FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment was relatively stable in overnight hours, with most Asian stock market indices trading in the black. However, continuing uncertainty over Japan’s nuclear plants and the risk of rising radiation levels kept buying interest in Japanese stocks muted. US stock futures are trading 0.3% higher at the time of writing. EURUSD traded 1.4061-1.4095 and USDJPY traded 81.54-81.76. On the data front, Japanese jobs data for February was above expectations, but given this month’s events, business activity is set to slump before reconstruction needs can support economic activity again. In the US, pending home sales were weak while the Dallas Fed manufacturing activity unexpectedly dipped. Personal income and spending were roughly in line and core PCE increased as expected to 0.9% y/y. Chicago Fed President Evans said the Fed will likely complete the current USD600 bn bond-buying program and that substantial policy accommodation remains appropriate. However, he also said it would be appropriate to adjust policy should inflation expectations continue to rise. On growth, he said that despite signs of progress he is not satisfied with the pace of improvement in the US economy.
EUR
ECB President Trichet kept rate expectations supported by saying the inflation rate is durably above the central bank’s price stability target. Recent data confirms that growth prospects remain constructive for most Eurozone member states. At the same time service sector has activity improved on the back of firm domestic demand. Thus with inflation risks persisting, we do not expect ECB members to soften their monetary policy stance anytime soon.
Elsewhere, conditions in peripheral bond markets remain in focus. Portuguese yields hit another record high. Political uncertainty will likely keep long-term yields supported. However, given Portugal’s low systemic relevance for the Eurozone as a whole and the backstop of the rescue fund, we do not expect issues in Portugal to have any lasting and material impact on the euro.
JPY
The unemployment rate dropped to 4.6% in February (cons. 4.9%, prev. 4.9%). The jobs-to-applicants ratio rose to 0.62 (cons. 0.62, prev. 0.61), the highest reading since January 2009. Retail sales in February rose by 0.1% y/y (cons. -0.5%, prev. 0.1%).
Although February data suggests that the economy was on track for a steady recovery, the earthquake and tsunami in March will once again dampen the near-term outlook for business activity. As such February data is unlikely to have any material impact on the BoJ’s monetary policy stance and hence the yen.
GBP
We look for a confirmed Q4 GDP contraction at -0.60% q/q and +1.50% y/y. The revision should have less of an impact given that sterling was already knocked lower by the initial release. Details on the drivers behind the Q4 correction will be of interest and we remain cautious on sterling as Q1 data has disappointed somewhat and the latest BoE minutes showed the MPC is not closer to a policy shift despite still above-target inflation. A weak print could also cause MPC members to think twice about voting for tightening.
CAD
BoC Deputy Governor Boivin gave no comment on the outlook for Canadian monetary policy but did say that the appreciation of the Canadian dollar highlights the need to become more productive. Boivin’s comments echoed recent comments from other officials, suggesting that while CAD strength remains a concern, it is accepted as likely to persist for now.
TECHNICAL OUTLOOK
USDJPY eyes 82.01.
EURUSD BULLISH Initial resistance is at 1.4194; break above this would expose 1.4249/82 zone. Support lies at 1.3981.
USDJPY NEUTRAL The pair eyes 82.01; a break here would expose 82.45. Initial support lies at 80.69.
GBPUSD BEARISH Push through 1.5977/64 support area has exposed 1.5873 ahead of 1.5822. Resistance is at 1.6142.
USDCHF NEUTRAL Recovery through 0.9317 would open 0.9369; break below 0.9076 would instead expose 0.8964.
AUDUSD BULLISH Positive momentum; move above 1.0315 would expose 1.0400/25. Near-term support is at 1.0187.
USDCAD BEARISH Fall through the initial support at 0.9705 would expose 0.9668 key low. Resistance at 0.9844.
EURCHF BULLISH Break through 1.3004/40 area would signal scope for gains towards 1.3138. Support is at 1.2788/36.
EURGBP BULLISH Move above 0.8820 would expose 0.8885. Near-term support is at 0.8740.
EURJPY BULLISH Pressures 115.57; a break would open 116.00/68 resistance area. Support lies at 113.56.
SCHEDULE
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