FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
There was little in the way of market-moving headlines or economic data during the Asia session, which caused currencies to drift. The BoJ kept policy unchanged. EURUSD traded 1.4293-1.4337, USDJPY 81.47-81.79. The Philadelphia Fed manufacturing survey, index of leading economic indicators, and existing home sales all disappointed, although initial jobless claims managed to fall more than expected. The more dovish regional Fed presidents, New York’s Dudley and Chicago’s Evans, did not appear to shift from their dovish stances. Evans said policy would likely remain accommodative through 2011 though recent weak data is likely a “transitory hiccup.” Dallas Fed president Fisher, meanwhile, sounded hawkish as usual. The Fed officials discussed exit options and tools but stressed there was no imminent sequence or timing, much in line with the neutral tone of the FOMC minutes. Recent data softness has caused some concern the soft patch could be prolonged but we maintain the view that the recovery will continue, albeit with some bumps on the way, and the dollar should benefit as the Fed seeks to normalize policy post-QE2.
EUR
The EFSF and ESM are set to raise funds for Portugal and Ireland on the market between May 23 and July 15. The EFSF already issued its maiden bond in January and it saw very strong demand, especially from overseas reserve managers.
Eurogroup’s Juncker clarified comments made earlier this week and said that he is radically opposed to total restructuring of Greek debt.
The Dutch finance minister said that if Greece goes bankrupt, it would have a domino effect in the Eurozone.
A Spanish sovereign bond auction was quite mixed; the 2041 bonds had a bid-to-cover ratio of 2.0 (prev. 2.1), but a higher yield of 6.002% (prev. 5.875%). The 10y bonds had a bid-to-cover ratio of 1.8 (prev. 2.1), with a yield of 5.395% (prev. 5.472%).
JPY
The BoJ kept the policy band unchanged at 0-0.1%. No changes were made to any of its unconventional policy measures either. USDJPY did not react to the headlines. Deputy Governor Nishimura, who had dissented at the April 28 meeting in favour of more easing, voted in line with the other board members this time. So no dissenting votes were cast, which suggests that the prospect of further near-term easing is now even more remote. Governor Shirakawa is due to give a press conference later today, but we do not expect any market-moving announcements.
GBP
UK April retail sales were firmer at +1.1% m/m (prev. +0.8%). The ONS attributed the strength in retail sales to the extra holiday and warm weather. We remain cautious on sterling as fiscal austerity bites.
CAD
We expect +3.4% y/y on headline CPI for April, +1.6% y/y on core, both in line with consensus. Higher gasoline prices should keep the y/y readings as they are, with the headline above the inflation target range but the core relatively well behaved within the 1-3% range.
TECHNICAL OUTLOOK
AUDUSD 1.0717 caps recoveries.
EURUSD BEARISH The pair holds below 1.4389, focus is on the downside with initial support at 1.4121 ahead of 1.4048/21 support area.
USDJPY NEUTRAL The pair pulled back yesterday from 82.23 to close below the open. Break above the level would expose 82.55; near-term support is at 80.94.
GBPUSD BEARISH Stalled above 1.6091; break below this would lead to 1.6046 and 1.6000. Initial resistance is at 1.6288.
USDCHF NEUTRAL Only a break below 0.8706 would signal resumption of the bear trend. Near-term resistance is at 0.8951.
AUDUSD BEARISH While resistance at 1.0717 continues to cap recoveries, a break below 1.0506 would expose 1.0443,
USDCAD BULLISH If support at 0.9600 is intact, break through 0.9759 initial resistance would expose 0.9794.
EURCHF BEARISH Rise above 1.2702 would put odds in favor of a reversal. Initial support lies at 1.2534 ahead of 1.2485.
EURGBP NEUTRAL Violation of 0.8858 would favour upside, while a pullback through 0.8757 would open 0.8674.
EURJPY BEARISH Break of 117.60 would certainly hurt the ongoing bear trend. If the level holds, expect decline towards 115.23 and 114.29.
SCHEDULE
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