FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar managed to recoup some of its recent losses amid a quiet, pre-holiday session as risk sentiment was not as boisterous as earlier in the week. The Australian and New Zealand dollars held their ground versus the dollar but the other G10 currencies ceded ground as the session progressed. Equities finished modestly positive and longer-dated Treasury yields were moving up before the session ended early per the holiday. WTI and gold are $112.28 and $1505.23 at the time of writing. EURUSD traded 1.4533-1.4619, USDJPY 81.63-82.06. The economic releases were disappointing but the extent of the dollar sell-off overshadowed them, which allowed the dollar some breathing room. The Philadelphia Fed manufacturing survey fell to 18.5, well below consensus, but the level still indicates sold growth. The leading economic index rose 0.4% and jobless claims was above expectations at +403k. The claims data will be watched closely to see if the trend turns sideways or perhaps edges up. There are no releases given the holiday but there is event risk in the weekend surrounding hopes of CNY appreciation and speedy resolution to Eurozone issues. The week ahead will be active, with the FOMC decision, Fed Chairman Bernanke’s first press conference and the advance Q1 GDP estimate. But until then, the dollar could remain under pressure.
EUR
The euro weakened and several of the crosses returned to levels seen at the beginning of the week. Event risk related to sovereign worries remains for the euro but it seems today’s weakening, along with the gains earlier in the week, were largely driven by external factors and overall risk sentiment.
ECB President Trichet noted that he did not see any significant second round effects at present, and said the ECB had not decided on a series of rate rises. He also noted that a strong dollar is also in the interest of the international community. The market is to some degree trading off yield expectations and these comments could have contributed to the broader euro moves.
The IFO business climate index came down to 110.4 from 111.1. However, our economists note the slight decline means more confirmation that lead indicators are turning, so growth has probably peaked. Yet it does not provide a reason for the ECB to postpone further rates hikes. The absolute level of the IFO index is still close to all-time highs, and the German economy is still growing strongly, so there is little reason for the ECB to turn more cautious.
GBP
The BoE’s Weale said the fall in March inflation was surprising but it is just one month’s data. He said the division between policymakers is smaller than generally portrayed but then he also said the he wouldn’t be surprised to see Q1 GDP q/q growth below 0.7%. Weale’s comments are interesting as he was one of the hawkish voters and his weaker GDP comment again puts the focus on Wed’s GDP print – out UK economist says that something below 0.7% q/q could make a May rate hike less likely
Retail sales figures overnight were better than expected, showing a 0.2%m/m gain for the core number vs. expectations of a decline of -0.4%. Policy expectations have likely recovered somewhat but sterling’s performance up ahead would remain data-dependent.
CAD
Canadian retail sales advanced slightly less than expected at 0.4% m/m but the ex-autos figure beat expectations at 0.7% m/m. The Canadian dollar, though, weakened versus the dollar as risk sentiment was more muted than previous sessions.
TECHNICAL OUTLOOK
EURJPY 120.71 resistance
EURUSD BULLISH Break of 1.4685 would expose 1.4776 ahead of 1.4905. Support lies at 1.4328.
USDJPY BEARISH Move below 81.55/31 support area would open the way to 80.69. Resistance is at 82.60 ahead of 83.10.
GBPUSD BULLISH Focus is on 1.6672, break here would expose 1.6722. Initial support is at 1.6386.
USDCHF BEARISH Decline through 0.8852/23 has exposed support at 0.8769. Near-term resistance lies at 0.9012.
AUDUSD BULLISH Momentum is positive; initial resistance is at 1.0845, while support lies at 1.0519.
USDCAD BEARISH Support is at 0.9446/00 area. Resistance is at 0.9600.
EURCHF BEARISH Break of 1.2730 would expose 1.2624; while resistance holds at 1.3000.
EURGBP BULLISH Move below 0.8741 would hurt the bull trend and expose 0.8714. Resistance is 0.8882 ahead of 0.8924/42 area.
EURJPY NEUTRAL Climb through 120.71 would signal potential for gains to 121.48 and 122.41 next. Support is at 118.00.
SCHEDULE
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