Key Overnight Developments

• Australian Dollar Falls as Retail Sales, Building Approvals Disappoint
• Japanese Yen Sharply Lower vs Majors Ahead of New Fiscal Year

Critical Levels

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The Euro edged higher in overnight trade, adding 0.1 percent against the US Dollar. The British Pound was broadly unchanged, with prices consolidating in a narrow range below 1.51 to the greenback ahead of the opening bell in London. We remain short EURUSD at 1.4881 and GBPUSD at 1.5765.

Asia Session Highlights

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Australian Retail Sales unexpectedly fell 1.4 percent in February, marking the largest monthly drop in a year, as apparel and department store receipts slid 3.9 percent apiece from the previous month. Economists were expecting a 0.3 percent increase ahead of the release. Building Approvals also disappointed, sliding 3.3 percent to register the second consecutive decline. Both outcomes are likely linked to waning support from monetary and fiscal stimulus after central bank raised interest rates and the impact from last year’s A$20 billion in government cash handouts fades while grants for first-time homebuyers are slashed to pre-crisis levels. The Australian Dollar tumbled as the data crossed the wires, slipping 0.6 percent against is US counterpart.

The Japanese Yen tumbled against the spectrum of major currencies on the last day of the nation’s fiscal year amid expectations that exporter repatriation flows that had helped support the currency over recent months will now fade and likely reverse course. The Yen fell as much as 0.83 percent against a trade-weighted basket of its top counterparts.

Euro Session: What to Expect

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German Unemployment figures headline the calendar in European hours, with forecasts hinting that firms slashed 7,000 jobs for the second consecutive month in March. This amounts to a total of 19,000 people losing employment through the first quarter of 2010 after steady improvement in labor market conditions in the second half of last year. The jobless rate is set to remains at 8.2%, unchanged from February.

Mounting job losses bode ill for the Euro Zone’s largest economy after economic growth stalled in the three months to December 2009 as private consumption led domestic demand lower with a decline of 0.6 percent, with only exports offering a positive contribution to total output. The external sector seems bound to see a slowdown from last year’s performance as the impact of global stimulus efforts fades, leaving domestic demand to pick up the slack.

Absent further government support – an unlikely outcome considering widespread concerns about public deficits, particularly in the EU in the wake of the turmoil in southern Europe – this means that it will fall on consumers to drive the recovery in the months ahead. Surely, the decline in disposable incomes that follows job losses will not make it any easier for Germans to shoulder this burden, leaving the economy on shaky footing.

An analogous report covering the entire currency bloc is set to show that the Euro Zone Unemployment Rate rose to a record 10% in February from 9.9% in the previous month, with the implications largely the same as that of Germany after exports produced a meager 0.1 percent GDP increase in fourth-quarter as domestic demand stalled.

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