FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
FX markets were largely range-bound until the end of the Asia session, although the NZD recovered some lost ground against the dollar, and the CHF sold off against both the euro and the dollar as Europe walked in. EURUSD traded 1.3956-1.3989, USDJPY 82.16-82.38. The S&P 500 finished -0.83% lower, and Asian equities are broadly flat at the time of writing.
Fed officials were unchanged in their assessments. Atlanta Fed President Lockhart sounded relatively neutral again as he is cautious about extending bond purchases after June, though new risks call for flexibility. Lockhart also cautioned on the US fiscal situation. Dallas Fed President Fisher remained doubtful on QE2 and will not back further support for the economy beyond it. Fisher mentioned they could curtail the program should something emerge to indicate QE2 is no longer necessary. Chicago Fed President Evans, a noted dove, does not see the need to taper asset purchases. In the near term, the dollar faces a rockier path as the pick-up in hawkish rhetoric from other G10 central banks contrasts with the cautious Fed. The dollar could particularly struggle versus the euro and sterling given hawkish ECB and BoE rhetoric, and we have adjusted our 1m forecasts to reflect this.
EUR
EU Commissioner Rehn said that policymakers should look into possibly reducing interest rates on Greece and Ireland’s rescue packages and also into the issue of loan maturities. Rehn also said the new bank stress tests would be more rigorous and uniform and the Euro-area summit would undertake “bold, substantial decisions”.
Moody’s downgraded Greece by 3 notches to B1 with negative outlook. The ratings agency cited implementation risks to fiscal reforms and concerns over revenue collection as the key concerns but Greek debt is already considered as sub-investment grade and the euro remains driven by ECB policy expectations.
In response to Trichet’s comments, our analysts now also expect a rate hike in April. From a yield perspective we expect the EUR to remain well supported for the time being.
GBP
Ben Broadbent has been chosen to replace Andrew Sentance on the Bank of England’s MPC. His appointment is due to take effect after the May meeting. While he might not be as hawkish as Sentance, previous research suggests that he sits firmly in the hawkish camp so the loss of Sentance will not be as significant as the market initially presumed. The key swing votes lie with Tucker and Fisher.
CHF
The seasonally-adjusted unemployment rate fell to 3.4% in February, in line with consensus expectations.
TECHNICAL OUTLOOK
AUDUSD holds below 1.0202.
EURUSD BULLISH Momentum is positive; expect gains to target 1.4086 ahead of 1.4282.
Near-term support is defined at 1.3862.
USDJPY BEARISH Initial support defined at 81.57; a break here would expose 81.13/80.93 support area. Resistance is at 83.07.
GBPUSD BULLISH Rise through 1.6344/79 would expose 1.6458, while support at 1.6072 holds.
USDCHF BEARISH Focus is on 0.9200; move below this would open 0.8951 next. Near-term resistance at 0.9392.
AUDUSD BULLISH Upside potential holds below 1.0202, break of this would expose key resistance 1.0256. Near-term support is at 1.0076.
USDCAD BEARISH Bearish outlook is intact with focus on 0.9684. Resistance is at 0.9800.
EURCHF NEUTRAL 1.3138 and 1.2788 mark the near term directional triggers.
EURGBP BULLISH Break of 0.8619 exposes 0.8654/72 resistance area. Near-term support is at 0.8566.
EURJPY BULLISH Look for gains towards 116.00/65 zone. Initial support is defined at 114.19, previous high.
SCHEDULE
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