AUD/USD price rally for month of March

AUD from the beginning of the month = 0.63109 USD

AUD as of toady = 0.68698

Gain of 5,589 points (9%)

If you had bought AUD/USD at the beginning of the month, your gain would have been 9%.

If you were trading this pair on the forex market, using $1,000 with a leverage of 100:1 to purchase a contract of $100,000 USD, your gain would have been approximately US$5, 500

That's a 5-fold gain...

USD Still Currency of Choice in Risk Averse Market

Any questions over the status of the USD as the currency of choice are being answered into the early week, with the greenback continuing to rally sharply on a broad based flight to safety. The latest price action has been largely attributed to the news that US auto giants GM and Chrysler have failed to secure restructuring funding from the US Auto Task Force and a warning that bankruptcy could be the best option.

ECB’s Wellink expressed concerns over the undercapitalization of banks and suggested that reserves need to be built up in good times so that banks can better deal with times of financial stress. The latest infusion of fear into the markets also has traders once again looking at the VIX with the volatility index jumping to trade back over 45% on Monday.

On the data front, Eurozone releases were much worse than expected with fresh multi-year lows in business climate and economic sentiment. Meanwhile in the UK, data was offsetting with stronger mortgage approvals and weaker Feb net consumer credit.

Dollar set to recover in short term

Dollar index DX recovering from recent low. Set to test psychological level of 90.

Dollar/Swiss and Dollar/Yen will rise.

Euro, GBP, AUD will fall.

Euro to test psychological level of 1.30

Buy Britian Pound and Euro for Forex Gain

The June Dollar posted an inside day with a higher close on Friday as it consolidated some of this week's decline. The high-range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near-term.

The June Euro posted an inside day with a lower close on Friday due to profit taking as it consolidated some of this week's rally. The low-range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, the 62% retracement level of the December-March decline crossing at 137.736 is the next upside target. Closes below the 20-day moving average crossing at 128.590 would temper the near-term friendly outlook in the market. First resistance is Thursday's high crossing at 137.370. Second resistance is the 62% retracement level crossing at 137.736. First support is the 10-day moving average crossing at 130.467. Second support is the 20-day moving average crossing at 128.590.

The June British Pound posted an inside day with a lower close on Friday as it consolidated some of this week's rally. The low-range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term.

The June Swiss Franc posted an inside day with a lower close on Friday as it consolidates below the 50% retracement level of the December-March decline crossing at .8965. The low-range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near-term.

The June Japanese Yen posted an inside day with a lower close on Friday as it consolidated some of Thursday's rally. The low-range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term.

April gold closed lower due to profit taking on Friday as it consolidated some of this week's rally but remains above the 20-day moving average crossing at 933.20. The low-range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near-term.

Dollar Index slides from recent high

Dollar index DX extends its decline from psychological level of 90, to find its position at 86.77 below its 10 days moving average of 88 which is the first resistance level. Stochastic and RSI is bearish.

BOJ buys Gov't Bonds from Banks and add loans to Banks

The Bank of Japan said it will increase its monthly government bond purchases from banks to spur lending and prevent the recession from deepening.
The central bank will buy 1.8 trillion yen ($18.3 billion) of government debt each month, up from 1.4 trillion yen now, it said in a statement in Tokyo today. The BOJ has purchased the bonds since 1989 and last increased them in December.

Bond yields fell on speculation the purchases will help the world’s most indebted government pay for Prime Minister Taro Aso’s third economic stimulus package. Bank of Japan Governor Masaaki Shirakawa last week signaled he would endorse plans for more government spending, saying the country needed “appropriate fiscal measures.”
“At a time when the country’s economy is shrinking at a double-digit pace, fiscal spending is the remedy, and the central bank can contribute by buying government bonds,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The bank can’t avoid entering the field of fiscal policy.”

The yield on Japan’s benchmark 10-year bond fell 1.5 basis points to 1.285 percent as of 12:56 p.m. in Tokyo, after being unchanged immediately before the announcement. It’s still higher than the 1.165 percent at the start of the year. The yen was little changed, trading at 98.46 per dollar from 98.48.
The move came after the Bank of England last week started buying U.K. government bonds to expand reserves in the financial system. The Federal Reserve may unveil a similar program later today.

