- Higher, jobless claims drop, import prices rise, EU deficit and growth worries
- Higher, record current account surplus in Japan, exports surge
- Lower, austerity measures may slow EU growth, accommodative ECB policy
- Lower, widening of the UK trade balance, dovish BOE inflation report
- AUD & CAD higher, stronger Australian employment growth
Overview
The USD traded mixed Thursday gaining versus Europe and weakening versus the commodity currencies and the JPY. EUR was pressured by concern about EU growth and the outlook for continued accommodative ECB monetary policy. Portugal announced plans for new austerity measures. Austerity measures in Europe generate concern about weaker growth outlook for the EU. ECB officials signaled that interest rates are appropriate. EUR/CHF trades a new record low with CHF supported by safe haven demand sparked by the EU fiscal crisis. GBP traded lower pressured by report of the widening of the UK trade deficit and Wednesday's release of a dovish BOE inflation report. Commodity currencies traded higher supported by a modest improvement in risk sentiment as European equities rally. AUD was supported by report of strong Australian employment growth. Commodity currency gains were limited by weaker commodities as crude oil prices tumble. JPY traded higher supported by report of a record current account surplus in Japan and by gains in cross trade to Europe. US economic data was mixed with jobless claims down but the decline was less than expected. Import prices rose more than expected. Although the EU/IMF bailout plan for Greece generates hope that the EU debt contagion will be contained investors are selling the EUR on concern about EU growth outlook and speculation the EU fiscal crisis will force the ECB to delay its exit strategy. Growth and yield differential is emerging a key focus of the trade.
Today's US data:
Initial jobless claims for week ending 05/08 declined by 4k to 444k, a reading of 440k was expected. April import prices rose by 0.9%.
Upcoming US data:
On May 14th April retail sales industrial production, capacity utilization and University of Michigan sentiment will be released along with March business inventories. Retail sales are expected to rise by 0.3% compared 1.6% last month. Industrial production is expected to rise by 0.5% compared to 0.1% last month. Capacity utilization is expected at 73.6 compared to 73.2 last month. Michigan consumer sentiment is expected at 73.2 compared to 72.2 last month. Business inventories are expected to rise by 0.3% compared to 0.5% last month.
JPY
JPY traded higher supported by report of a record current account surplus in Japan and gains in cross trade to Europe. Japan's current account surplus rose to a record ¥2.53trln, a reading of ¥2.15trln was expected. The current account surplus grew by 65.1% as exports surged by a record amount. Exports rose by 45% and imports were up 22% in March. The rise in Japan's export sales reflects improved global economic outlook and suggests that recent strength of the JPY is having limited impact on export sales. Japan also reported that April service sector sentiment rose to a three-year high of 49.8 and the April M2 money supply rose by 2.9%. The improvement in the service sector sentiment and increase in money supply growth was partly offset by report that Japan's April lending declined the most in four years. Today's Japanese economic data suggests that the Japanese recovery remains uneven and still largely dependent on exports. JPY traded more than 1% higher in cross trade to the EUR and GBP with EUR pressured by EU growth worries and the GBP pressured by report of the widening of the UK trade deficit.
Key technical levels to watch in USD/JPY include support at 92.21 the May 11th low with resistance at 93.64 the May 13th high.
EUR
EUR traded at a 14 month low versus the USD pressured by speculation that austerity measures will curb EU growth. Portugal announced new austerity measures following Spain's announcement of a series of spending cuts yesterday. Portugal plans to cut €2bln out of its 2010 budget deficit. The new austerity measures are prompted by EU pressure for peripheral European nations to reduce their budget deficits to come in line with the EMU stability pact. The EU/IMF aid plan and emergency loan facility requires that nations seeking support must agree to reduce spending. The announcement of austerity measures in Greece, Spain and Portugal generate concern about the EU growth outlook. Greece reported that the unemployment rate for February rose to 12.1% from 11.3% in January and the IMF warns that Greek unemployment could reach 15%. Unemployment in Spain is close to 20%. EUR was also pressured by speculation that the ECB will be forced to maintain accommodative policy because of the impact of the Greek fiscal crisis and by selling in cross trade to the CHF. Because the Greek fiscal crisis may curb EU growth the ECB is expected to maintain steady rate policy into 2011.The ECB said that the interest rate is appropriate and expect an uneven recovery for the EU. EUR/CHF traded in a record low as investors look to the CHF for safe haven from the EU fiscal crisis. EUR remains vulnerable to concern that EU austerity measures will slow the EU recovery.
