FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
FX risk appetite declined a little further during the Asia session as silver weakened again. News that Portugal had agreed the terms of a financial aid package with the EU/IMF/ECB did little to shore up sentiment. EURUSD traded in a range of 1.4755-1.4861, and USDJPY 80.82-81.11. Asian equities are down over 1% at the time of writing while the S&P 500 closed -0.34% lower. On the data front, US factory orders were stronger than expected at +3.0% in March, and vehicle sales also surprised to the upside, coming in at 10.2 mn for domestic sales and 13.14 mn for total sales (vs. 9.9 mn and 13 mn respectively). Ahead on Wednesday, European PMI figures are due, while the US gears up for the Friday payrolls print, beginning with the ADP survey and ISM non-manufacturing report for April.
EUR
Our European economists have tweaked their ECB rate hike forecast. They still see two further hikes this year, but now expect them to come sooner – in July and October, instead of September and December previously.
Portugal announced that a bailout deal had been agreed with the IMF and EU. Sources reported the total size of the bailout at EUR78 bn, with a maturity of three years. No details on the interest rate have yet been released.
Eurozone PPI came in at +0.7% m/m and +6.7% y/y, the latter slightly higher than expected. Our economists expect no policy change at this week’s ECB policy meeting but recent elevated inflation prints suggest that there is a high chance President Trichet will stick to an assertive stance.
GBP
Manufacturing PMI in the UK was softer at 54.6 (cons. 57), providing further evidence that the index has peaked. With softer trends in core data releases recently, the likelihood of a BoE hike has receded and our UK economist expects rates will remain on hold on Thursday.
CAD
The ruling Conservative Party finally won a majority of parliamentary seats in Monday’s Federal elections – the fourth election in seven years. Canada is now one of the few G7 economies which is likely to have a stable, majority government. This should allow the CAD to enjoy a strong political premium and outperform on the crosses.
TECHNICAL OUTLOOK
EURGBP 0.9039/45 resistance.
EURUSD BULLISH Upside potential held at 1.4905; a break here would expose 1.5000. Initial support is at 1.4633.
USDJPY BEARISH Pressure on 80.69; move below this would expose 80.00. Initial resistance lies at 81.69.
GBPUSD BULLISH Pullback targets 1.6438 support; if the level holds, expect recovery towards 1.6661 and 1.6747.
USDCHF BEARISH Bear trend extends; initial support is at 0.8569 ahead of 0.8500. Resistance lies at 0.8761.
AUDUSD BULLISH Break of 1.0953 would expose 1.1012/23 area. Support lies at 1.0775.
USDCAD BEARISH Focus is on 0.9446, break below this would signal potential for weakness towards 0.9400. Resistance is at 0.9576.
EURCHF BEARISH A break of 1.2751/30 support zone would open 1.2624. Near-term resistance is at 1.2880.
EURGBP BULLISH Abrupt recovery yesterday has exposed 0.9039/45 area; a break through this would expose 0.9067. Initial support is at 0.8942, previous high.
EURJPY BULLISH While support at 118.50 holds, expect recovery towards 121.14 and 121.84.
SCHEDULE
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