FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar drifted higher against most G10 currencies during the Asia session. AUDUSD was the exception however, hitting a new post-float high after a stronger-than-expected employment report. The euro showed no obvious ill effects from Portugal’s decision to request external financial assistance. Clearly, rate expectations continue to be the key driver of currencies, as market participants look ahead to the ECB meeting. EURUSD traded 1.4297-1.4343, USDJPY 85.11-85.50. There were no major releases in the US and the upcoming initial jobless claims could be overshadowed by the ECB press conference. Atlanta Fed President Lockhart, an alternate FOMC voter this year, did not rule out policy tightening this year though he said he himself is not leaning in the direction of that just yet as he supports finishing QE2 as planned. Lockhart said inflation had firmed up, as the Fed had expected, and he is comfortable with current inflation numbers.
EUR
Portugal formally requested EU assistance following a bill auction that showed borrowing costs continue to rise. Prime Minister Socrates said the country needs help to guarantee its financing needs and the Portuguese opposition leader supported the request for aid. No details were announced but EU officials said the request was “responsible” and would be processed quickly.
The ECB’s policy announcement is due, and our European economists are with the consensus looking for a 25bp hike to the refi rate. They also expect the corridor between the deposit and marginal lending facilities to be extended back to its pre-crisis width of 100bp. This would take the marginal lending facility +50bp higher to 2.25%.
At the ECB press conference due 45 minutes after the policy announcement, our economists expect President Trichet will say this is not the start of a series of rate hikes, a claim he has also made during a previous tightening cycle. However, his other remarks will be closely followed to see if current market expectations of future rate hikes are justified.
Final numbers for GDP in the Eurozone were in line with consensus at 2.0% y/y, while German factory orders accelerated to 20.1% y/y from 16.0 in January.
JPY
The BoJ kept the policy rate range unchanged at 0-0.1%. However, it has decided to create a new loan facility with a maximum size of JPY1 trn, for banks located in the earthquake-affected region.
We raised our long-term USDJPY forecasts, and now see the pair at 90 at end-2011 (prev. 85), and at 100 at end-2012 (prev. 90).
GBP
UK manufacturing and industrial production numbers were disappointing.
Canada’s Ivey PMI surprised to the upside and benefited the Canadian dollar before it gave up some gains later in the session. Even though the data series is volatile, it is worth nothing this reading was the highest since May 2006.
CHF
The CPI print for March was significantly higher than expectations at +1.0 y/y (cons. +0.5%). The increase was broad-based with clothing and fuel-related prices rising substantially. However, some of the surprise can be attributed to methodological changes in the estimates. CHF rallied strongly on the number.
We remain long EURCHF from 1.2825 as a trade recommendation, targeting a move up to 1.3500. Our stop sits at 1.3020. We expect the cross to push even higher on the back of solid risk appetite, rising ECB tightening expectations, and a dovish SNB.
AUD
AUDUSD hit a new post-float high of 1.0482 after another stronger-than-expected employment report. Employment in March grew by +37.8k (cons. +24.0k), while the unemployment rate unexpectedly fell to 4.9% (prev. 5.0%). Our Australia economists stick to their view that the next RBA hike will come in August.
TECHNICAL OUTLOOK
EURJPY 122.61 resistance.
EURUSD BULLISH Traded above 1.4282 and focus is now on 1.4373 ahead of 1.4414 and 1.4512 next. Support lies at 1.4208 ahead of 1.4152.
USDJPY BULLISH Focus is on 85.93, a break here would expose 86.38. Near-term support is at 84.84.
GBPUSD BULLISH Key resistance lies at 1.6401; a move above the level would expose 1.6458. Support lies at 1.6091.
USDCHF NEUTRAL 0.9369 and 0.9127 have become the key near-term directional triggers.
AUDUSD BULLISH Bull trend extends; rise above 1.0425 has exposed 1.0500. Support is at 1.0289.
USDCAD BEARISH With the break of 0.9584 bear trend continues; focus is now on 0.9513/00 support area. Resistance is at 0.9693.
EURCHF BULLISH Break of 1.3287 would expose 1.3401 next. Support is at 1.3055/11 zone.
EURGBP NEUTRAL Initial resistance is at 0.8820; break of this would favour resumption of bull trend and expose 0.8853. Support is at 0.8714.
EURJPY BULLISH Gains found resistance at 122.61 Fibonacci level; break of this would lead to 125.00. Initial support is at 120.69.
SCHEDULE
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