FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The yen temporarily weakened during the Asia session amid newspaper speculation that a political crisis could be imminent in Japan. Prime Minister Kan is due to face a vote of no-confidence in parliament today but we doubt he will lose his post. EURUSD traded 1.4308-1.4401, USDJPY 80.84-81.33. Asian equities are weaker at the time of writing after the S&P 500 closed down -2.3% on the day. The yield on the 10y US Treasury bond slipped below 3.0% for the first time in six months in response to yesterday’s weaker US data. The ISM manufacturing report reflected recent weakness in regional indexes but the more worrisome print was the ADP employment change of +38k versus consensus +175k. The correlation with the ADP print and the Bureau of Labor Statistic’s (BLS) payrolls data is volatile but nevertheless the weak print warrants some alarm. Our economists subsequently lowered their payrolls forecast to +125k from +200k earlier. Initial jobless claims are due but market participants remain focused on Friday’s payrolls data and any further headlines that may transpire from the Eurozone sovereign debt crisis.
EUR
The euro sold off after Moody’s downgraded Greece three-notches to Caa1 yesterday, citing the likely need for restructuring and a higher probability for default. S&P and Fitch still have single-B ratings for Greece.
Germany’s Chancellor Merkel said that “we don’t have a euro problem, rather we have a debt problem that has to be overcome”. She said she wanted to “further deepen” coordination in key areas of economic policies.
Manufacturing PMIs across the Eurozone were revised down; Germany’s to 57.7 from the flash 58.2, France’s to 54.9, from 55.0 and Spain to 48.2 from 50. This fits in with the general view of a global soft patch, with the major economies expanding but at a softer pace.
JPY
Prime Minister Kan is expected to face a no-confidence vote in parliament today. We expect the motion will not be carried and that he will remain prime minister. Kan hinted that he may be willing to step down voluntarily in the short to medium term saying: “I would like the younger generation to take over various responsibilities once I fulfill certain roles that I need to do, as I work on handling the disaster”.
AUD
The AUD got a significant boost from a strong retail sales report. April sales rose +1.1% m/m (cons. 0.4%). The trade balance, released at the same time, was somewhat weaker than expected but the negative surprise was not big enough to hold back the AUD.
TECHNICAL OUTLOOK
USDCAD 0.9816 key resistance.
EURUSD NEUTRAL Move above 1.4455 has exposed resistance at 1.4500, psychological level. Support lies at 1.4257.
USDJPY BEARISH Bearish trend is intact; scope for further weakness towards 80.34 and 80.00. Resistance at 81.77.
GBPUSD BULLISH Initial resistance is at 1.6496, break of this level would expose 1.6547. Initial support is at 1.6268.
USDCHF BEARISH Focus on initial support 0.8383, yesterday’s low; break through this would leave little support till 0.8300. Resistance lies at 0.8544.
AUDUSD BEARISH Pull back through 1.0609 has exposed support at 1.0510, look for a break of this level to confirm the bear trend. Resistane is at 1.0758.
USDCAD BULLISH Break above 0.9772 has exposed key level at 0.9816. Initial support is at 0.9667.
EURCHF BEARISH Move below 1.2102 has put focus on support at 1.2000. Initial resistance is at 1.2318.
EURGBP NEUTRAL Watch resistance at 0.8827, break of this level would trigger a uptrend. Support lies at 0.8744.
EURJPY NEUTRAL Initial resistance is at 117.80, break of this level would open 118.38. Downside trigger is at 115.57.
SCHEDULE
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