FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
US President Obama announced that Osama Bin Laden has been killed by US forces in Pakistan. The dollar strengthened across the board shortly after the news broke. In fact, a nervous open by precious metals had already set the dollar on a strengthening trajectory. EURUSD traded 1.4763-1.4864, and USDJPY 81.00-81.69. Earlier, AUDUSD finally took out the 1.10 level, but could not hold it.
Although the S&P500 only rose +0.23% on Friday, the index’s sharp rebound since mid-April has helped keep FX risk appetite supported over the past fortnight. S&P Futures are already trading 7.1 points higher. The University of Michigan confidence index reached 69.8, narrowly missing consensus expectations. The Chicago PMI slipped to 67.6, again failing to meet consensus forecasts. The key ISM manufacturing survey for April is due. Our US economics team are in line with consensus opinion and expect some slippage to 59.5, from 61.2 in March. Both the UK and Singapore are on holiday today.
EUR
Greek Finance Minister Papaconstantinou repeated that Greece does not need to restructure its debt, but that an extension to the repayment schedule on the EU/IMF loans could be beneficial.
Eurozone CPI inflation accelerated in April, exceeding consensus expectations for a second consecutive month. The flash estimate rose to +2.8% y/y (cons. +2.7%), well above the ECB’s policy target of “below, but close to, 2%”. Germany’s seasonally adjusted jobless rate for April was unchanged at 7.1% (cons. 7.0%). The number of unemployed dropped by 37k.
CHF
The CHF advanced strongly on Friday after SNB Chairman Hildebrand made some surprisingly hawkish remarks. On inflation, he said that “certain upside risks are visible”, but that these are still moderate. He acknowledged though that the unexpectedly high March CPI exaggerated these effects due to methodological changes. Hildebrand also said that keeping rates at current levels for too long would entail long term risks to price stability. One could certainly argue that he is preparing the ground for a June hike, though he included enough disclaimers to leave the policy board’s options open if, for example, more weakness were to appear on the export side, or if the franc were to strengthen further.
The Swiss KOF leading indicator for April printed well above expectations at +2.29 (cons +2.20). Our Swiss economist notes that the report hints at accelerating growth and increasing momentum. Also, a strong positive signal came from construction.
NZD
Moody’s announced that the content of New Zealand’s May 19 budget will be critical to whether the outlook on the Aaa rating is kept at stable.
New Zealand’s commodity prices set another new record high in April rising +1.6% m/m.
AUD
Australian house prices fell -1.7% q/q in Q1, their sharpest pace of decline since Sept. 2008. Our Australian economists stick to their view that the next RBA hike will likely come in August. We remain long AUDNZD from 1.3545, targeting a move up to 1.42.
CAD
A surprise contraction in February’s GDP caught the wider market off-guard, leading to some CAD selling on the numbers. GDP fell -0.2% m/m (cons. 0.0%). The annualised figure also disappointed but still grew at a healthy clip, coming in at +2.9% y/y (cons. 3.1%).
Our Canadian economists are not especially concerned about the negative monthly print, and observe that this is only the third monthly decline in the past 21 months. FX markets eventually reached the same conclusion and USDCAD closed lower at levels unseen since Nov. 2007.
TECHNICAL OUTLOOK
AUDUSD targets 1.1017
EURUSD BULLISH While support at 1.4633 is intact, expect the pair to gain towards 1.4905 and 1.5000.
USDJPY BEARISH Focus is on 80.89/69 support area; a break here would expose 80.00. Resistance lies at 82.28.
GBPUSD BULLISH Initial resistance is at 1.6747, move above the level would expose 1.6878. Support is at 1.6432.
USDCHF BEARISH Push below 0.8600 would expose 0.8569. Near-term resistance is at 0.8835.
AUDUSD BULLISH Following the break through 1.1000, the pair targets 1.1017 next. Near-term support is at 1.0852.
USDCAD BEARISH The pair found support at 0.9446, a break here would open 0.9400 next. Resistance lies at 0.9576.
EURCHF BEARISH The cross fails to break through 1.2974 resistance; while this level holds, break of 1.2730 would favour further losses towards 1.2624.
EURGBP BULLISH Upside potential targets 0.8942, move above this would open 0.9000 next. Support lies at 0.8847.
EURJPY BULLISH Initial resistance is at 121.84, break above this would signal scope for a run towards 122.41 and 123.33. Support is at 12000.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
