. C.S.
GBPUSD (1.5385) • Sterling has fallen dramatically out of its eight month range and has also broken below the psychological 1.5500. A stronger USD, backed by yesterday’s Fed decision and better than expected economic data, combined with increasing concerns over the UK’s financial position has weighed on GBP. The near-term outlook for GBP is increasingly concerning. Technically, the 50% retrace-ment of the March to August rally lies at 1.5350, a close below here would open up a test to 1.5000. C.S.

Asia / Oceania

USDJPY (92.00) • Yen has lost 0.2% against the USD but is outperforming all the other primary currencies as we move into the North American session. USDJPY is testing its 200- day moving average of 92.28, a close above would be bullish. C.S.
AUDUSD (0.8910) • AUD has lost 1.5% since failing to break above its 100-day moving average of 0.9068 earlier this week. Today’s hawkish comments from RBA Governor Stevens that “if economic conditions evolve roughly as we expect, further adjustments to monetary policy will probably be needed over time to ensure that inflation remains consistent with the target over the medium term”, were overshadowed by USD strength. We expect AUD to move higher over the next several months, but for now it is trading comfortably between its 100 and 200-day moving
average (0.9068 and 0.8645, respectively). C.S.
Capital Controls - The IMF has released a staff paper on capital controls in development
nations. It highlights that capitals controls should be used as part of the toolkit available
and that they are encouraging developing countries to review them. See suggested readings.
C.S.

Commodities

Oil (78.00) • Oil continues to trade above its 100-day moving average of 76.20, which is positive for CAD. The ability of oil to hang on to recent gains even as the USD has rallied over the last 24hours is encouraging for bulls. C.S.
CRB Index (276.15) • Reflecting the increasingly bullish tone for commodities, the CRB
index has broken above its 100-day moving average of 274.31. The current 45-day rolling
correlation between the CRB and CAD is high at 0.81. Accordingly, positive pricing pressure
in commodities is also providing a boost to CAD. C.S.

EL MUNDO Y LAS FINANZAS.

Fonds pour les investissements et le développement.

FOND DU PLACEMENT PER DEVELOPPEMENT OVERSEAS CORPORATION.