- Higher, jobless claims fall, PPI and existing home sales rise more than expected sending yields higher
- Lower, Fitch warns that Japan's sovereign debt rating is at risk from rising government debt
- Lower, Greek/German 10 year bond spread widens to record level, Moody's cuts Greece to A3
- Lower, public-sector borrowing rose to record level, mortgage approvals rise, retail sales slow
- AUD & CAD lower, Australia's vehicle sales decline, crude prices fall 1%
Overview
USD traded higher Thursday as Greek worries weigh on the EUR and equity markets. USD extended its rally after the release of higher than expected PPI and a Moody's downgrade of Greece's debt. Higher than expected PPI sent US bond yields higher. The cost of financing the Greek debt continues to rise with Greek/German 10 year bond yields widening to a record level and the Greek 2009 budget deficit revised higher. The widening of Greek credit spreads and upward revision of the Greek deficit sparked selling of the EUR and a spike in risk aversion. EUR traded lower despite report that the EU manufacturing index rose to 46 month high and services PMI rose to a 30 month high. GBP traded lower in reaction to report that the UK March budget deficit rose to a record level and the latest UK election polls point to a hung parliament. GBP downside was limited by report of above forecast mortgage approvals. The rise in UK mortgage approvals points to improvement in the UK economy. The commodity currencies traded lower pressured by today's spike in risk aversion with the AUD pressured by report of weaker than expected Australian vehicle sales and CAD pressured by 1% drop in the price of crude. JPY traded mixed with support from rising risk aversion and weaker equity markets. JPY upside was limited by a warning from Fitch that Japan's sovereign debt rating is at risk because of rising Japanese government debt. Today's US economic data was positive with jobless claims posting a sharp decline. PPI came in higher than forecast and existing home sales rose by 6.8%. USD rallied to the day's highs in reaction to above forecast PPI and stronger than expected existing home sales data. Focus turns to Friday's release of US durable goods and new home sales.
Today's US data:
Initial jobless claims for the week ending 04/17 declined by 24K to 456K, a reading of 455k was expected. March PPI came in at 0.7%, a 0.3% rise was expected. Core PPI rose by just 0.1%. March existing home sales rose to 5.35mln, a reading of 528k was expected.
Upcoming US data:
On April 23rd March durable goods and new home sales will be released. Durable goods are expected to rise by 0.3% compared to 0.9% last month and to rise by 0.8% ex-transports. New home sales are expected at 320k compared to 308k last month.
JPY
JPY traded mixed tugged in two directions with support from falling equities and rising risk aversion and gains limited by concern about Japan's sovereign debt rating. The Nikkei closed 140 points lower and European and US equities traded lower pressured by increased worries about the Greek fiscal outlook. JPY upside was limited by a warning from Fitch that Japan's sovereign debt rating is at risk from rising Japanese government debt. Additionally the IMF says that the Japan may need to consider more fiscal measures to boost growth as the Japanese economy diverges from rapid growth in China. There was limited reaction to report that the BOJ is expected to raise its CPI forecast to 0.2% for 2012 and hike its GDP forecast to 2% from 1.3% in the April 30th yearly outlook. Japan's March trade surplus came in at nine and ¥948.9 billion with exports up 43.5% and imports up 20.7%. The direction of equity markets and risk appetite are the main drivers for JPY trade. JPY remains vulnerable to its low yield status as interest rates are set to rise in many of the industrialized nations and to concerns about Japan's sovereign debt rating.
Key technical levels to watch in USD/JPY include support at 92.40 the April 20th low with resistance at 93.53 April 15th high.
EUR
EUR traded lower despite economic data that confirms the EU economy is improving. EUR was pressured by Greek debt worries as the cost of financing the Greek debt rises to a new record high and the Greek 2009 budget deficit was revised higher. Greek/German 10 year bond spread widened to 519 bps. The Greek 2009 budget deficit was revised to 13.6% of GDP from 12.7%. The rising cost of financing the Greek debt and deterioration of the Greek budget outlook sparks selling of the EUR. Greek officials are meeting with the IMF/ EU and there is speculation that these meetings could last up to 2 to 3 weeks. The FDP party in Germany says that Greece needs to intensify its austerity plan or leave European monetary. Additionally the Irish budget deficits were revised higher generating concern that the debt crisis may spread. EU manufacturing PMI rose to 46 month high at 57.5 in April from 56.5 in March. The services PMI rose to 30 month high at 55.5 from 54.4 last month. The rise in EU manufacturing and services PMI points to strengthening of the recovery and may contribute to increased upward pressure on EU inflation. These reports complicate the outlook for ECB policy as the ECB is widely expected to maintain accommodative policy because of concern about the impact of the Greek fiscal debt crisis on the recovery. One of the main negatives for the EUR is speculation the Fed will hike rates well before the ECB. Widening of the yield differential between the ECB and FED could fuel additional selling pressure of the EUR. EUR traded to the day's lows as US bond yields spike higher after the release of above expectation US PPI and existing home sales. There is an interesting report on Bloomberg citing analysts at Citicorp warning that the EUR could be doomed without fiscal and political unity. EUR remains vulnerable to uncertainties about the Greek debt outlook. The IMF also says that the EUR is somewhat overvalued. Analysts at Goldman expect the EUR to decline versus the GBP as the BOE has shifted to a less dovish policy bias. EUR/GBP cross traded at a two-month low in Thursday's trade. Talk of more Greek downgrades sent the EUR to the days low.
