FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Hawkish rhetoric from two Fed policymakers helped to support the dollar over the past 24 hours, especially against the euro and the yen. EURUSD traded 1.4071-1.4128 and USDJPY 82.37-83.01. Even AUDUSD felt some downside pressure, but quickly recovered to touch a new multi-decade high. Dallas Fed President Fisher again warned he will vote against any extension of QE2 beyond June. St Louis Fed President Bullard went further overnight, suggesting the FOMC might be willing to cut QE2 short, perhaps reducing the size of the program by $100 bn. These latest remarks clearly reinforce the perception that FOMC thinking may be slowly shifting in favour of policy normalization. The Conference Board consumer confidence index fell more than expected to 63.4 in March while the S&P/Case Shiller home price index fell 0.2% in January, a deceleration of the recent downward trend in prices. A strong print ADP employment change today will likely give the dollar support into Friday’s payrolls data.
EUR
S&P downgraded Portugal to BBB-, the second downgrade in less than a week, and also cut Greece’s sovereign rating to BB- from BB+. S&P cited an uncertain growth outlook and political backdrop in Portugal while debt restructuring concerns prompted the Greece downgrade. But EURUSD actually moved higher initially, suggesting the developments had been priced in. In Germany, the GfK Consumer Confidence Survey came in at 5.9, better than expected.
ECB Governing Council Member Makuch and ECB Executive Member Stark’s comments remained supportive of near-term rate hike expectations. Makuch said strong vigilance is still warranted and an April hike is very likely, though not certain. Stark said it was time to normalize interest rates, step by step, and said increased economic uncertainty has not changed the ECB’s overall assessment. He said the direct impact of the Japanese situation on the Eurozone would likely be limited.
GBP
UK GDP contracted by less than expected in Q4, falling -0.5 q/q. We think the figures will make uncomfortable reading for the MPC, which is struggling to battle a rather unwelcome mix of high inflation, weak growth, and further austerity measures.
NOK, SEK
Hawkish remarks from Norges Bank and Riksbank officials lent support to their respective currencies. Norges Bank Governor Olsen said the stabilization of inflation implies a gradual increase in the key policy rate toward a more normal level. Riksbank First Deputy Governor Oeberg said rate hikes will probably be needed at each of the remaining policy meetings this year.
TECHNICAL OUTLOOK
AUDUSD extends gains.
EURUSD BULLISH Move above 1.4194 would expose 1.4249/82 zone, while a break below 1.3981 would favor weakness towards 1.3935.
USDJPY BULLISH Recovery targets 83.30 with scope for 83.98 next. Initial support lies at 82.37 intraday low.
GBPUSD BEARISH Support is at 1.5873; break of this level would expose 1.5822 next. Resistance is at 1.6142.
USDCHF NEUTRAL Climb through 0.9317 would favor further gains towards 0.9369; while initial support is at 0.9140.
AUDUSD BULLISH Clearance of 1.0315 has exposed 1.0400/25 area. Support lies at 1.0205.
USDCAD BEARISH Focus is on 0.9705; breach of this level would open key low 0.9668. Resistance at 0.9844.
EURCHF BULLISH Pressure on 1.3040; a break here would signal scope for gains towards 1.3138. Support is at 1.2889.
EURGBP BULLISH The cross targets 0.8885 ahead of 0.8942. Support is at 0.8740.
EURJPY BULLISH Push through 116.00 has opened the way towards 117.01 and 118.34. Support lies at 114.82.
SCHEDULE
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