FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The dollar weakened during the Asia session, despite the general absence of news. EU Council President Von Rompuy may have played a role in the dollar’s weakness however. He reminded markets that the greenback will likely lose its supreme reserve currency status in the distant future, noting that there will be a big change in the global FX landscape over the coming decades. EURUSD traded 1.4166-1.4287, USDJPY 80.98-81.59. Housing starts, building permits and industrial production all missed consensus estimates. US equities closed slightly lower after a mostly subdued session and Treasury yields farther out on the curve moved lower as well. Industrial production weakness could persist through Q2 as weakness in auto manufacturing is being attributed to parts shortages resulting from the Japanese earthquake. But we think the weakness should reverse later in the year. The upcoming FOMC minutes should not surprise too much given Fed Chairman Bernanke’s first press conference but the minutes will nevertheless bear watching to judge individual opinions.
EUR
As expected, no final decisions on Greece were announced at the end of Tuesday’s EcoFin meeting. However, Eurogroup Chairman Juncker implied that a ‘soft restructuring’ of Greek debt might eventually be considered, on condition that Greece agrees to implement further reforms, particularly in the area of privatisation of state assets. EU Commissioner Rehn also took a similar view. This is the first time such prominent EU officials have explicitly raised the possibility of restructuring. It should be noted however that German Chancellor Merkel and French Finance Minister Lagarde are still publicly opposed to the idea, as is the ECB.
The German ZEW survey came in below expectations at 3.1 vs consensus of 5. The current conditions rose to 91.5 vs 87.5 cons, 87.1.
GBP
UK headline CPI was much firmer than expected at +4.5% y/y (cons. +4.1%). This is the fastest rate of inflation since October 2008. More significantly, core inflation at +3.7% y/y is now higher than it has been at any time since records began in January 1997. Cable rallied 50 pips after the numbers.
The minutes from the May 5 BoE policy meeting are due. The text is not likely to yield much in the way of surprises, given the quarterly inflation report has already revealed an increased level of hawkishness on the MPC. However, it will be of interest to hear the latest views on how a balance should be struck between addressing waning growth on one hand, and persistent inflation on the other. Clearly any shift in the voting breakdown is likely to impact sterling.
Labour data is also due though most metrics are expected relatively unchanged.
AUD
Consumer confidence for May fell -1.3%, and wages in Q1 grew by a slower pace than expected, rising only +0.8% q/q (cons. +1.1%). Our Australian economics team notes that today’s data reduces the pressure for a near-term rate hike, but they stick to their view that the RBA will likely next hike in August.
TECHNICAL OUTLOOK
USDJPY bull trigger at 81.85.
EURUSD BEARISH Bounce off from 1.4048 targets 1.4340; while this is intact, expect decline towards 1.4048/21 support area ahead of 1.3903.
USDJPY NEUTRAL Model has turned neutral; 81.85 and 80.34 mark the near-term directional triggers.
GBPUSD BEARISH Focus is on 1.6147/28 support zone, move below which would open 1.6091. Resistance lies at 1.6308.
USDCHF NEUTRAL Pressure on 0.8784; a break here would favor resumption of the bear trend. Near-term resistance is at 0.8951.
AUDUSD BEARISH Clearance of 1.0513 has exposed 1.0443. Resistance is at 1.0717.
USDCAD BULLISH Upside potential held at 0.9794 ahead of 0.9828/49 resistance area. Near-term support lies at 0.9684.
EURCHF BEARISH Focus is on 1.2485 ahead of 1.2433. Near-term resistance lies at 1.2614.
EURGBP BEARISH Break through 0.8674/55 support zone would open 0.8618. Resistance lies at 0.8800.
EURJPY BEARISH Initial support is at 113.42, move below this level would expose 113.00 key Fibonacci level. Near-term resistance is at 116.90.
SCHEDULE
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