FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk appetite took a turn for the worse during the Asia session, allowing the dollar to advance against the euro, the AUD, and the NZD in particular. EURUSD traded 1.4025-1.4127 and USDJPY 81.82-82.17. Asian equities were modestly weaker after US stocks closed virtually flat. BoJ Governor Shirakawa appeared to rule out an acceleration in the pace of the BoJ’s monthly JGB purchases. St Louis Fed President Bullard said the debt crisis is a threat to US economic growth. According to Reuters, he went on to say that “if all goes well, [the] Fed could start to tighten in [the] second half of the year.” Durable goods orders are expected to come in softer for April, which could keep dollar worries in place. But our economists note that ISM new orders continue to signal a solid trend in growth and capex plans remain relatively strong.
EUR
ECB Executive Board member Bini-Smaghi said Greece would not receive the next loan tranche it if does not meet EU/IMF conditions. The Dutch finance minister said additional aid for Greece should be preceded by further reform and privatisations.
Greek opposition leader Samaras said that the party rejects Greece new austerity plan. We note however that the ruling party has an absolute majority in parliament and the opposition’s rejection is hardly a surprise. Greek Prime Minister Papandreou later said he agrees with some of the opposition’s proposals but said broad political consensus is a national imperative.
The German IFO numbers signal that growth has peaked, despite the unchanged headline number. Expectations continue to decline, whereas this was offset by yet another improvement in current conditions. The details of German GDP were not so encouraging, especially following yesterday’s weak PMI data. Our European economist notes that growth relied much more than expected on government spending, exports and capital investment. If core numbers from Germany start to disappoint, the euro could suffer some further downside.
Moody’s said that Italy and Belgium were also likely to come under pressure if Greece defaults while Portugal and Ireland would be at risk of a multi-notch downgrade. The agency said Spain is not in the same category but would likely still face significant market pressure.
ECB Governing Council member Noyer said Greece has no alternative to implementing the EU-IMF programme “completely and entirely,” and must use privatization to cut debt. ECB Executive Board member Stark says all euro creditors are `justified’ in expecting their money back.
JPY
The minutes from the April 28 BoJ policy meeting confirmed again that Board member Nishimura dissented in favour of additional easing. However, the minutes revealed that another unnamed board member felt the need for additional easing had grown since the previous meeting.
BoJ Governor Shirakawa again expressed his opposition to underwriting government debt to fund the post-earthquake reconstruction effort. However he went further on this occasion, implying that the BoJ will not even accelerate the pace of its monthly JGB purchases in the secondary market, as to do so would be just as damaging to confidence in Japan’s fiscal discipline.
GBP
In an interview with The Scotsman, BoE MPC member Fisher said he was also keeping an “open mind” about further quantitative easing. Fisher added that a rate hike now would be the wrong thing to do, in light of recent soft data. These dovish comments from one of the more middle-ground voters indicates that the balance has shifted to concerns over consumer spending and the feed-through effects of fiscal austerity.
TECHNICAL OUTLOOK
USDCHF heavy below 0.8951.
EURUSD BEARISH Break of 1.3970 would shift focus to 1.3903. Resistance is at 1.4147 ahead of 1.4202.
USDJPY BULLISH Scope for gains towards 82.23 and 82.55, a break above these levels would confirm the bull trend; near-term support is at 81.32.
GBPUSD BEARISH Move below 1.6046 would signal further weakness towards 1.6000 and 1.5937. Near-term resistance is at 1.6239.
USDCHF BEARISH Remains heavy below 0.8951; initial support is at 0.8748 ahead of 0.8706.
AUDUSD BEARISH Move below initial support at 1.0443 would expose 1.0390. Near-term resistance is at 1.0657.
USDCAD BULLISH Momentum is positive; expect the pair to target 0.9828/49 resistance area. Initial support is at 0.9724.
EURGBP BEARISH Focus is on 0.8655; a break here would open 0.8618. Initial resistance is at 0.8752.
EURJPY BEARISH Initial support is at 113.88, move below this would signal scope for further downside towards 113.42/00 area. Resistance is at 116.18.
SCHEDULE
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