Euro Bulls Eager to Punch 1.6000 Against Dollar

US existing home sales were down 2% in the month to a 4.93 million annualized pace, in line with market’s forecasts. US home prices did surprise on the upside, posting a small 0.6% monthly increase, compared to the -1.5% forecast. Compared to a year ago, home prices dropped 7.7% to $200,700 in March, which isn’t going to please home owners. It is hard to see a sustained recovery of property prices since the inventory ratio is still quite high at 9.9 months vs a prior 9.6, no thanks to foreclosures. Why should people buy now when it is more difficult to get a good mortgage loan, and knowing that prices are going to fall lower anyway? Banks are reluctant to lend and are tightening their borrowing restrictions. As long as the housing market is weak, don’t expect to see a recovery of the US economy anytime soon.

Canada Slashes Rate

The Bank of Canada has cut its overnight target rate by 50 bps to 3% Tuesday, as largely expected by the market. It also cut the bank rate by 50 bps to 3.25%. The central bank said that further rate stimulus will likely be required but didn’t say that it will be near-term, and the timing of further rate cuts will depend on the evolution of the global economy and domestic demand. The BOC has become more pessimistic about the Canadian economy and also sees inflation remaining below target longer than it did at the time of its January Monetary Policy Report Update. The Bank has lowered its projection for 2008 GDP growth to 1.4% (which is the least since 1992) from 1.8% in January and for 2009 to 2.4% from 2.8%.

Forex Trading

At the time of writing, EUR/USD was hovering around 1.5998, another record high, and if it breaks successfully above 1.6000, bull targets are possibly around 1.6050, 1.6090. What’s spurring the upside move was talk that a European official has told an independent newswire that the ECB may shift to a tightening bias at its next meeting. Meanwhile, the Canadian dollar fell against the US dollar, with the USD/CAD rising to as high as 1.0155. Yesterday the pair touched parity level of 1.0000 but has since bounced up.

Wednesday:

Australia consumer prices 0130 GMT

Eurozone PMI services 0800 GMT

Bank of England minutes 0830 GMT

US MBA mortgage applications 1100 GMT

Canada retail sales 1230 GMT

Reserve Bank of New Zealand 2100 GMT (rate expected to stay at 8.25%)

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