FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The euro partially recovered during the Asia session after Friday’s selloff. Friday’s moves were triggered by a report in a German newspaper claiming Greece was considering withdrawing from the Eurozone, and that an emergency meeting of European officials had been called to discuss the issue. A special meeting did take place on Friday night, but participants emphasised that the topic of a potential Greek exit was not discussed. EURUSD traded 1.4341-1.4407, USDJPY 80.52-80.85 on Friday. The April payrolls report showed job growth continued at a healthy pace and was broad-based. Non-farm payrolls easily beat consensus estimates, rising by +244k (cons. +185k). The relief was palpable after a succession of other employment indicators had pointed to a weaker outcome. US yields surged in response, propelling USDJPY towards 81.00 before developments in Europe caused the pair to reverse course again on safe-haven demand. The unemployment rate unexpectedly rose to 9.0% (cons. 8.8%, prev. 8.8%). However, our US economists see little cause for alarm, noting that this was likely due to poor weather delaying farm hiring.
EUR
Eurogroup Chairman Juncker confirmed that ministers from Germany, France, Italy and Spain attended a special meeting on Friday, but said that the possible exit of Greece from the Eurozone was not raised. He dismissed it as a “stupid idea&it is an avenue we would never take. We don’t want to have the euro area exploding without reason.” However, he conceded that participants thought Greece might need another adjustment program and that this would be discussed in detail at the May 16 meeting of Eurogroup finance ministers.
The Greek Finance Ministry confirmed that Finance Minister Papaconstantinou was also present at the meeting, but that “it was never discussed or posed as an issue whether Greece would remain in the euro zone”. Papaconstantinou said talks centred around what would happen in 2012 when Greece, under the terms of the current rescue plan, is due to return to markets. He said Greece would either return to markets as planned, or use the EFSF to buy Greek bonds.
ECB Governing Council member Liikanen said that “no Eurozone country wants to leave the euro”, and that a restructuring of Greece’s debt would not be a permanent solution to Greece’s plight.
Irish Central Bank Governor Honohan said the growth of Irish debt is an issue, and that the sustainability of that debt depends on Irish growth rates. He stressed however that Ireland would manage to avoid a doomsday scenario. Irish Minister for Energy Rabbitte, said he would like to see an extension in the term of the loans offered to Ireland under the EU/IMF/ECB rescue package. Currently, the average term of maturity of these loans is 7.5 years.
GBP
Chancellor Osborne said that Greece may need additional help from the Eurozone, but that the UK did not want to participate in any second rescue attempt.
JPY
The minutes of the BoJ’s April 6-7 policy meeting revealed that members felt there was a very high level of uncertainty over the economic impact of the March 11 earthquake. The Ministry of Finance’s representative who was present at the meeting said the government has no plans to ask the BoJ to underwrite JGB issuance.
AUD
Market expectations for future RBA tightening continue to build. Friday’s hawkish quarterly Statement on Monetary Policy is largely responsible for this, although a steady stream of hawkish articles from local RBA-watching journalists has also played its part. Our Australian economists stick to their view that the RBA’s next rate hike will likely come in August. We expect AUDUSD to move back up to our 1m forecast of 1.10, and remain long AUDNZD from 1.3545, targeting 1.4200.
TECHNICAL OUTLOOK
EURCHF 1.2433/03 support.
EURUSD NEUTRAL Break through 1.4457 and 1.4343 has exposed 1.4158/48 support area; need a break below this to trigger bear trend. Initial resistance is at 1.4500.
USDJPY BEARISH Initial support is at 80.00, break of this would expose 79.57 and 78.83 next. Resistance is at 81.28.
GBPUSD NEUTRAL Move below 1.6342 would expose 1.6246 Fibonacci level. Resistance lies at 1.6464
USDCHF BEARISH Support is at 0.8554/00 area, break of which would expose 0.8416. Initial resistance is at 0.8893.
AUDUSD NEUTRAL Rise above 1.0878 would signal resumption of the bull trend and expose 1.0953. Support lies at 1.0579.
USDCAD NEUTRAL Initial resistance is at 0.9722, while support lies at 0.9569.
EURCHF BEARISH Violation of 1.2624 and 1.2571 has opened up the way towards 1.2433/03. Resistance is at 1.2749.
EURGBP NEUTRAL Decline through 0.8800 and 0.8780 has exposed 0.8714/00. Initial resistance is at 0.8800.
EURJPY BEARISH Pressure on 115.00; break below this would expose 114.16 and 113.56.
SCHEDULE
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