FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
FX price action was relatively subdued during the Asia session, given the lack of news and data flow. EURUSD traded 1.4455-1.4498, USDJPY 83.51-84.20. Asian equities were modestly stronger after the S&P 500 fell -0.78%. New York Fed President Dudley said QE2 is not designed to influence the dollar and the risk of deflation is now “greatly diminished.” But until market participants get more clarity on the Fed’s next steps, the dollar will be prone to weakness when risk sentiment is positive. Its safe-haven status could also remain unclear, judging by recent performance vs. the Swiss franc and the yen. Retail sales and the Fed Beige Book are due.
EUR
The ZEW surveys in Germany were mixed, with the current situation indicator rising to 87.10 (cons. 85.2), while the economic growth sentiment indicator fell back to 7.60 (cons. 11.30). The report suggests that Germany is probably at the upper point of its current economic cycle and there were concerns over second-round price effects from higher commodity prices.
German CPI was in line with consensus, staying unchanged at 2.1% y/y.
GBP
Sterling weakened after headline CPI for March came in well below consensus at +4.0% y/y (cons. +4.4%). With an uncertain growth outlook and deep internal divisions on the MPC, we remain cautious on sterling. Our UK economist points towards the April 27 Q1 GDP print for an indication of whether the middle-ground voters will join the hawks.
UK retail sales for March were disappointing, falling by -3.5% y/y. The drop in total sales is the worst since the BRC started collecting data in 1995. This is convincing evidence that austerity measures are feeding through into consumer demand.
CAD
The Bank of Canada kept policy unchanged as expected and adjusted its 2011 GDP forecasts to 2.9% (from 2.4% in January MPR) and to 2.6% (from 2.8%) for 2012. Officials said recent growth, though stronger than anticipated, is still largely consistent with their January projections and they reiterated that any further reduction of stimulus would need to be carefully considered. The BoC cited CAD strength as a challenge again and said it sees the emergence of broader global inflationary pressures due to commodity prices.
AUD
The upcoming speech by RBA Governor Stevens could provide some useful insight into current RBA thinking after recent mixed data releases. Stevens is expected to maintain his neutral stance and signal that the RBA is on hold for now.
TECHNICAL OUTLOOK
EURGBP focus on 0.8942.
EURUSD BULLISH Break of 1.4500/12 has signaled further gains towards 1.4579 and 1.4685. Initial support is at 1.4377.
USDJPY BULLISH Rise above 84.79 and 85.00 would expose 85.53/93 resistance area, while support holds at 83.13.
GBPUSD BULLISH Focus is on 1.6428, break above this would expose 1.6458 ahead of 1.6516. Initial support is at 1.6183.
USDCHF BEARISH Following the break of 0.8964, the pair targets 0.8852/23 support area. Resistance is at 0.9105.
AUDUSD BULLISH Initial resistance is at 1.0584 ahead of 1.0600/40 area, while support lies at 1.0315.
USDCAD BEARISH As long as resistance at 0.9698 holds, expect the pair to target 0.9527/00 support zone.
EURCHF NEUTRAL Move below 1.2933 would trigger a reversal and expose 1.2889; initial resistance is at 1.3097 ahead of 1.3166.
EURGBP BULLISH Focus is on key high 0.8942, break of this would open way to 0.9001. Near-term support lies at 0.8823.
EURJPY BULLISH A break above 123.33 would signal scope for further gains towards 125.00. Support lies at 120.00.
SCHEDULE
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