FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar remained on the defensive throughout the Asia session as risk appetite continued to improve in the wake of the latest FOMC policy statement. EURUSD traded 1.4683-1.4882, USDJPY 81.62-82.50. The S&P 500 closed up +0.62% at another multi-year high, and Asian equities are moderately ahead at the time of writing. The BoJ made no material change to policy. The FOMC statement was similar to that issued in March, but crucially, committed to continuing QE2 until June. The text kept the key “exceptionally low&for an extended period” language, and no dissenting votes were cast. Fed officials acknowledged recent weakness and lowered their 2011 central tendency GDP projections and raised core inflation projections. At his inaugural press conference, Chairman Bernanke said there would be no need to taper QE2 purchases. He said, after June, the next possible step in policy normalisation might be to no longer reinvest cash flows from maturing balance sheet assets. However, he appeared to be in no hurry to take this additional step. Although he accepted inflation and inflation expectations had pushed higher, he continues to see these as “transitory”. Bernanke added that a strong dollar is in the interests of the US. Our US economists expect today’s Q1 GDP estimate to come in well below consensus.
EUR
The euro again shrugged off widening yields and spreads on Greek debt instruments and CDS on the back of broader-based dollar concerns. The yield on 2-year notes climbed to around 25% for the first time in Eurozone history. The press reported that Portugal’s EU/IMF bailout package could be handed to the government by the end of the week.
Eurozone new industrial orders in February rose 21.3% y/y vs 21.8% consensus.
JPY
The BoJ kept policy unchanged at their latest meeting. The target range for the policy rate remains at 0-0.1%. JGB purchases will continue at a pace of approximately JPY1.8 trn per month, and the ceiling on the new asset purchase facility is to remain at JPY10 trn. Deputy Governor Nishimura dissented in favour of expanding the facility’s maximum size to JPY15 trn.
GBP
UK Q1 GDP came in at 0.5% q/q and 1.8% y/y vs -0.5% q/q and +1.5% y/y in Q4. While the number is in line with expectations, the market had expected a slightly weaker print and sterling rallied as a consequence. Our economist has pushed back his first rate hike forecast from May to August of this year.
NZD
The RBNZ kept the policy rate unchanged and in the press release officials noted that “the current level of the OCR is likely to remain appropriate for some time.” They also mentioned that “higher oil prices and the elevated level of the New Zealand dollar are both unwelcome.”
TECHNICAL OUTLOOK
EURUSD 1.5000 resistance
EURUSD BULLISH Rise through 1.4736/76 resistance area has exposed 1.5000. Support lies at 1.4769 intraday low.
USDJPY BEARISH Move below initial support 81.27 would expose 80.89. Initial resistance is at 82.79.
GBPUSD BULLISH The pair gained through 1.6599 and 1.6672 to expose 1.6878 key resistance. Support is at 1.6621 intraday low.
USDCHF BEARISH While resistance at 0.8893 holds, there is scope for weakness towards 0.8671/65 area.
AUDUSD BULLISH The pair targets 1.1000 with scope for 1.1017 next. Near-term support is at 1.0852.
USDCAD BEARISH Break of 0.9488 has exposed 0.9455/46 area, while resistance lies at 0.9576.
EURCHF BEARISH Key support is at 1.2730, move below this would pave the way towards 1.2624, while resistance lies at 1.2974.
EURGBP BULLISH Upside pressure on 0.8924/42 area, break through this would open 0.9000 next. Support lies at 0.8800.
EURJPY BULLISH Break of 121.48 has exposed 122.41 ahead of 123.33. Support lies at 120.00.
SCHEDULE
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