The technical outlook for the EUR is negative as EUR trades below 1.2600. Expect EUR support at 1.2425 the November 21st low with resistance at 1.2684 the May 13th high.
GBP
GBP traded lower pressured by report that the UK trade deficit widened last month and in reaction to Wednesday's release of a dovish BOE inflation report. GBP had experienced a relief rally in reaction to news that the Conservative Party has formed a new coalition government and pledged to take quick action on the UK budget deficit. March trade balance widened to 7.5bln from 6.3 million last month a gap of 6.6bln was expected, Exports rose just 1% and imports rose by 5.2%.The Conservative Party is the new ruling party of the UK and the leader of the Conservative Party, Cameron is the UK's new prime minister. The Conservative Party has pledged to take quick action to reduce the UK budget deficit. The positive news on the UK budget deficit reduction plans was offset by a dovish BOE inflation report and a statement from BOE Governor King that the central bank has not ruled out additional bond purchases. King went on to say that it's too early to consider tightening of monetary policy. The BOE inflation report said that UK inflation is expected to fall below the 2% target within two years. King's comments and diminishing UK inflation risk opens the door for additional easing by the BOE. Investors will monitor how the UK governments addresses the UK deficit and how the BOE responds to the government austerity measures.
The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.4720 the May 11h low with resistance at 1.5054 the May 10th high.
CAD
CAD edged higher supported by gains in cross trade to the EUR. Investors are fleeing the EUR because of concern about the impact of the EU fiscal crisis and new austerity measures on the EU economy. Canada's domestic economy is strengthening and the BOC is expected to raise interest rates midyear. Yield and growth differential is moving in favor of the CAD as investors look for alternatives to the EUR and, Western economies are expected to grow faster than Europe. Gold continues to trade near a record high supported by investors search for safety from rising global sovereign debt risk. Higher gold prices support demand for the CAD. There were no major Canadian economic reports released in today's trade. Wednesday, Canada reported a much smaller than expected trade surplus as exports sales slowed. Canada's March trade balance widened by C$245mln, a C$1.55bln surplus was expected. A smaller than expected Canadian trade surplus reflects the impact of the strong CAD on Canada's export sales and weaker energy prices. Canada also reported the ninth consecutive monthly rise in its housing price index. CAD gains were limited by mixed to weaker US equity markets and a sharp drop in the price of crude.
On May 14th March manufacturing shipments and new motor vehicle sales will be released. Manufacturing shipments are expected up 0.6% compared to 0.1% last month. Motor vehicle sales are expected to rise by 3% compared to 8.1% last month.
The technical outlook for CAD is mixed as USD/CAD trades below 1.0300. Look for near-term support at 1.0101 the May 3rd low with resistance at 1.0360.
AUD
Australia reported higher than expected headline unemployment rate with stronger than expected jobs growth last month. 33,700 new jobs created last month. AUD traded higher in reaction to the report of stronger than expected jobs growth. This marked the eighth consecutive month of new job growth in Australia. Continued strong employment growth in Australia may revive RBA rate hike speculation. Recent Australian economic data however suggests that the Australian domestic economy may be slowing. The threat of tightening of credit conditions in China may increase fears of slower Australian growth the second half of 2010. Wednesday Australia reported an unexpected drop in March housing finance. Earlier in the week Australia reported a decline in business conditions and weekly job ads. Weaker business conditions, the drop in job ads and weaker hosing finance may reflect recent tightening of monetary policy by the RBA. These reports may also contribute to speculation that the RBA will pause its tightening cycle. The RBA Monetary Policy report released last Friday states that the RBA believes interest rates are near average level. This suggests that the RBA plans to soon pause in its rate hike cycle. Diminished RBA rate hike speculation is negative for the AUD. Today's Australian employment report clouds RBA policy outlook. AUD gains were limited by weaker US equity market trade and declining commodity prices. Uncertainty about the strength of the global recovery sparked by fears of tightening in China and new austerity measures in Europe could dampen risk appetite and demand for growth led currencies.
The technical outlook for the AUD is mixed as the AUD trades above 9000. Expect AUD support at 8803 the May 7th low with resistance at 9095 the May 6th high.
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