Asian Stocks Tumble - Dollar Recovers early losses

Dollar was mildly lower as the week starts but regains ground quickly as Asian stock markets fall amid concern of deepening recessions. The World Bank said over the weekend that the global economy is likely to shrink for the first time since WW II and predicts that growth will be at least 5% below potential. Industrial production will be lowered by 15% by middle of 2009 than a year ago. World trade is expected to have the largest decline in 80 years with sharpest losses in East Asia. Developing countries are facing a financing short fall of $270-700b in 2009 and only 1/4 of the most vulnerable countries have resources to prevent a rise in poverty. Asia stocks are mostly down with Nikkei dropping over 1.2% to 7086 while Hong Kong HSI is dropping more than 2.5%.

Released in Asia, Japan's current account turned to a deficit of 172.8B yen in January, the first deficit since 1996 and significantly lower than a deficit of 15.3B yen as market expected, compared with a surplus of 125.4B yen in the previous month. Exports slumped 46.3% yoy (December: -35.1%) in January while imports declined 31.7% yoy (December: -21.2%) during month. Japan's economic watch DI improved slightly to 17.3 in February from 17.1 in December and the trough of 15.9 in December. Although still in very low level, the reading indicated signs of stabilization.

From Europe, Switzerland's unemployment rate climbed from 3.3% to 3.4% in Feb as expected. Market's focus will remain on SNB's meeting this week. While the upper band of Libor is expected to be lowered somewhat, focus will also be on any announcement os quantitative easing programs. Eurozone's Sentix Investor confidence is expected to slide to -37.8 in March from -36.1 in February

The US calendar is empty today. Canada's housing starts in February is anticipated to have plummeted further to 148.5K in February after falling to 8-year low in January. Rising unemployment rate and looming recession made buyers stay away from the property market.

Dollar index recovers mildly after drawing support from 4 hours 55 EMA. But as discussed before, a short term top is likely in place at 89.62 on bearish divergence condition in 4 hours MACD. The dollar index should have completed a five wave impulsive sequence (81.62, 79.63, 88.24, 85.64, 89.62) and some correction should now be seen in near term, targeting support zone of 83.58 and 86.81. But after all, downside should be contained by 83.58 cluster support (50% retracement of 77.69 to 89.62 at 86.65) and bring up trend resumption. Meanwhile, a break of 89.62 high will invalidate this case and indicates that recent up trend is still in progress to 90 psychological level and above.