FOREX REPORT 25TH MARCH

Dollar remains broadly firm today and breaches 1.33 level against Euro while dollar yen continues to press 92.14 resistance. Fed's Vice Chairman Kohn said that he's confident that Fed "can and will tighten policy well in advance of any threat to price stability" while he also expects a "gradual recovery" for the U.S. economy following fourth- quarter growth "importantly driven by inventory corrections." Nevertheless, San Francisco Fed Yellen, who might take the Vice Chairman Role after Kohn retires in June, said it's not time to tightening monetary policy yet. Yellen believes the current accommodative policy is appropriate as "the economy is operating well below its potential and inflation is subdued." Fed Chairman Bernanke is scheduled to testify before the House Financial Services Committee today in Washington on the strategy for withdrawing stimulus and will receive much focus from the markets.

Euro remains under tremendous pressure on concern of fiscal health in PIIGS countries ahead of two days EU summit today and hit new record low against Aussie. Investors remain deeply concerned of the development in Greece situation as well as in other countries in particular after yesterday's Portugal downgrade. German Chancellor Merkel has ruled out earlier this week a decision on the financial package for Greece in the EU summit and pushed for IMF to take central role in the rescue. Any comments from EU will trigger further volatility in the common currency.

Australia dollar get a lift in Asia by hawkish comments from RBA Assistant Governor Lowe. Lowe who said that rates are set to continue rising toward more normal levels as he predicted a terms of trade boom.He also expects Australian dollar to be higher than the average of the past decade. The semi annual financial stability review also said that Australian households and businesses are well placed to pay for higher interest rates. While Aussie is so far resilient against dollar, note that AUD/USD has broken a near term trend support and is possibly vulnerable to deeper fall. But after all, we'd expect cross buying to limit downside in AUD/USD.

Looking ahead, any development in EU Summit today would rock the markets. Focus will also be on Bernanke's testimony. Data to be watched include Eurozone M3 money supply, UK retail sales and US jobless claims.

Dollar index's rally extends further as expected as reaches as high as 82.06 so far today. Intraday bias remains on the upside and the medium term rise from 74.19 is expected to continue to 61.8% projection of 76.60 to 81.34 from 79.51 at 82.43 next. Below 81.56 will turn intraday bias neutral and bring consolidations but downside should be contained above 80.55 support and bring rally resumption.

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METALS AND CRUDE OIL REPORT

Commodities regain grounds Thursday but upsides are likely limited as near-term outlook in the dollar remains strong and the result of the EU summit is uncertain. Crude oil price recovers to 80.97 in European session after sliding to 80.2. Natural gas changes little these few days and price has been hovering above 4 dollar. The market awaits the EIA's report on last week's gas storage change. The euro recovers as the ECB announced to keep the emergency collateral rules into 2011.

Gold price rebounds to 1094 but stays below both 50-day and 100-day average. Buying seems to have improved today but volume remains thin. Investors are expecting price to correct more.

The CFTC is considering regulating trading in precious metals and industrial metals after proposing limits to the energy market. Regulators hope position limits will expel speculators from the futures markets. However, the CME opposed the plan as it deemed it as not necessary and not useful. According to Tom LaSala, CME Managing Director, 'any effort to constrain trading on a U.S. exchange by the major firms that are large enough to hold positions near limits will simply push those firms from regulated and transparent market into the cash market or to a market beyond the regulatory jurisdiction of the CFTC'.

The weekly ECB statement showed that asset value of gold and gold receivables increased +1M euro in the week ended March 19, reflecting purchase of gold coin by one Eurosystem central bank. If the official sector turns into a net gold buyer from a net seller this year, it would strongly lift the sentiment and attract further funds flowing into the yellow metal.

In Asia, Bombay Bullion Association (BBA) said that India, the world's largest gold buyer, may import 23-28 metric tons of gold, compared with 4.8 tons in 2009. This indicates recovery in the country's gold demand. However, overall demand/supply outlook is not going to deviate significantly from last year. Gold's movement will hinge on the dollar's direction as well as investment flows.

Some updates on the Greek issue. German Chancellor Angela Merkel said she would recommend at the EU summit that a combination of IMF bilateral EU aid is offered to Greece as a measure of 'last resort'.

On the other hand, the ECB President Trichet announced to keep the emergency collateral rules into 2011. Under the current rule, the minimum credit threshold in the collateral framework has been lowered to investment grade level (BBB-). This is a kind of the ECB's contributing to the Greek crisis and indicates that policymakers have softened stance. In previous ECB meetings, Trichet had stressed that the central bank should not grant 'special treatment' to Greece and the ECB would not change its collateral rules for Greece.

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