FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar consolidated its recent gains after the Bank of Korea disappointed consensus expectations, and chose not to hike. Most USD/Asia pairs pushed higher in response, which in turn had a negative impact on risk appetite more generally. Memories of yesterday’s 50bp RRR hike by China merely added to the sombre mood. EURUSD traded 1.4184-1.4277, USDJPY 80.45-81.09. Precious metals had an unremarkable night, and gold is trading at $1504.46/oz at the time of writing. Oil was also range-bound during the Asia session. Asian equities are generally weaker, despite the S&P 500 finishing up +0.5%. Jobless claims fell as expected, though the +434k print was in line with the April average. Headline retail sales rose with an upward revision to the March reading, but the ex-auto and gas figure was softer. Philadelphia Fed President Plosser maintained his hawkish tone, noting that inflation risks are “clearly to the upside”. He also thinks the time to tighten is not too far off. He said QE2 is “done for all intents and purposes” and said the bar for QE3 is quite high, barring any dramatic developments. The upcoming CPI and University of Michigan data will be key inputs for Fed officials’ inflation outlooks. And on the issue of the debt ceiling, the White House said Republicans and President Obama agreed the debt ceiling must be raised though longer-term questions about the fiscal picture remain.
EUR
The Dutch finance minister De Jager said he would have to wait for the IMF review on Greece before making any decisions on additional aid. The report is said to be due at the end of May or the beginning of June. He did say, though, that the consequences of another debt crisis would be worse than the consequences of extending aid again.
The Irish Public Expenditure Minister Howlin said a rescheduling of Ireland’s IMF/EU debt is desirable and that it would be unreasonable if interest rate reductions are available to others but not to Ireland.
ECB Governor Council member Coene said the Eurozone inflation “hump” is becoming prolonged and said that the market assumption of more policy adjustments is not without reason. Coene said he assumed ECB staff projections of inflation would be increased and said that any rescheduling of Greek debt would do more harm than good.
Leading indicator momentum in Europe has seemed to slow as of late, though the readings are still in expansionary territory. Nevertheless, the Eurozone Q1 GDP estimate, along with the releases from France, Germany and Spain, will bear scrutiny as any manifestation of slower growth worries could further hamper the euro.
GBP
Industrial production numbers in March were softer at +0.3% m/m vs +0.8% consensus. Our UK economist notes a risk that the preliminary GDP Q1 print of +0.5% q/q could be revised slightly lower as a consequence.
TECHNICAL OUTLOOK
EURUSD BEARISH Momentum is negative; focus has shifted to the 1.4062/21 support area. Resistance is at 1.4423.
USDJPY BEARISH Resistance at 81.85 is intact; expect the pair to lose further towards 80.00 and 79.57.
GBPUSD BEARISH Model has turned bearish; a break below 1.6166 would expose 1.6128. Near-term resistance is at 1.6380.
USDCHF NEUTRAL Recovery through 0.8893 has turned the model neutral and exposed 0.8947. Initial support is at 0.8784 ahead of 0.8708.
AUDUSD NEUTRAL The pair targets 1.0537; a break here would trigger negative tone. Resistance is at 1.0889.
USDCAD NEUTRAL Resistance lies at 0.9722, while downside trigger is at 0.9600.
EURCHF BEARISH Break below 1.2485 would expose 1.2433/03 support area. Near-term resistance lies at 1.2702.
EURGBP BEARISH Violation of 0.8655 has exposed 0.8618. Near-term resistance is at 0.8800.
EURJPY BEARISH Pressure on 114.16, move below this would signal scope for weakness towards 113.56/00 area. Resistance is at 115.63.
SCHEDULE
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