FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk appetite remained fragile during the Asia session as commodities and stocks failed to bounce following yesterday’s selloff. A much weaker-than-expected Australian employment report further soured the mood. EURUSD traded 1.4172-1.4335, USDJPY 80.74-81.34. Yesterday, crude, gasoline, and heating oil futures were temporarily halted after hitting trading limits following a bearish Department of Energy inventory report. The dollar benefited from the resulting safe-haven demand, and has consolidated those gains overnight. The S&P 500 closed down -1.1%. Regional Fed Presidents Lacker, Lockhart and Kocherlakota spoke but largely reiterated their well known policy positions. Kocherlakota, however said he thinks the “extended period” language would be removed in the 2-4 meetings preceding the first tightening. The US trade balance widened a bit more than expected. Initial jobless claims and retail sales are due and Fed Chairman Bernanke will be one of several officials to testify on systemic risk before the Senate.
EUR
European officials appear to be moving closer to granting aid for Portugal. German coalition party officials proposed that Germany should approve the Portuguese rescue. Finnish Finance Minister Katainen said Finland also supports the rescue.
Newswires reported that German Chancellor Merkel ‘could back’ the candidacy of ECB Executive Board member Draghi to succeed ECB President Trichet when Trichet’s term of office expires later this year.
ECB Executive Board member Stark said markets may not have fully understood what the ECB communicated last week and said “using code words does not mean a commitment.” He also said current euro levels may help to contain inflation and warned that any potential Greek debt restructuring would not be a panacea.
Germany’s final April CPI numbers were confirmed at 2.4% y/y, though the EU-Harmonised figure was nudged higher to 2.7% y/y.
GBP
As expected, the BoE revised upwards its inflation forecast, and nudged lower its GDP revisions in the quarterly inflation report. Our economists note that their forecasts suggest inflation risks remain skewed to the upside. BoE Governor King said that although he cannot say when the bank rate will be increased, it would need to rise “at some point”, and added that a rate hike rather than asset sales would be the first tightening move.
AUD
As expected, the BoE revised upwards its inflation forecast, and nudged lower its GDP revisions in the quarterly inflation report. Our economists note that their forecasts suggest inflation risks remain skewed to the upside. BoE Governor King said that although he cannot say when the bank rate will be increased, it would need to rise “at some point”, and added that a rate hike rather than asset sales would be the first tightening move.
CAD
Finance Minister Flaherty said that interest rates are going to go up eventually and he does not believe in a weak Canadian currency.
TECHNICAL OUTLOOK
EURUSD 1.4158 support
EURUSD BEARISH Decline through 1.4205 has exposed 1.4158. Resistance comes in at 1.4423.
USDJPY BEARISH As long as resistance at 81.85 holds, focus is on 80.00 beak of which would expose 79.57 and 78.83 next.
GBPUSD NEUTRAL Resistance is at 1.6517, yesterday’s reaction high, while support lies at 1.6271.
USDCHF BEARISH The pair remains heavy below 0.8893, keeping our focus on the downside. Initial support is at 0.8677 ahead of 0.8554.
AUDUSD BULLISH The pair pulled back through 1.0697 to expose 1.0537. Initial resistance is at 1.0889.
USDCAD NEUTRAL Resistance is at 0.9722, while support lies at 0.9505
EURCHF BEARISH Break below 1.2485 would expose 1.2433/03 support area. Near-term resistance lies at 1.2702.
EURGBP BEARISH Sharp decline through 0.8714/00 zone has exposed support at 0.8655 ahead of 0.8618. Near-term resistance is at 0.8800.
EURJPY BEARISH Violation of 114.80 has exposed 114.16 and 113.56. Resistance is at 116.90.
SCHEDULE
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