FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
WORLD
Australia chalked up a second consecutive trade deficit in February triggering a 30 pip drop in AUDUSD. Losses could have been greater had a technical support line not made its presence felt. The consensus had been looking for a rebound back into surplus territory, as the effects of the Lunar New Year holiday were expected to have worn off by now. However, iron ore exports only partially recovered from January’s steep drop, and the value of coal exports fell another -16% m/m. Naturally questions are now being asked if this latest data point is yet another symptom of a China slowdown. We reserve judgment for now, and note that inclement weather may have disrupted iron ore shipments in particular. The dollar continued its broad-based advance overnight in the wake of the FOMC minutes which suggested the Fed is some distance away from pushing the QE3 button. This stands in contrast to the impression markets received after Chairman Bernanke’s March 26th speech.
Overall, our analysts note that the minutes have laid a marker for eventual altering of the ‘late 2014′ guidance for the FOMC, though material movements are needed both on growth and inflation to ultimately achieve revision in their current policy communication. The Fed’s staff forecasts also pointed to better GDP figures and higher inflation, and trend growth was downgraded. A stronger-than-expected payrolls print would set the stage for a robust Q2 for both the dollar and risk appetite. Within a G10 context, the Fed still appears well ahead of the curve, though the ECB, which meets on Wednesday (a day earlier than usual), is more likely to act on an inflationary impulse, and we see the possibility of an ECB rate hike in 2013 if the sovereign debt situation continues to improve. Germany and the UK will release services PMI figures for March, while the ADP report and non-manufacturing ISM are due in the US.
EUR
The ECB will host its policy rate decision on Wednesday, a day earlier than usual. Our analysts and the market are looking for rates to remain unchanged, and we do not expect inflation to be a major issue in the short term.
Germany Chancellor Merkel said that EU governments will probably cede more powers to the European Union in future, and warned that external investors may shun the euro area unless it pursues reforms.
Spain announce that total central government borrowing will reach 79.8% of GDP in 2012, and that it would increase use of long-term debt, and reduce the use of bills. The budget minister warned that Spain is in a ‘critical situation, at the limit’, while 2012 interest payments could amount to 2.75% of GDP. Spanish bond yields increased as a result.
The EU said that Portugal‘s financing projections included in the country’s external aid program ‘remain valid’, while the liquidity position of domestic banks has improved considerably. The 2011 rescue plan for Portugal still assumes a return to markets by 2013, so that EUR 16 bn in bonds can be issued.
GBP
March construction PMI rose to 56.7 vs 53.4 consensus. Construction only represents a small sector in the UK economy (5%) but still provides more encouraging signs for the BoE. As the most important indicator, Wednesday’s services PMI will be even more closely watched. Industrial production and BoE decisions are due on Thursday.
AUD
The Australian trade balance was much weaker than expected showing a deficit of A$ -0.48 bn while the consensus had been looking for a surplus of A$ +1.1 bn.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD NEUTRAL A break below 1.3134 would expose 1.3004. Resistance is at 1.3386.
USDJPY BEARISH Key support lies at 81.47; a move below which would open 81.07. Resistance is at 83.30.
GBPUSD BULLISH We view the pull back as a short-term correction and expect the pair to recover. Resistance is at 1.6063 ahead of 1.6096. Support lies at 1.5947.
USDCHF NEUTRAL The recovery through 0.9094 has shifted our focus towards 0.9179. Support lies at 0.9002.
AUDUSD BEARISH The pair is currently testing 1.0260; next support comes in at 1.0146. Resistance is at 1.0471.
USDCAD NEUTRAL Key support area is at 0.9861-0.9842. Resistance is at 0.9991.
EURCHF NEUTRAL Support is at 1.2000. Resistance is at 1.2070.
EURGBP NEUTRAL Trend conditions remain unclear. Initial support lies at 0.8283 ahead of 0.8264. Resistance is at 0.8360.
EURJPY NEUTRAL Initial support lies at 108.49, a break through which would open 107.52. Resistance is at 109.82 ahead of 111.26.
SCHEDULE
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