FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
In a surprise development, the Fed, the ECB, the Bank of England, and the Bank of Canada agreed to engage in “concerted intervention” with the Bank of Japan “on March 18, 2011″. The communique explained that the decision to intervene was taken “in response to recent movements in the exchange rate of the yen associated with the tragic events in Japan”. The text also repeated the G7′s concern over “excess volatility and disorderly movements in exchange rates”. Speaking later, Japan Finance Minister Noda made it clear that the BoJ would be active in USDJPY, but he was not sure in which pairs the other banks would intervene. The yen weakened v sharply on the announcement, and USDJPY continued to grind higher during the Asia session. EURUSD traded 1.3981-1.4088, USDJPY 78.83-81.89. Elsewhere, WTI crude jumped about $2/bbl on news that the UN security council authorised a no-fly zone over Libya, and approved “all necessary measures” to protect Libyan civilians. US data offered some positives for the dollar, though market participants continue to largely overlook releases. Initial jobless claims fell as expected and continue to signal an improving labor market. CPI rose as expected while core was stronger. Our analysts noted that core CPI on a y/y basis should put pressure on the Fed to reconsider their assessment mentioned in the March 15 FOMC statement that “underlying” inflation is “subdued”, especially with a strengthening labor market.
EUR
The euro held onto its early-European session gains stemming from the strong Spanish bond auction. The Spanish bond auction was considered to be strong as the bid to cover ratio for the 10-year came in at 1.81x vs. 1.54x prior. Considering the state of the market the periphery bond market is faring quite well, but we believe the market is struggling to absorb all the event risk at this stage so price action may be delayed.
ECB President Trichet speaks in Frankfurt around 1600GMT and he may wish to address the decision to embark on a round of joint intervention. On the monetary policy front, given recent comments from the ECB’s Liikanen who still pointed to an April rate hike, we would not expect too much of a departure from the last time we heard Trichet speak.
CHF
The SNB kept its 3m LIBOR target unchanged at 0.25%, though we judge the SNB statement to be more dovish, which is negative for the franc. The longer-term trajectory of the inflation forecast was largely kept unchanged but even so, inflation is only expected to hit 2% in 2013 which is well beyond the necessities of short-term action. The SNB expressed particular concern about other global developments and its impact on Swiss markets, and this will likely remain the driving theme within the policymaking community.
SNB Chairman Hildebrand later said the strong Swiss franc remains a burden for the economy and could lead to a slowdown throughout the year through exports.
TECHNICAL OUTLOOK
EURUSD 1.4282 key resistance.
EURUSD BULLISH Rise above 1.4086 has exposed 1.4282 key high from Nov 4. Initial support lies at 1.3855.
USDJPY BEARISH Recovery targets 82.01 with scope for 82.45 next, while support is at 78.83 intraday low.
GBPUSD BEARISH Look for a break below 1.5964, which would confirm the bear trend and open the way to 1.5845. Near-term resistance lies at 1.6200.
USDCHF BEARISH The pair found support at 0.8852 ahead of 0.8795. Initial resistance is at 0.9198.
AUDUSD BEARISH As long as resistance at 0.9963 is intact, a break below 0.9706 would expose 0.9625.
USDCAD BULLISH While support at 0.9735 holds, look for gains towards 0.9974 and 1.0011/58 resistance area.
EURCHF BEARISH Bounce off through 1.2706 exposes 1.2854. Near-term support lies at 1.2571 ahead of 1.2433/02 support zone.
EURGBP BULLISH Focus is on 0.8787 Fibonacci level, break of this would expose 0.8818. Near-term support is at 0.8626.
EURJPY BEARISH Resistance at 116.00/68 area, while support is at 110.54 intraday low.
SCHEDULE
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