FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk sentiment has been supported overnight, mainly in response to the confirmation that the Fukushima nuclear plant has not suffered damage on the back of yesterday’s sizeable aftershock in northeast Japan. Hence most Asian stock market indices are trading firmly in the black. Elsewhere, US President Obama and Congressional leaders have so far failed to reach a budget deal to avoid a government shutdown. President Obama said less than 30 hours are left to reach an agreement, though he added that an agreement is still expected during the day. EURUSD traded 1.4292-1.4405 and USDJPY traded 84.97-85.39.
EUR
The ECB hiked the refinancing rate by 25bp as expected but the tone of the press conference was not enough to push market participants’ expectations too far in either direction. Although ECB President Trichet did not indicate that yesterday’s rate hike was the first in a series, he did once again say that the ECB will act as needed and that interest rates remain exceptionally low. He added that it is paramount to avoid second-round effects and that the ECB will do all in order to ensure price stability. Rate expectations have stayed stable following his comments. Along with stable risk sentiment, this is keeping the euro supported.
Eurozone finance ministers are holding an informal meeting in Hungary and they are expected to discuss the pending aid package for Portugal, though a formal request still needs to be extended by Portugal. The meeting should not yield much, as the package will take a couple of weeks to craft, and the press cited a senior EU source saying that the plan will be agreed before the June 5 election.
German Deputy Finance Minister Hoyer said that the Portugal decision to take EU aid is right and responsible, and that without the EFSF, Portugal and Eurozone could have been very much at risk
GBP
Yesterday, the BoE kept policy unchanged as expected, which shifts the focus to the BoE minutes on April 20. Our economist expects the first hike in May but pricing based on overnight indexed swaps showed some paring back of market expectations for future BoE policy.
CAD
In Canada, we expect a modest gain in employment of 20.0k and an unchanged unemployment rate at 7.8%. A positive reading should benefit the Canadian dollar and elevated oil prices also continue to support the currency.
TECHNICAL OUTLOOK
USDCHF clears 0.9127.
EURUSD BULLISH A break through 1.4414 would pave the way for a run towards 1.4512/79 area. Initial support is at 1.4243.
USDJPY BULLISH Break above resistance 85.93 would expose 86.38. Initial support is at 84.51.
GBPUSD BULLISH Pressure on key resistance 1.6401 to hold, break of which would expose 1.6458. Support lies at 1.6257.
USDCHF BEARISH Move below 0.9127 has triggered a bearish tone and exposed 0.9096/38 area. Resistance is at 0.9296.
AUDUSD BULLISH Uptrend is intact; break of 1.0500 has exposed 1.0600/40 resistance zone. Support is at 1.0412.
USDCAD BEARISH Focus is on 0.9513/00 support area. Resistance lies at 0.9642.
EURCHF BULLISH Support at 1.3055 needs to hold to maintain the bullish trend. Resistance is at 1.3243/87 area.
EURGBP BULLISH Break of 0.8820 is required to confirm resumption of bull trend, next resistance is at 0.8853. Support is at 0.8714.
EURJPY BULLISH While support at 120.69 holds, look for gains towards 123.32 and 125.00 next.
SCHEDULE
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