FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
WORLD
The US yield curve was prodded into life by last night’s FOMC policy statement. US 2y yields climbed above 35 bp overnight and the 10y has finally hit 2.15%. This kept the yen in particular on the defensive, and the dollar also advanced more generally. USDJPY set an 11-month high trading between 82.68-83.32. Yesterday’s Fed and BoJ policy meetings suggest a gradual Fed-BoJ divergence should manifest itself over the months ahead and this should keep USDJPY risks skewed to the upside. Notably, the FOMC upgraded assessments of the US labour market plus capex, and no longer cited “slowing in global growth”. Perhaps more importantly, the FOMC now foresees “moderate economic growth” in the longer run, a step up from “modest” previously. Though the late 2014 rate guidance was reaffirmed, US dollar bulls could glean encouragement from the fact that there was no move toward any further QE.
Our team expects the Fed to stay on hold well into next year, before hiking rates in H2 2013. The BoJ is unlikely to be in such a position. Yesterday’s decision to leave the Asset Purchase Programme (APP) unchanged should not obscure the easing bias evident in the expansion and extension of the special lending facility for growth industries, not to mention the dissent from Board member Ryuzo Miyao, who proposed a JPY 5 trn boost to the APP. The policy spotlight now shifts to Norges Bank’s meeting later today. We expect no change in the headline policy rate, but anticipate significant verbal intervention by Governor Olsen on the strong currency. Overnight, EURUSD traded at 1.3031-1.3121. Finally, our latest fundamental trade recommendation advocates the purchase of a 2-month CADCHF call spread.
EUR
The German ZEW survey was generally mixed. The current situation index was softer than consensus at 37.6, while the economic sentiment reading was stronger at 22.3. Our European economists highlighted the big shift in the inflation outlook as well. For Europe, the balance of opinion changed (by +33.5 points) towards higher inflation over the next 6 months. Consequently, the short rate outlook also increased by 16.2 points.
JPY
The BoJ’s monthly report of ‘Recent Economic and Financial Developments’ acknowledged the yen’s latest fall and noted that if yen’s decline is sustained it will ease pressure on exports. It also forecast a return to economic growth in Q1 which is likely to continue into Q2.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BEARISH The pair targets 1.2974, the key low from the Feb. 16, a break below which would signal scope for deeper pull back towards 1.2828. Resistance is at 1.3191.
USDJPY BULLISH Next resistance is at 83.74 where a break would open the way towards 85.53, the April 2011 high. Support lies at 82.87.
GBPUSD BEARISH Decline through 1.5603 would pave the way for 1.5525. Resistance is at 1.5748.
USDCHF BULLISH The pair tests the resistance at 0.9263 a clearance of which would expose the February failure high at 0.9300. Support lies at 0.9140.
AUDUSD BEARISH Next supports are at 1.0474 and 1.0428. Resistance is at 1.0577.
USDCAD BEARISH Support lies at 0.9873 ahead of 0.9842, the year-to-date low. Resistance is at 0.9951.
EURCHF NEUTRAL Yesterday’s rally now targets 1.2114 ahead of 1.2133. Support is at 1.2047.
EURGBP NEUTRAL Our focus is on the key support at 0.8314, the March low. A break below this would open 0.8265. Resistance is at 0.8424.
EURJPY BULLISH The cross tests 108.74, a closing break above this would open 109.93, the year-to-date high. Support is at 107.52.
SCHEDULE
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