Shirakawa told lawmakers last week that the central bank buys government bonds to add money to the financial system rather than to fund fiscal expansion. Economists say the policy board doesn’t want to give the impression that the purchases will help Aso increase spending.

Helping Government
“The bank says the increases are aimed at smoothening money-market operations, though market participants interpret them as being aimed at helping the government’s fiscal spending,” said Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo and a former central bank official.

Japan’s public debt is more than 170 percent of gross domestic product, the Organization for Economic Cooperation and Development estimates, the highest in the industrialized world.
The Bank of Japan kept its benchmark overnight lending rate at 0.1 percent at today’s meeting. Since cutting the rate in December, the central bank has turned to buying assets from financial institutions in an effort to encourage lending.

Yesterday it outlined plans to provide as much as 1 trillion yen in subordinated loans to banks to shore up their capital, which has been depleted by falling stock prices.
Japanese banks traditionally have large equity holdings, making them vulnerable to the 31 percent drop in the Nikkei 225 Stock Average over the past six months and reducing their capital-adequacy ratios. (Bloomberg)

Worst Financials Chart IYF

Our chart of the week is an update on the all-important iShares Financial ETF (IYF).The IYF has become a weekly fixture for one major reason: This ETF represents the backbone of America's financial system. With large holdings in Bank of America, Citigroup, Goldman Sachs, and JPMorgan, this fund rises and falls according to America's ability to pay debts, conduct business, and generally "get along.

"We're sticklers for the market adage "don't fight the trend." Right now, the trend in American finance is down. The IYF has blown past our $34 "line in the sand." Shares hit a new all-time low of $24 yesterday.We're sure the market will stage at least a short-term rally soon, but until financial stocks can get their act together, caution, caution, caution is the order of the day.– Brian Hunt

Ready for World's Biggest Bankruptcy

Of the major industrial economies in the world, Japan's government is the most indebted. Since its recession began 20 years ago, Japan has plowed trillions into its banking system via numerous bailout programs. As a result, the Japanese government has built up the world's most crippling debt load.The government of Japan owes $7.8 trillion. That's $157,000 per capita.

We've been using government debt per capita to compare the government debts of Britain, the United States, and Japan. But government debt to GDP is the ratio economists use to compare the indebtedness of countries. The UK has a government debt-to-GDP ratio of 48%. The U.S. has a government debt-to-GDP ratio of 75%. Japan has a government debt-to-GDP ratio of 187%.

If there's going to be a major sovereign bankruptcy, it's going to happen in Japan. Its economy is a shambles. For years, Japan has relied on exports... but even that's drying up now. In January, Japan's exports plunged 47%, producing a trade deficit. People talk about Japan as a "nation of savers." But that's not true anymore. Japan's personal savings rate has collapsed from 16% in the early 1990s to 2.2% last year.Japan has an aging population and no immigration. I can't see where it's going to find the money to pay off its huge pile of debt.

The way to play the collapse in Japan is by shorting the yen. Right now, the Japanese yen is the world's most popular currency. Traders perceive it as a safe haven. In 2008, the yen was the world's best performing currency.... Rising 33% against the Canadian dollar, 40% against the British pound, and 19% against the dollar.

The Japanese yen has been in a 40-year bull market. I think a new long-term bear market has just started... and it will end in the bankruptcy of Japan's government. FXY is the ETF for the Japanese yen. When then yen falls, this fund falls, too. The easiest way to bet on a fall in yen is to short this fund or buy put options on it.
By Tom Dyson

DJIA Market Notes

The Dow closed higher due to a late-day short covering rally on Friday. Early weakness saw the Dow post a new low for the year. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are oversold but are neutral signaling that sideways to lower prices are possible near-term.

If the Dow extends this year's decline, the April 1997 low crossing at 6315 is the next downside target. Closes above the 10-day moving average crossing at 6956 are needed to temper the near-term bearish outlook in the market. Closes above the 20-day moving average crossing at 7383 are needed to confirm that a short-term low has been posted. R2 = 7383, R1 = 6956. S1 = 6469. S2 = April 1997 low crossing at 6315.

