FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment has been more muted in overnight trading, with most Asian stock market indices trading in the red amid weaker earnings releases and continuing worries over Japan’s Fukushima nuclear plant. The euro has been capped due to German Chancellor Merkel’s CDU party losing power in Baden-Wurttemberg for the first time in six decades. The defeat was mainly attributed to the party’s handling of the nuclear power debate in the wake of Japan’s crisis. EURUSD traded 1.4021-1.4069 and USDJPY traded 81.39-81-78.
The greenback was also supported by more hawkish comments by Fed members. Although the Fed’s Plosser and Fisher are in any case considered to be hawkish policy board members, their comments on Friday went far to convince investors that the Fed is indeed more inclined to think about normalization rather than the need to maintain stimulus in the months ahead. Upcoming speeches by Fed officials and US data will continue to attract investor attention. Lockhart, Evans (a voting member) and Rosengren will be speaking through the day, while core PCE figures will again test whether the Fed’s efforts to avoid deflationary pressures are bearing fruit. In the Eurozone, Trichet will be speaking at 1300 GMT and investors will also watch for any sign of Portugal moving towards an aid request.
EUR
The EU leaders summit ended without any major market-moving agreement. Even though leaders again pledged on Friday to have the EUR440 bn lending capacity for the EFSF in place, there were no 11th-hour agreements on early implementation and investors will still need to wait until June for details.
For the Eurozone fund as of 2013 it was agreed that EUR16 bn would be paid in per year over 5 years, instead of the EUR40 bn upfront that had initially been agreed last Monday.
German Chancellor Merkel’s CDU party lost power in Baden-Wurttemburg for the first time in six decades. Discontent over the nuclear issue helped the Greens win 24.2% of the vote.
Trichet will speak today and German retail sales are due.
JPY
The situation in Fukushima remains worrying but we expect developments from Japan to have less of a bearing on markets ahead as the economic cost of the tragedy has broadly been factored into markets. The Q1 Tankan survey will be released this week, though market interpretation will be difficult given recent events.
The carry trade is showing some signs of life and investors may looking to go long USDJPY in anticipation of possible intervention and as the BoJ looks set to lag policy normalization by other central banks for a long time.
GBP
A combination of soft data and adverse commentary hurt sterling last week, and investors should be on guard for a further unwinding of interest rate expectations, as economic uncertainty increases. Ahead this week, GDP figures will reveal the extent of the Q4 correction in growth and a very weak print could cause MPC members to think twice about voting for tightening.
TECHNICAL OUTLOOK
USDJPY targets 82.01.
EURUSD BULLISH Key support is at 1.3935; while this holds, expect recovery towards 1.4220 and 1.4249/82 resistance zone.
USDJPY NEUTRAL The pair targets 82.01; a break here would trigger positive tone and expose 82.45. Initial support lies at 80.69.
GBPUSD BEARISH Downside pressure on 1.5977/64 area, break through this would confirm the bear trend and expose 1.5873. Resistance is at 1.6142.
USDCHF NEUTRAL Recovery through 0.9198 exposes 0.9317, support lies at 0.9076.
AUDUSD BULLISH Recovery through 1.0256 has exposed 1.0333. Near-term support is at 1.0113.
USDCAD BEARISH Focus is on the downside with initial support at 0.9705 ahead of 0.9668 key low. Resistance at 0.9844.
EURCHF BULLISH Break through 1.3004/40 area would pave the way for gains towards 1.3138. Support is at 1.2788/36.
EURGBP BULLISH The cross pulled back from 0.8818; a move above this would expose 0.8885. Near-term support is at 0.8664.
EURJPY BULLISH Focus is on 115.57; break here would open up 116.00/68 area. Support lies at 113.56.
SCHEDULE
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