FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Dollar performance was mixed against a moderately risk-averse backdrop. The dollar clawed back some ground against the AUD after a disappointing retail sales report, but continues to weaken against the euro and the yen. EURUSD traded 1.4807-1.4874, USDJPY 80.37-80.69. USDCHF rebounded off new record lows. A weak ADP release (179k vs. cons. 198k) and non-manufacturing ISM (52.8 vs. cons. 57.5) have probably severely dented expectations for Friday’s payrolls number. San Francisco Fed President Williams warned that today’s economy still faced “many pitfalls” and did not anticipate any major rises in inflation. Even though he is not a voter, it is clear that even among the regional Fed Governors, there is a lack of unanimity and the market may still be a few months ahead in its expectations for normalisation, though the situation can yet change rapidly if data permits. Neither Williams nor Atlanta Fed President Lockhart would completely rule out the possibility of QE3, although Lockhart indicated there would be a “high bar” to another round of asset purchases after June. The BoE and the ECB are due to deliver their policy verdicts today. We don’t expect any significant policy change from either.
EUR
Our European economists expect no change to the refi rate at today’s ECB policy meeting. Instead, they look for the next hike to come in July. If ECB President Trichet today hints that the ECB could move sooner, for example by using the keyword “vigilant”, then the euro will likely find additional support..
EU service PMIs were released across the Eurozone. The composite index was revised down to 56.7 from the preliminary estimate of 56.9.
GBP
Following the soft manufacturing PMI on Tuesday, the construction PMI also came in weaker at 53.3 (cons. 55.9). The services PMI completes the trio today, and our UK economist is in line with consensus opinion expecting a modest monthly decline. Housing figures were rather disappointing. Even though mortgage approvals were largely in line with expectations, loan amounts were soft at £0.4 bn (cons. £1.3 bn). The Nationwide House Price Index also registered a surprise decline of -0.2% m/m. Given the importance of the housing market in the UK’s economy, especially the relationship between house prices and household sentiment, the BoE may need to remain on hold for longer than expected, if data continues to decline. Our UK economist expects no change to the policy rate at today’s BoE meeting, and thinks the first hike will not come until August at the earliest.
AUD, NZD
The AUD fell after retail sales for March came in much lower than expected, at -0.5% m/m (cons. +0.5%). Building approvals rebounded however, but this was not enough to prevent AUD downside. Our Australian economists stick to their view that the RBA’s next rate hike will likely come in August.
The NZD got a boost after a much stronger than expected employment report. The unemployment rate fell further than expected to 6.6% (cons. 6.7%, prev 6.7%) and employment growth of +1.4% q/q was recorded. Christchurch was excluded from the survey, which raises doubts over how representative the data may be. We remain long AUDNZD from 1.3545, targeting a move up to 1.42.
NOK, SEK
Retail sales showed a surprise drop of 0.5% on the month, vs. expectations of 0.4%. Nevertheless, the unemployment rate declined further to 3.1%.
Norway is clearly in a state of full employment and it may only be a matter of time before core inflation starts to rise. As such, Norges Bank is unlikely to remain dovish for a prolonged period and we expect NOK to resume appreciation as policy rhetoric changes.
TECHNICAL OUTLOOK
EURCHF 1.2730 support holds. Near-term support is at 1.4755.
USDJPY BEARISH Momentum is negative; the pair heads towards 80.00 and 79.79. Resistance lies at 81.28
GBPUSD BULLISH As long as support at 1.6432 holds, look for a recovery towards 1.6661 ahead of 1.6747.
USDCHF BEARISH Push below 0.8569 has paved the way for further downside towards 0.8500. Initial resistance is at 0.8697.
AUDUSD BULLISH Pullback eyes 1.0677 support; while the level holds, a break above 1.0953 would expose 1.1012/23 area.
USDCAD NEUTRAL Recovery through 0.9576 has exposed resistance at 0.9667. Initial support is at 0.9505, break here would open 0.9446.
EURCHF BEARISH Downside pressure held at 1.2730; a break here is required to trigger further losses towards 1.2624. Near-term resistance is at 1.2880.
EURGBP BULLISH Resistance is at 0.9039/45 area; a break through this would expose 0.9067. Initial support is at 0.8942, previous high.
EURJPY NEUTRAL Model has turned neutral; 121.84 and 118.50 mark the near-term directional triggers.
SCHEDULE
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