NZD/JPY, perhaps the most classic “carry trade” currency pair, has come under pressure since breaking below intraday support on Tuesday. Unstable risk appetite has been behind much of the move, and this remains the case today as the DJIA and S&P 500 trade in negative territory following the release of a disappointing US data.
First, the Commerce Department reported that [B]US housing starts [/B]fell 10.8 percent in March to an annualized pace of 510,000, bringing the rate back down toward the record low of 488,000 hit in January. Even worse, [B]building permits [/B]plunged 9.0 percent to 513,000, which is the worst reading since recordkeeping began in 1960. The data highlights the fact that home inventories far exceed demand, and until the balance comes closer to equilibrium, prices are unlikely to recover substantially while housing starts and applications for permits should fall further.
[B]US Housing Starts (White), Building Permits (Orange)[/B]
[I]Source: Bloomberg[/I]
Next, the Labor Department reported that [B]initial jobless claims [/B]fell by 53,000 during the week ending April 11 to 610,000, marking the second straight month of improvement. Ultimately, there wasn’t much optimism to be gleaned from the news, though, as [B]continuing jobless claims [/B]jumped 172,000 during the week ending April 4 to 6,022,000, which is the highest since recordkeeping began in 1967. All told, the data suggests that the ascent of the US unemployment rate is likely to accelerate throughout 2009 and into 2010.
[B]US Initial Jobless Claims (Green), Continuing Claims (White), Unemployment Rate (Blue)[/B]
[I]Source: Bloomberg[/I]
Finally, the [B]Philadelphia Fed’s manufacturing activity index [/B]rose more than expected to -24.4 in April from -35.0, thanks to improvements in new orders, delivery times, inventories, and number of employees. That said, all of these components remain deeply negative, indicating that there is still a contraction in activity, albeit at a slower pace.
Looking to NZD/JPY, the pair faces immediate support at this morning’s lows near 56.15/25, but the break below trendline support on Tuesday leaves scope for a further decline toward the 50 percent fib of 48.63-60.39 at 54.52. Such a move is contingent upon risk aversion lingering in the market, as a pickup in US equities is likely to send carry trades like NZD/JPY and AUD/JPY higher as well.
[I]Source: FXTrek Intellicharts[/I]