April gold closed sharply higher on Friday as it consolidated some of this week's decline. The mid-range close sets the stage for a steady opening on Monday. Closes above the 20-day moving average crossing at 944.62 are needed to confirm that a short-term low has been posted. R2 = 964, R1 = 944, . S1 = 900, S2 = 892

China to tap its foreign reserves to buy crude oil as part of a push to diversify holdings from U.S. Treasurys

The Chinese government is considering a plan to direct some of its gigantic currency reserves into crude oil. It's the latest development on the trend of China using the global asset crash to snap-up mining shares, mineral deposits, and other raw material assets. The scale of the buying isn't known yet, but just a sliver of China's $2 trillion in currency reserves would buy an incredible amount of oil.

With the U.S. issuing massive amounts of government bonds to finance economic stimulus measures, Chinese officials are looking to hedge against the risk of Treasury prices dropping.
China, which has been building up a national oil stockpile since 2004, aims to amass 100 million barrels by next year as a first step, the Japanese business daily Nikkei reported.

Beijing has nearly $2 trillion in foreign reserves, the largest in the world. It surpassed Japan last September as the No. 1 holder of U.S. Treasurys. Two-thirds of China's foreign reserve assets are said to be denominated in dollars, according to Nikkei.

Budget outlays have funded China's hedging initiatives so far, but an unnamed government official told Nikkei that a proposal to expand the program with the use of foreign reserves is under consideration. Another plan envisions applying reserves to the development of oil fields, rather than buying the oil directly.

Chinese Premier Wen Jiabao has recently hinted that China may review its large purchases of U.S. Treasurys, saying that future buying will be adjusted to meet the nation's need to maintain the value of its foreign currency reserves.

Of flawed paper currencies, U.S. dollar still the best

The U.S. dollar is far from a perfect currency, but it's still better than the alternatives. According to Bloomberg, "The euro is a multinational creation, belonging to no specific country and adopted by 16 nations, several of which are economic basket cases. The yen and the pound aren’t used enough in international trade and financial transactions. China’s yuan isn’t freely traded or exchangeable.

"Industrial production in Europe and Japan are plunging. The financial crisis in the U.K. will probably be worse than what we're experiencing in the U.S. And the interest rate spreads on foreign currencies over the dollar are too thin to make the added risk attractive.

World Markets Brief

Asia:
Singapore financials plunges to 2003 level with banking UOB at $9.25 DBS at $7.41 and OCBC at $4.16
Property giants Capitaland slump to $1.80, City Dev fell to $4.60 and Keppel Land to $1.24
CIMB-GK sees more volatility in near term as STI seeks to test intra-day low of 1473, seen last October.
Japan's Feb new vehicle sales down 32% y/y. South Korea Jan industrial output slides 25% y/y.

Europe:
Eurozone manufacturing slump to lowest level in 11 years. HSBC posted 70% loss in profits.
Euro weakened agst USD after Euro leaders failed to agree on aid package for their Eastern Euro counterparts. Euro is set to slide to 1.25 and GBP is likely to test 1.40 USD
Dollar strengthen to 1.174 CHF

USA:
DJIA fell to 6800 level.
Yen strengthened agst dollar as repatriation of yen flow to support closing of Japan fiscal year in March. Yet April typically sees an outflow again. Dollar weakened to 97.40 yen

The Dollar Haven and the EUR/USD Support

As the global community gets their houses in order, the safe haven demand for the U.S. Dollar could be on the slide. The U.S. Dollar Index continues to head higher off support on the daily but the 88.00 to 88.50 level is more than a ceiling, it’s possibly signs of a global shift. As long as the U.S. Dollar is trading above 87.00 there is plenty of support and this translates into resistance on the EUR/USD.

The support for this shift is not just in price but also as President Obama has talked of a potential $750 billion for the financial industry and as the U.K. is taking steps to extend the guarantees on distressed bank assets. There is confidence that accompanies these moves as fear and uncertainty are -- at least on the surface -- calmed by such actions. Fed Chairman Bernanke has also helped as his two-day testimony this week sent a clear signal to the markets that he is not interested in nationalizing the banks. When asked what he would call the current stance the Fed is taking, he referred to it as “public/private partnership”. The market seems satisfied with that understanding.

Raghee Horner