FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
WORLD
The absence of fresh economic data releases overnight did nothing to address lingering investor uncertainty over the sustainability of the global recovery. This made for generally range-bound FX trading conditions, although optimism was momentarily boosted when USDCNY fixed at a new all-time-low of 6.2891. US President Obama and China‘s President Hu are due to meet in Seoul on Monday. The Japanese government nominated Ryutaro Kono as a new member of the BoJ Policy Board to replace one of two policymakers whose terms end in early April. Our economists note that Kono has hawkish tendencies and his endorsement by parliament – which is a prerequisite for his appointment to the board – is therefore not a foregone conclusion. Former RBA board member Lew criticized the current RBA board for mishandling the mining boom. He urged the bank to cut the policy rate by up to 75bp to ease the pressure on regional economies – which do not benefit directly from the boom but still have to live with the consequences of a strong AUD. US economic data continues to outshine that of other major economies.
Despite the weaker Chinese, French, German and New Zealand data on Thursday, US initial claims are still trending lower, with the 5k drop to 348k providing further evidence of improving labour market conditions. Though USDJPY has stalled in the past 48 hours, any further downside should be limited by the prospect of a sustainable US recovery that will allow the Fed to keep the QE option off the table – as the BoJ continues to ease. If there were any doubts about the latter, BoJ Governor Shirakawa again set the record straight overnight declaring that the BoJ would continue to pursue its easing steps with the aim of overcoming deflation. Fed President Bullard (non-voter) offered a reminder that Fed policy rate forecasts can change and will need to follow the data. He said that a sterilized approach to asset purchases would not make any sense. Chicago Fed President Evans (a non-voter and also a long term dove) said that low rates would be appropriate until inflation reaches 3% or until unemployment falls to 7%. These are the first numerical ‘triggers’ informally proposed by an FOMC official – instead calendar dates such as mid-2012, or end-2013 have been used in FOMC statements. Today, Canadian CPI, US new home sales, and Fed Chairman Bernanke’s speech are due.
EUR
Eurozone PMIs were weak across the board. French manufacturing contracted, coming in at 47.6 (consensus 50.2), while the services sector was flat at 50.0 (consensus 50.3). German PMIs for the two sectors came in at 48.1 and 51.8, respectively, both sharply below expectations of 51.0 and 53.1. The details were also worrying, as manufacturers had reported a sharp and accelerated decline in the new export business, pointing to weaker global trade flows.
S&P said a Portuguese debt restructuring was “not inevitable” as, compared to Greece, the overall debt stock is not as high and “implementation capacity for policy reform” is stronger. Portugal‘s cabinet approved the European Union’s fiscal compact aimed at promoting fiscal discipline among EU member states amid workers’ strikes against the austerity measures
Ireland is now technically back into recession after the Central Statistics Office announced that GDP shrank 0.2% in Q4 after a contraction of 1.1% in Q3. GNP, regarded by the government as a more accurate economic barometer, dropped 2.2% in Q4 following a 1.9% fall in Q3. This again brings into question the wisdom of imposing austerity measures without accompanying policies to stimulate near-term growth. It also casts serious doubts on the government’s growth expectation of 1.3% for 2012.
JPY
Two positions on the BoJ’s Policy Board remain up for grabs as the terms of Seiji Nakamura and Hidetoshi Kamezaki are set to expire early next month. The Board currently consists of a mix of career BoJ officials, academics and corporate officials. Once the two successors are nominated by government, full parliamentary approval will be needed to confirm the appointments. Given the political impetus in favour of further BoJ easing, we think the selection process is unlikely to lead to a yen-positive outcome.
An unnamed Japanese MoF official confirmed that Japan did not buy any of the EUR1.5 bn, 20-year EFSF bonds earlier this week.
GBP
The UK was not spared from the array of bad economic news over the past 24 hours. Overnight, UK Nationwide consumer confidence fell to 44 (cons. 47) but it remains above the all-time lows. This follows February’s retail sales released on Thursday which dropped by -0.8% m/m (cons. -0.5% m/m). Our UK economist notes that while the headline print was undoubtedly weaker than expected, it’s important to remember that monthly data can be volatile.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BEARISH The pair is back under pressure; initial support at 1.3004 ahead of 1.2974. Key near-term resistance is at 1.3302.
USDJPY NEUTRAL Near-term support is at 82.33 ahead of 81.96. Resistance is at 83.47.
GBPUSD NEUTRAL Yesterday’s sell-off has exposed support at 1.5763 ahead of 1.5725. Resistance holds at 1.5923 for now.
USDCHF NEUTRAL As long as support at 0.9072 is intact, a recovery through 0.9254 would expose 0.9342.
AUDUSD BEARISH Trend and momentum conditions are bearish; next key support lies at 1.0261 retracement level. Resistance is at 1.0484.
USDCAD NEUTRAL A rise through 1.0052, the February failure high would trigger a bull tone. Near-term support lies at 0.9912.
EURCHF NEUTRAL Resistance is at 1.2082 ahead of 1.2147. Support is at 1.2040.
EURGBP NEUTRAL Support is at 0.8265 whereas resistance is at 0.8372 ahead of 0.8424.
EURJPY BULLISH A move above 110.47 would expose 111.44. Key support to watch lies at 107.86.
SCHEDULE
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