FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar initially strengthened against the EUR and the AUD after the Monetary Authority of Singapore tightened policy by less than expected. However, the dollar’s gains were quickly erased at the end of the Asia session when local media sources unofficially released a batch of China data ahead of time. CPI was slightly stronger than expected which raises the risk of further policy tightening. However, new loan growth and retail sales were strong, suggesting little sign of a slowdown in China and helping to boost global risk appetite.
EURUSD traded 1.4408-1.4497, USDJPY 83.28-83.94. Earlier in the US session, the Beige Book and retail sales data helped the dollar briefly. The Beige Book noted the economy is expanding, with widespread gains in February and March along with upbeat reports on the near-term outlook. Retail sales rose +0.4% in March, slightly below consensus, but details were stronger and prior months were revised up somewhat. G7 finance chiefs meet ahead of G20, and IMF/World Bank meetings and are expected to discuss the economic impact of the tragedy in Japan, but no communiqu? is expected.
China’s FX reserves likely reached $3 trn at end-March – and look set to continue climbing.To curb yuan appreciation and sterilize the liquidity generated by its FX accumulation, the central bank has had to issue more than $400 bn worth of bills and raise bank reserve requirement ratios to record highs. Such measures will become less effective in time. Adjusting relative factor prices and allowing greater yuan appreciation are crucial to reducing China’s external surplus.
EUR
ECB rhetoric levels seemed to increase a notch over the past 24 hours. Belgium’s Central Bank Governor Coene, referring to the recent ECB press conference, said that “Trichet gave a signal that the ECB hike was not a one-off” and it should “not be seen as a totally isolated decision”. The ECB Governing Council member Draghi said monetary policy remains very accommodative and that the ECB is assessing how to withdraw from this expansionary monetary policy. ECB Executive Board member Stark said that raising short term interest rates would not have much of an effect on economies in the Eurozone’s periphery, implying once again that the economic difficulties on the periphery are no obstacle to future hikes.
Greek Finance Minister Papaconstantinou said a debt restructuring would shut Greece out of the debt markets for a long time and would trigger some contagion. German Finance Minister Schaeuble said he is awaiting “a detailed analysis on the debt sustainability of Greece” and that if this report concludes that sustainability is in doubt “something must be done about it.”
GBP
Employment data was mixed with jobless claims unexpectedly rising by 700 (versus consensus at -3k) but the unemployment rate ticked down to 7.8%. Also, wage data was softer, as pay growth slowed in February to 2.0% from 2.3% in January.
CAD
The Bank of Canada’s Monetary Policy Report largely echoed the comments and changes from the recent policy decision. Officials noted the Japan earthquake could curb Canada’s Q3 growth rate by 0.5% and again mentioned Canadian dollar strength as a concern. But BoC Governor Carney later said what Finance Minister Flaherty and others have been saying for some time now – officials are essentially accepting that CAD will remain relatively strong and are encouraging local corporations to take advantage of that for imports and capex purchases.
AUD
RBA Governor Stevens did not deviate from his neutral stance and many of his comments focused on economic developments outside of Australia. He said it is risky to keep the price of money very low for a very long time and suggested that EM countries that are concerned with capital flows could let their exchange rates move. Stevens also said it is “highly unlikely” that Australia would adopt capital controls.
TECHNICAL OUTLOOK
EURUSD held at 1.4520.
EURUSD BULLISH Upside potential held at 1.4520 ahead of 1.4579, break of these levels would expose 1.4685. Initial support is at 1.4377.
USDJPY BULLISH As long as support at 83.13 is intact, a move above 84.79 would open way to 85.53/93 resistance area.
GBPUSD BULLISH Rise above 1.6349 would expose 1.6428. Initial support is at 1.6227.
USDCHF BEARISH The pair targets 0.8852/23 support area; near-term resistance lies at 0.9076.
AUDUSD BULLISH Focus is on 1.0584 ahead of 1.0600/40 area, while support lies at 1.0390.
USDCAD BEARISH Break of 0.9557 would open the way towards 0.9527/00 area, while resistance at 0.9698 holds.
EURCHF NEUTRAL Move below 1.2933 exposes 1.2837 putting odds in favor of reversal. Recovery through 1.3044 required to regain momentum.
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 Remains constructive above 120.00; a break above 123.33 would expose 125.00.
SCHEDULE
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