Silver Drops, 'Risk Off' Can't Help USD

A tumultuous day of trading spelled a nearly 10% drop in silver as weak hands were shaken out by a hike in margin requirements. The dollar no longer gets the kick it used to from risk aversion as the low yielding CHF and JPY led. Japan remains on holiday so the upcoming session will be thin with a focus on New Zealand building permits.

March U.S. factory orders rose by 3.0%, on expectations of 2.0%; the previous number was revised to 0.7% from -0.1%. Durable goods orders ex-transportation were revised to 1.8% from 1.3% and that will lead to an upward revision to last weeks Q1 GDP reading of 1.8%. Sterling lost a great deal of ground, AUD also trailed (see below).

The talk of the market was silver as it fell to as low as $40.61 from last weeks high of $49.78. Spot most recently traded at $41.64, which is modestly above key support at $41.20. A similar story played out in gold on a less violent scale. We warned yesterday of a breakdown on a fall below $1533 and the metal fell to $1516 before recovering to close above support at $1520.

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In the forex market, its telling that in a fairly straightforward risk off day with commodities falling, the dollar failed to make gains against the euro. At the same time, USD carved out a fresh record low vs. CHF and a one-month low vs. JPY. The factory orders report would normally give the USD a greater bump but bids were absent in a clear signal that the USD is unwanted. Even late news of a 78 billion Portuguese bailout (close to estimates) did little to hurt EUR/USD.

Asia-Pacific Preview

The calendar is relatively bare in the upcoming session with Japan celebrating the Greenery Day holiday as the Golden Week continues. At 2245 GMT New Zealand releases building permit data for March after a 7.8% m/m drop in Feb. There has been a 26% drop in permits since March 2010. This will be one of the first metrics to turn as the embattled construction industry recovers but thats unlikely in the near term. There is no consensus estimate but a further 8-10% decline would weigh on NZD. The market will also be looking forward to Thursdays quarterly employment data. NZD/USD hit a three-year high on Monday but has fallen 150 pips and is in danger of breaking short-term support at 0.7971 (spot at 0.7977). This would set up a similar fall to the one experienced by AUD/USDs break of 1.0921 (which we warned about yesterday).

By AB - AshrafLaidi Staff