FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk appetite steadily improved during the Asia session, as investors brushed aside S&P’s recent decision to lower the outlook on the US rating. Asian and US equities pushed higher, helped along by some solid US earnings reports. The dollar lost ground to all its G10 peers, except the yen. Japanese exports for March fell on an annualised basis for the first time in 16 months, largely a consequence of the recent earthquake and tsunami. Gold finally traded through $1500/oz. EURUSD traded 1.4314-1.4414, USDJPY 82.39-83.10. US housing data improved, although the rebound was easier to achieve given the size of previous monthly declines. Housing starts were slightly below consensus at +7.2% m/m, but building permits comfortably exceeded market expectations. Despite the better housing data, the focus for the dollar remains the April 27 FOMC decision.
EUR
ECB Governing Council member Bini Smaghi said European officials must assure market participants that debt restructurings are not looming.
Prior to Bini Smaghi’s comments, a Greek newspaper quoted an EU ‘source’ as accepting that a mild restructuring of Greek debt is unavoidable. This was later denied by the European Commission. German Finance Ministry advisor Fuest said that a restructuring is ‘inevitable’.
A series of PMI readings were released across Germany and the Eurozone. German data was mixed: April flash manufacturing PMI rose to 61.7 vs 60.0 cons, while the services index fell to 57.7 vs 59.8 cons. Eurozone estimates were broadly in line with expectations: manufacturing rose to 57.7 (cons 57), services fell to 56.9 (cons 57). Our European economists note that the Eurozone prints are consistent with above-trend growth until at least 2012.
GBP
The minutes from the BoE’s April 7 policy meeting are due. Our analysts expect another 6-3 vote split in favour of keeping the policy rate unchanged. Rate expectations have drifted lower in recent weeks and, unless we see some hawkish comments, the minutes will likely have a neutral to negative impact on sterling as they keep expectations in check.
CAD
Headline CPI jumped more than expected to +3.3% y/y. Core prices were also surprisingly firm, rising by +1.7% y/y from a low of +0.9% y/y in February. Our economists note the BoC had expected CPI to temporarily rise to “around 3%” in Q2, but this might be a little higher/earlier than they had anticipated.
TECHNICAL OUTLOOK
AUDUSD clears 1.0584
EURUSD NEUTRAL With the break of 1.4382 bull trend continues. Next resistance levels are at 1.4450 and 1.4520. Support is at 1.4158/52.
USDJPY NEUTRAL Initial support is at 82.00, followed by 81.55; resistance is at 83.27/78 area.
GBPUSD BULLISH The pair regains momentum; a move above 1.6385 would expose 1.6428, while support lies at 1.6230.
USDCHF BEARISH Focus is on 0.8852/23 support area. Near-term resistance lies at 0.9076.
AUDUSD BULLISH Climb through 1.0584 has opened up the way towards 1.0600/40 area. Support lies at 1.0443.
USDCAD BEARISH Outlook is bearish with focus on 0.9527/00 support zone. Resistance lies at 0.9667.
EURCHF BEARISH Break of initial support 1.2730 would expose 1.2624. Near-term resistance is at 1.2987.
EURGBP NEUTRAL Break through 0.8714/07 area would trigger a bearish tone, while resistance lies at 0.8849.
EURJPY NEUTRAL 120.00 and 116.48 mark the near-term directional triggers.
SCHEDULE
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