FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment has been unstable in overnight trading as concerns over potential radiation leaks from Japan’s nuclear plant intensify and after further aftershocks struck the northern part of Japan early on Wednesday. The Nikkei 225 closed 1.65% lower.
Focus is also shifting back to the Eurozone periphery with Portugal’s parliament due to vote on budget cuts today. A rejection of austerity measures may lead to the collapse of the government and early elections. EURUSD traded 1.4153-1.4182 overnight and USDJPY traded 80.84-81.04.
Fed Chairman Bernanke is also due to speak today and should echo the latest FOMC statement. Recent Fed speakers, including Dallas Fed President Fisher and Cleveland Fed President Pianalto, yielded little new policy insights in their latest comments, as Fisher remained hawkish and Pianalto expected commodity-related inflation pressures to subside.
EUR
Peripheral concerns flared up ahead of the EU leaders summit as a spokesperson for an effectively nationalized Irish bank had to deny earlier reports it would miss coupon payments. Sovereign yields rose also as Greece said it cannot go back to markets at current levels and concerns emerged over the Portuguese government. These concerns underscore the need for the EU to follow through on the policy framework from the March 11 summit.
Today’s vote on budget cuts by the Portuguese parliament will attract investors’ attention. Any negative outcome would most likely lead to early elections and raise the risk of Portugal asking for external aid. Prime Minister Socrates said he would quit should there be no agreement on budget cuts.
ECB’s Stark said further intervention in the yen is up to the Japanese authorities, though the G7 will be ready to provide support if needed. He affirmed the strong risk of second-round affects and said there were good reasons for normalization of the ECB’s policy stance.
JPY
The yen continues to trade in a tight range versus the dollar, and Japanese officials remain vigilant on the currency, which should curb selling interest in USDJPY. As it would take a material change in Fed rate expectations to drive the pair materially higher, it’s likely to trade in a narrow range for now.
Money-market data released from the BoJ overnight points to net sales of ?530 bn, far less than the ?2-3 trn reported on Friday and also less than the amounts done last September. However, we expect further rounds of sales to come as price action and general economic conditions warrant.
GBP
CPI figures were higher than expected at 0.7% m/m and 4.4% y/y and RPI was also stronger than consensus. Our economists note it is not clear if the figures exceed BoE expectations as the Inflation Reported showed Q1 CPI around 4.1% and it looks like the final number will be near 4.1%-4.2%. The GBP7.0 bn shortfall in public finances was disappointing, and may raise the pressure on the Chancellor ahead of the budget presentation.
March MPC minutes are the next obstacle for sterling bulls to navigate. An unchanged vote could disappoint bulls but any more votes for hiking, combined with the stronger CPI print this week, could push up BoE rate expectations and sterling, especially if risk sentiment remains stable. Separately, UK Chancellor Osborne will present the budget along with the Office for Budget Responsibility’s new macro forecasts. Our UK economist expects the budget to be a macro non-event as details will focus more on specific tax/spending measures. We remain short GBPCAD as a trade recommendation.
CHF
SNB Chairman Hildebrand offered little new on policy as he said the SNB would always act in the interest of the economy, and expected the economy to expand about 2% this year. He said inflation was weak despite the oil surge while Swiss trade data showed 16% real growth in exports and a trade balance of CHF2.49 bn as the export sector is weathering a strong franc extremely well. That said, we believe the franc’s impact on monetary conditions and export competitiveness will keep the SNB cautious about changing policy in the near term. We remain long EURCHF as a trade recommendation.
TECHNICAL OUTLOOK
USDJPY 82.01 resistance holds.
EURUSD BULLISH Upside potential found resistance below 1.4282 key high, a break of this level would expose 1.4373 and 1.4423. Initial support is at 1.3981.
USDJPY BEARISH Resistance at 82.01 holds, while a move below initial support 80.00 would open way to 78.83.
GBPUSD BULLISH Rise through 1.6458 would favor extension of the bull trend towards 1.6516. Near-term support is at 1.6293.
USDCHF BEARISH Support is at 0.8964, break of this level would expose 0.8852. Initial resistance is at 0.9198.
AUDUSD NEUTRAL The pair holds below 1.0162; a break here would trigger a bull trend. A move below 1.0000 initial support would open 0.9932 instead.
USDCAD NEUTRAL 0.9974 and 0.9668 mark the key directional triggers. Near-term resistance is at 0.9867, while support lies at 0.9735.
EURCHF BEARISH Break of 1.2755 would expose 1.2571, while resistance is at 1.2945.
EURGBP BULLISH AS long as the pullback holds above 0.8626, expect recovery towards 0.8761/87 resistance area.
EURJPY BULLISH Push above 115.57 would open up the way for gains towards 116.00/68 area; short-term support is at 114.41.
SCHEDULE
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