FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar weakened sharply across the board during the Asia session as risk appetite was boosted by a succession of moderately positive headlines. Australia and New Zealand both signalled they can live with currency strength, which invited buying of the AUD and the NZD. Also, USDCNY fixed at a new low. Finally, a local media report in New Zealand reported that China might be willing to invest up to NZ$6 bn in New Zealand assets. Most importantly, there was a lack of further worrying news from the Eurozone. EURUSD traded 1.4065-1.4173 and USDJPY 81.67-82.09. Asian equities were stronger, following on from yesterday’s gains in New York. Minneapolis Fed president Kocherlakota was more cautious on his outlook for US growth as he sees GDP around 3% this year. He sees core inflation below 2% in 2011 and reiterated his view for a modest rate hike later in the year, though he did say more aggressive tightening would be warranted if core inflation moves closer to 2% from his 1.5% expectation. The second estimate of Q1 GDP and the latest claims figure are due. The two-day G8 leaders summit begins in Deauville, France..
EUR
Greece’s EU Commissioner Damanaki was explicit about the stark choice that Greece might one day be faced with. She said “the scenario of Greece distancing itself from the euro is on the table. We either agree with our creditors on a program of tough sacrifices that brings results, and assume the responsibilities for our past, or we return to the drachma.”
ECB Governing Council member Draghi, hotly tipped to succeed ECB President Trichet in November, said that “Overheating is a clear and present danger” and that there is now a “greater need to proceed with monetary policy normalisation” to keep inflation in check. ECB Executive Board member Stark and Bundesbank President Weidmann also made hawkish remarks. Together, their comments are keeping ECB rate expectations supported but the focus remains on Eurozone sovereign debt woes.
Greek Prime Minister Papandreou declined to offer a definitive answer on whether a referendum on austerity measures might be held.
S&P said that an increase in the Irish corporate tax rate could be negative for ratings; and that a Greek restructuring would not automatically mean an Irish downgrade.
The Finnish parliament voted in favour of participation in the Portugal bailout, overcoming another hurdle for the euro.
GBP
UK Q1 GDP was confirmed at +0.5% q/q and +1.8% y/y. Our UK economist notes that by far the best news in the GDP data is the strong contribution from net trade (+1.7 percentage points) with exports growing by 3.7% and imports falling by 2.3%. It is unlikely that this speed will continue, but we expect net trade to continue making positive contributions to GDP growth.
AUD
Comments by RBA Deputy Governor Battelino boosted the AUD. He said the currency’s strength was “largely understandable”. He acknowledged that some sectors of the economy were suffering from the strong AUD, but said this implied that little could be done about the situation.
The AUD got a second boost when private capital expenditure for Q1 came in higher than expected at +3.4% q/q (cons. 2.7%). Our Australian economics team sticks to their view that the RBA will likely administer the next hike in August.
TECHNICAL OUTLOOK
USDJPY stalled in front of 82.23
EURUSD BEARISH Bounce back through 1.4147 has exposed 1.4202. Initial support is at 1.3970 ahead of 1.3903.
USDJPY BULLISH Stalled in front of 82.23, break above this would confirm the bull trend and expose 82.55. Key support is at 81.32.
GBPUSD BEARISH Recovery through 1.6305 has exposed 1.6402, but overall focus is on the downside with initial support at 1.6132 ahead of 1.6058.
USDCHF BEARISH Pressure on 0.8706; a break here would open up the way towards 0.8554 key support. Resistance lies at 0.8814.
AUDUSD BEARISH Focus on 1.0390/59 support area. Initial resistance is at 1.0657.
USDCAD BULLISH Momentum is positive with scope for gains towards 0.9828/49 resistance area. Initial support is at 0.9724.
EURCHF BEARISH Trend channel lower at 1.2263 forms the initial support, while resistance is at 1.2415.
EURGBP BEARISH Next support lies at 0.8618 ahead of 0.8590. Initial resistance is at 0.8717.
EURJPY BEARISH Initial support is at 114.73; break of this level would expose 113.88. Resistance is at 116.18.
SCHEDULE
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