FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
WORLD
The last week of Japan‘s fiscal year got underway overnight, and anticipation is already building that the crossover to the new year will prompt a resumption of the five-week-old USDJPY rally. Softer-than-expected US housing data on Friday forced USDJPY sharply lower, although we see this as only a temporary setback for the pair. The yen selling resumed overnight with USDJPY trading in a range of 82.33-82.78. What happens in the very short term will depend in large part on what Fed Chairman Bernanke has to say when he offers “A View from the Federal Reserve” later today. Generally firmer US economic data would appear to justify a more upbeat tone, although we would expect the chairman to maintain his generally cautious outlook.
A total of eight other FOMC officials will also air their views this week. Whether mainstream Fed opinion has already begun to shift materially is still an open question, but we do expect Fed-BoJ policy divergence to become more pronounced in coming months. Stay on guard for additional BoJ easing via the APP as early as next month – possibly coinciding with the release of the bank’s next Outlook Report on April 27, just days after the FOMC meeting. Elsewhere today, the spotlight will come to rest on Germany‘s IFO survey – especially in the wake of last week’s surprisingly weak PMI. UBS expects all IFO indices to fall marginally. Later in the week the euro will likely be sensitive to any headlines around the expansion of the Eurozone’s rescue infrastructure. It appears that a consensus is forming that would temporarily raise the bailout firepower to EUR940 bn. This would be a moderately euro-positive development, although any negative reaction by the ratings agencies to an increase in sovereign contingent liabilities could quickly undo the advantage.
EUR
ECB policymakers continue to point towards eventual policy normalisation. After recent overtures from Governing Council member Nowotny and Bundesbank President Weidmann, overnight it was Executive Board member Coeure’s turn. He said that a timely exit from nonstandard measures and a return to a less accommodative policy stance are essential once the conditions are ripe.
Italian Prime Minister Monti praised Spain‘s efforts in the area of labour market reform. However he expressed concern about rising Spanish yields and the risk these pose to Italy given that “it doesn’t take much to recreate risks of contagion”.
A decision is due this week on how (and by how much) to boost the size of the Eurozone’s rescue infrastructure. EU Economic and Monetary Affairs Commissioner Rehn offered reassurances that Eurozone finance ministers “will take a convincing decision on the reinforcement of the firewalls” at the March 30 meeting. The Financial Times reported that Germany “is poised” to allow the combined firepower of both the EFSF and the ESM to be increased, and that a consensus is building behind temporarily raising the combined lending capacity to EUR940 bn. Der Spiegel also reported that German Chancellor Merkel and Finance Minister Schaeuble have abandoned their opposition to raising the ceiling on the combined rescue funds.
A weekend opinion poll showed that public support in Ireland for the fiscal compact treaty has risen; 49% of those polled said they would approve the Treaty at the upcoming referendum, 33% are still opposed and 18% offered no opinion. A referendum date has yet to be set.
NZD
The February trade surplus came in at NZD161 mn vs the NZD153 mn consensus estimate. Both exports and imports were down, with disruptions to ship-loading activity caused by industrial disputes likely magnifying the softness in the former.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD NEUTRAL As long as resistance at 1.3302 holds, we expect the pair to remain under pressure. Support lies at 1.3134.
USDJPY NEUTRAL The sell-off in USDJPY stalled ahead of 81.96, the 62% retracement of the recovery since March 6. Resistance is at 83.04 ahead of 84.18.
GBPUSD NEUTRAL Price action has been choppy over the past week; support is at 1.5763 ahead of 1.5725. Resistance holds at 1.5923 for now.
USDCHF NEUTRAL A closing break below 0.9072 would expose 0.9022 and 0.8931 next. Resistance is at 0.9179.
AUDUSD BEARISH Outlook remains bearish; initial support is at 1.0336 ahead of 1.0261 retracement level. Resistance is at 1.0522.
USDCAD BEARISH The pair pulled back after approaching key resistance at 1.0052. This signals scope for a decline through 0.9948 to open 0.9861.
EURCHF NEUTRAL Resistance is at 1.2082 ahead of 1.2147. Support is at 1.2040.
EURGBP NEUTRAL The key near-term directional triggers are at 0.8424 and 0.8283.
EURJPY BULLISH Trend is bullish; a recovery through 110.47 would expose 111.44. Key support to watch lies at 107.86.
SCHEDULE
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