FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar continued to weaken during the Asia session. Some positive US earnings reports were a factor in this, helping to keep risk appetite supported. However, given that USDJPY and USDCHF remained heavy too, a certain amount of general dollar negativity is also driving the price action. EURUSD traded 1.4486-1.4603, USDJPY 81.97-82.60. AUDUSD set a new post-flotation high, while USDCHF fell to a new record low. Gold hit a new all-time high at $1508.88/oz, and is trading just below this level at the time of writing. Asian and US equities closed 1-2% higher. Existing home sales were better than consensus expectations at +3.7% m/m. Although initial jobless claims, leading indicators, and the Philadelphia Fed manufacturing index due, it is unlikely these releases will be sufficiently surprising to cause a dramatic shift in investor sentiment.
EUR
The euro again shrugged off wider sovereign spreads to continue pushing higher. Rate expectations remain supportive, along with the belief that any further sovereign problems will be contained, but the broader dollar move was also a large component.
German producer prices rose 0.4% m/m, softer than expectations. Portugal and Spain held government bill/bond auctions – which passed without incident but average yields remain high. The euro at present is not responding to individual sovereign issues, and we still believe it would take a reversal in ECB expectations for any material downside in the currency
GBP
The BoE minutes showed a 6-3 vote split on interest rates – with MPC member Sentance voting for a 50bp hike and Dale, Spencer both voting for a 25bp hike. On asset purchases MPC member Posen voted for ?50 bn in quantitative easing. The unchanged vote is keeping BoE rate expectations in check for now, though sterling shrugged off the initial disappointment.
Our UK economist notes our May rate hike view is certainly being challenged by construction and industrial production data. In our view the timing of any rate hike is now heavily dependent on the Q1 GDP growth print. If, for instance, the outturn is in excess of 0.7% q/q, we believe the MPC will embark hike rates in May. If instead, the economy expanded by only around 0.5% and the economy subsequently strengthens in Q2, as we expect, the MPC may start raising the policy rate in August
AUD
Foreign Minister Rudd said Australia will not “manipulate” its currency, observing that countries that do “pay a price”. We see little prospect of intervention to weaken the AUD at these levels, especially given the RBA has repeatedly pointed to the advantages of a strong AUD in helping to curtail inflationary forces.
PPI inflation for Q1 beat consensus estimates, rising by +1.2% q/q (cons. +1.0%) and +2.9% y/y (cons. +2.7%)
CAD
Prime Minister Harper is concerned about the recent increase in inflation though he seemed to be framing inflation concerns amid the need to avoid tax increases. The higher Q2 inflation is roughly what the BoC expected though it might be a little higher/earlier than they had anticipated.
TECHNICAL OUTLOOK
EURUSD 1.4685 resistance.
EURUSD BULLISH Clearance of 1.4579 has exposed 1.4685. Support lies at 1.4328.
USDJPY BEARISH Initial support is at 82.00 ahead of 81.55; break through the levels would confirm the bear trend. Resistance is at 83.10.
GBPUSD BULLISH Upper boundary of the 1.6428/58 resistance area holds; a break here would expose 1.6500. Initial support is at 1.6308.
USDCHF BEARISH Pressure on 0.8852/23 support zone. Near-term resistance lies at 0.9012.
AUDUSD BULLISH Rise through 1.0705 has opened up the way towards 1.0845. Support lies at 1.0519.
USDCAD BEARISH Move below 0.9500 signals scope for further losses towards 0.9446. Resistance lies at 0.9600.
EURCHF BEARISH Break of 1.2730 would expose 1.2624; while resistance holds at 1.3000.
EURGBP BULLISH Momentum is positive; expect the cross to target 0.8924/42 area. Initial support is at 0.8780.
EURJPY NEUTRAL Climb through 120.71 would signal potential for gains to 121.48 and 122.41 next. Support is at 118.27.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
