FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar gained sharply on a hawkish headline attributed to Minneapolis Fed President Kocherlakota. Newswires claimed he signaled the possible need for up to 75bp worth of hikes before year-end. EURUSD traded 1.4154-1.4206, USDJPY 82.82-83.74. His actual comments were far less direct, and in fact he warned against deploying the Taylor rule too rigidly to arrive at such a policy prescription. Nevertheless, Kocherlakota did sound concerned at the likely future path of core CPI, and said QE2 had boosted inflation expectations more than he anticipated. Richmond Fed President Lacker also said he was getting less comfortable with how consumer inflation expectations were developing, and said he had not yet made up his mind on whether QE2 should be cut short prematurely. These latest comments will help reinforce the notion that the Fed is gradually turning more hawkish, and clearly support our bullish dollar stance. Today, our analysts expect +205k on nonfarm payrolls (cons. +190k), +225k on private payrolls (cons. +210k) and a dip to 8.8% in the unemployment rate (cons. 8.9%). The dollar is likely to benefit if the report comes in stronger than the consensus expects.
EUR
The results of the Irish bank stress tests were not a key driver of the euro, as the capital needs announced were roughly in line with expectations at EUR24 bn. However, the euro did weaken temporarily when headlines suggested that there was internal disagreement on the ECB Governing Council about how to support the Irish banking system over the medium term.
The ECB announced it would no longer apply a minimum credit rating threshold to Irish sovereign bonds or government-guaranteed bonds when presented as collateral at ECB tenders. The new regulations will remain in force until further notice. This procedural change means such bonds will continue to be eligible for ECB tenders no matter how many further downgrades are imposed by ratings agencies. Similar arrangements have been in place for Greek bonds since May 2010.
Portuguese officials said everything is being done to avoid external aid. President Cavaco called a general election for June 5.
Eurozone flash CPI for March came in firmer than expected at +2.6% y/y (cons. +2.4%), further supporting expectations that the ECB will indeed start hiking rates at the April 7 meeting.
JPY
Finance Minister Noda and Economy Minister Yosano both denied there are any plans to ask the BoJ to underwrite government debt to help pay for the post-earthquake reconstruction effort.
The Q1 Tankan showed a further improvement in industrial confidence, and was in line with expectations. However, 72% of the replies to the quarterly survey were received before the earthquake struck.
TECHNICAL OUTLOOK
USDJPY clears 83.30 resistance.
EURUSD BULLISH Targets 1.4249/82 zone, break through this would open up the way towards 1.4373. Support lies at 1.4047.
USDJPY BULLISH Recovery through 83.30 has exposed 83.98. Initial support is at 83.13 ahead of 82.37.
GBPUSD BEARISH As long as resistance at 1.6224 is intact, a break below 1.5979/37 would expose 1.5873.
USDCHF NEUTRAL Move above 0.9275 would open way towards 0.9317/69 zone. On the downside, break of 0.9076 would signal resumption of the bear trend.
AUDUSD BULLISH Uptrend is intact; focus is on 1.0400/25 resistance area. Support lies at 1.0205
USDCAD BEARISH Watch support at 0.9668; break here would expose 0.9584. Initial resistance is at 0.9786.
EURCHF BULLISH Rise above 1.3040 has exposed 1.3138 and 1.3205. Initial support is at 1.2933.
EURGBP BULLISH Outlook remains bullish; the cross targets 0.8885 ahead of 0.8942. Initial support is at 0.8776.
EURJPY BULLISH Break of 118.34 favours further gains towards 119.33. Near-term support is at 117.68 intraday low.
SCHEDULE
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