On April 23rd German April IFO business climate survey will be released expected at 98.6 compared to 98.1 last month along with EU February industrial orders expected that -1% compared to -2% last month.
The technical outlook for the EUR is negative as EUR fails to hold above 1.3400. Expect EUR support at 1.3266 the March 25th low with resistance at 1.3422 the April 22nd High.
GBP
GBP traded lower pressured by report that UK public-sector borrowing rose to record level in March. UK public-sector borrowing rose to 23.49bln in March. Although the March budget deficit was below the market expectation of a 24bln the report is a reminder of the deteriorating outlook for the UK budget. Rising UK debt may put the UK sovereign debt rating at risk of a downgrade. GDP downside was limited by report of rising UK mortgage approvals and yesterday's release of the monetary policy minutes for the April BOE policy meeting. The MPC minutes suggest that BOE has become less dovish. Mortgage approvals rose to 52k from 48k last month. The rise in mortgage approvals is further confirmation of the improving outlook for the UK recovery. The BOE monetary policy minutes state that some of the board members are becoming concerned about rising UK inflation. The concern about rising UK inflation coupled with the BOE's more upbeat outlook for the UK recovery hints at a shift to a less dovish BOE policy bias and may encourage speculation that the BOE will soon end its asset purchase program. GBP outperformed as UK election jitters appeared to have eased a bit. Latest polls suggest that the Conservatives may gain parliamentary control. If the polls are accurate the UK election may have a better chance of creating a coalition government that could take action to reduce the UK deficit. There was limited reaction to today's report that retail sales slowed. March retail sales rose by 0.4%, a 0.8% rise was expected. GBP traded to the lows for the day after the release of higher than expected PPI as the PPI report sent US bond yields higher. Focus turns to Friday's release Q1 GDP. The GDP report is seen as key to speculation about the strength of UK recovery and BOE policy outlook.
On April 23rd Q1 GDP will be released expected at 0.5%.
The technical outlook for GBP is mixed as GBP struggles to hold above 1.5400. Expect near-term support at 1.5290 the April 20th low with resistance at 1.5482 the April 16th high.
CAD
CAD traded lower pressured by a 1% decline in the price of crude and in reaction to a spike in risk aversion as equity markets trade lower in reaction to increased worries about the Greek fiscal outlook. Widening of Greek credit spreads and an upward revision of the Greek budget deficit was the initial catalyst for today's drop in commodity prices and equities. Disappointing US earnings reports added pressure to the US equity market and contributed to today's spike in risk aversion. CAD traded lower despite report of better than expected Canadian leading economic indicator pressured by spike in US bond yields sparked by report of higher US inflation. Canada's March leading index rose by 1%, a reading of a 0.1% rise was expected. The CAD traded at a 22 month high early in the week after the BOC signaled that interest rates may soon rise. Tuesday the BOC elected to hold rate policy steady, raised its 2010 GDP forecast to 3.7% ended its commitment to maintain low rates. The BOC policy statement says that the Canadian recovery was somewhat more rapid than expected and the BOC dropped the language in its policy statement that interest rates would remain low through June 2010 conditional on inflation. Dropping the conditional inflation language in its policy statement is a shift in BOC policy and a signal that interest rates will soon be raised. The BOC policy statement was seen as more aggressive than expected and could lead to an earlier than expected rate hike. BOC rate expectation sparked a CAD rally through parity versus the USD. Today's Canadian LEI report fits with a June BOC rate hike scenario. BOC Monetary Policy Report released Thursday confirmed that Canada's economy grew faster than expected in Q1 and that withdrawal of stimulus will depend on output and inflation. Focus turns to Friday's release of retail sales and CPI. These reports should give a better reading of the strength of the Canadian recovery and inflationary pressures.
On April 23rd March CPI will be released expected to rise by 0.9% compared to 0.7% last month along with February retail sales expected to rise by 1.2% compared to 0.7% last month.
The technical outlook for CAD is positive as USD/CAD trades below 1.0000. Look for near-term support at 0.9931 the April 21st low with resistance at 1.0164 the April 20th high.
AUD
AUD traded lower pressured by report of weaker than expected Australian vehicle sales, weaker commodity prices and spike in risk aversion as global equity markets trade lower. Australia's March new vehicle sale declined by 2.7%, a 3% rise was expected. The decline in vehicle sales may dampen enthusiasm about the strength of the Australian economic recovery. The report however is not expected to dampen RBA rate hike speculation. As noted above, increased worries about the Greek fiscal outlook and weaker US earnings sparked selling of equities and a spike in risk aversion. AUD price direction is closely tracking risk appetite with recent gains attributed to RBA rate speculation. AUD traded sharply higher Tuesday in reaction to hawkish RBA policy minutes. The April RBA policy minutes state that interest rates are still below average and need to rise more. According to the RBA minutes the boom in exports meant that the RBA could not delay further rate hikes. The RBA hiked rates by 25bps to 4.25% earlier this month. Last Thursday, Australia reported that inflation expectations rose to the highest level since October 2008. The rise in Australia's inflation expectations could add pressure on the RBA to hike rates. The Australian inflation report and RBA minutes may tip the scales back in favor of another 25bps RBA rate hike next month.
On April 23rd Q1 export and import prices will be released. Export prices are expected to rise by 0.7% compared to a 1.7% decline last quarter and imports prices are expected to fall by 0.6% compared to a 4.3% decline last quarter.
The technical outlook for the AUD is mixed as the AUD fails to hold above 9300. Expect AUD support at 9157 the April 19th low with resistance at 9365 the April 15th high.
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