FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk appetite was scaled back during the Asia session after another Japanese earthquake and news that Japanese officials had upgraded the severity of the nuclear disaster to a “7″ – this is the highest possible level on the scale and puts the tragedy in Fukushima on a par with Chernobyl. The yen and the Swiss franc were bought on safe-haven demand, and AUDJPY in particular fell sharply. EURUSD traded 1.4377-1.4446, USDJPY 83.47-84.79. Crude also dropped amid hopes of a ceasefire in Libya, which helped to support the dollar. More dovish FOMC members stuck to their well-known views overnight. New York Fed President Dudley said the economy is in better shape than it was last summer, partly due to QE2, but cautioned that higher oil prices are curtailing some of the momentum. He also said it is important not to overreact to rising inflation, especially as inflation expectations remain anchored. Vice Chair Yellen said rising commodity prices do not warrant a policy shift, though she agreed officials cannot be complacent on inflation expectations, and said current accommodative policy is appropriate. Neither set of comments surprised, though their focus on inflation puts more emphasis on Friday’s CPI release.
EUR
With rate expectations remaining a driver of the euro, market participants are likely to keep a closer eye on growth figures and leading indicators for any potential changes in the economic backdrop. German and Eurozone ZEW figures are due.
Irish Central Bank Governor Honohan declined to offer a forecast timeline for Ireland’s return to the bond markets.
GBP
Our analysts expect March CPI to dip to 4.2% y/y (cons. 4.4%). Market participants have recently pared back expectations for BoE tightening, and a weaker CPI print today could further undermine sterling.
For the BoC, we expect no change in policy, in line with the other 27 institutions surveyed by Bloomberg as there seems to be little urgency to tighten especially as core inflation (0.9% y/y) is well below the mid-point of the bank’s 1%-3% inflation target range. Officials will probably cite ongoing uncertainty regarding the global recovery.
NZD
RBNZ Governor Bollard said New Zealand’s agricultural export prices are likely to remain strong for some time, which is likely to keep the NZD supported. Bollard warned that monetary policy would need to counteract any rise in inflation expectations if households and firms “use the income boost from higher commodity prices and exchange rates to bring forward consumption and investment”.
TECHNICAL OUTLOOK
EURUSD 1.4500 resistance.
EURUSD BULLISH Initial resistance is at 1.4500, break of this level would open way to 1.4512/79 area. Support is at 1.4291.
USDJPY BULLISH Pullback through 84.03 has exposed 83.13; initial resistance is at 84.79 ahead of 85.53/93 area.
GBPUSD BULLISH Rise above 1.6458 would open up the way towards 1.6516, while initial support is at 1.6257.
USDCHF BEARISH Bear trend extends; break of 0.9038 exposes 0.8964 and 0.8852. Resistance is at 0.9200.
AUDUSD BULLISH The pair pulls back through 1.0412 for a minor correction to expose 1.0289; broader focus is on 1.0600/40 resistance zone.
USDCAD BEARISH Focus is on 0.9513/00 support area, while resistance lies at 0.9642.
EURCHF BULLISH As long as support at 1.2933 holds, expect recovery towards 1.3188 and 1.3243.
EURGBP BULLISH Resistance is at 0.8885 ahead of key high 0.8942, while support lies at 0.8759.
EURJPY BULLISH Sell-off holds above 120.00 keeping our focus on the upside where a break above 122.41 and 123.33 would signal further gains towards 125.00.
SCHEDULE
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