• The dollar fell on Wednesday as Greece’s announcement of a €4.8 billion budget cut led to a short covering rally of the European currencies. The ISM US non-manufacturing index showed US service industries expanded at the fast pace since October 2007. Economic conditions improved in 9 of the Federal Reserve’s 12 regions in January and February, but the blizzards hurt the East Coast, the Fed said in its Beige Book. The ADP employment report showed US private-sector payrolls fell 20K in February. The S&P 500 increased 0.48 to 1,118.79. The USD/JPY declined to the important 88 support. Japan’s labor cash earnings rose for the first time in 20 months. Sterling advanced for the first day in seven as UK consumer confidence and the services PMI rose more than expected. The Australian dollar appreciated on Australia’s strong GDP growth. The USD/CAD was down for a fourth day and approaching the important 1.02 support as oil and commodity prices rose.
• The EUR/USD rose on short-covering and traded solidly above the previous 1.36-area resistance for the first time in two weeks. Credit-default swaps on Greek bonds fell to the lowest in 7 weeks as the Greek plan for more deficit cuts and tax hikes calm the sovereign debt market. EU’s Jean-Claude Juncker said Greece’s “ambitious program to correct its fiscal imbalance is now credibly on track.” A test of the long-term downtrend in the 1.38-1.39 area is possible. If this is broken, the EUR/USD outlook will turn more bullish.

Financial and Economic News and Comments

US & Canada

• US private-sector payrolls declined 20,000 in February, the fewest in two years, according to estimates by Automatic Data Processing, Inc. and Macroeconomic Advisers, LLC. January data was revised to show a decline of 60,000, up from a previous estimate of 22,000. The March 5 employment report from the Labor Department will possibly show overall job losses approximately 100,000 for February as the effects of snowstorms on employment were not accounted for in the ADP data. The unemployment rate will likely increase to 9.8% from January’s 9.7%.

• The ISM US non-manufacturing index increased to a higher-than-expected 53.0 in February from 50.5 in January, indicating US service industries expanded for the fifth time in 6 months and at the fastest pace since October 2007, data from the Institute for Supply Management showed. All of the major sub-indexes advanced in February. The business activity index climbed to 54.8 from 52.2; the new orders index increased to 55.0 from 54.7; the employment index improved to 48.6, the highest level since April 2008, from 44.6; and the supplier deliveries index advanced to 53.5 from 50.5. The prices paid index declined to a still-high 60.4 in February from 61.2 in January.

Europe

• Eurozone retail sales slipped as forecast 0.3% m/m in January, the second decline in three months, after an upwardly revised 0.5% m/m gain in December, according to data from Eurostat. January retail sales slid 1.3% y/y, following a revised 0.5% y/y December decline.

• The eurozone composite PMI was at 53.7 in February, unchanged from an initial estimate on Feb. 19 and January’s reading, final February PMI data from Markit Economics showed, indicating euro-area manufacturing and service industries expanded for a seventh consecutive month. The services PMI declined to 51.8 (vs. preliminarily reported 52.0) from January’s 52.5.
• The German services PMI slipped to 51.9 in February (vs. preliminarily reported 51.7 on Feb. 19) from 52.2 in January, suggesting the services sector in Germany expanded at a slightly slower pace, according to final February PMI data from Markit Economics.
• Germany’s retail sales, adjusted for calendar and seasonal variations, was unchanged amid cold winter at a better-than-expected 0.0% m/m in January after an upwardly revised 0.9% m/m increase in December, data from the Federal Statistical Office showed. January retail sales fell 3.4% y/y, following a revised 1.8% y/y December decline.
• The CIPS/Markit UK services PMI rose to a higher-than-expected 58.4 in February from 54.5 in January, indicating the UK services sector expanded for a tenth straight month and at the fastest pace in three years, according to data from the Chartered Institute of Purchasing and Supply and Markit Economics.
• The Nationwide UK sentiment rose to a higher-than-anticipated 80 in February from an upwardly revised 74 in January, indicating UK consumer confidence climbed to a 2-year high, Nationwide reported. The present situation index increased to 27 in February, the highest since December 2008, from 23 in January. Consumer expectations in the next six months for the economy jumped to the highest since records began in 2004, with the expectations index rising to 115 from 109. However, confidence in spending continued to decline in February, with the spending index slipping to 93 from January’s 97.
• UK shop price inflation slowed to 1.7% y/y in February from 2.3% y/y in January, the British Retail Consortium reported. Food inflation eased to 1.3% y/y in February from 2.9% y/y in January while non-food inflation remained at 1.9% y/y.

Asia-Pacific

• Australia’s Q4 2009 GDP grew 0.9% q/q, a fourth consecutive quarterly expansion and the largest since Q1 2008, after an upwardly revised 0.3% q/q gain in Q3, data from the Australian Bureau of Statistics showed, pointing to a positive outlook for the Australian economy in 2010. The Q4 GDP expanded 2.7% y/y, following an upwardly revised 0.9% y/y Q3 advance.

• Japan’s labor cash earnings unexpectedly increased 0.1% y/y to ¥273,142 ($3,088) in January, the first gain in 20 months, after a revised 5.9% y/y decline in December, according to figures from the Ministry of Health, Labor and Welfare.

FX Strategy Update

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