- Higher, SEC may expand probe of Wall Street, fresh Greek debt worries, leading indicators rise
- Mixed, safe haven demand sparked by the Goldman probe and Greek debt worries, tracking stocks
- Lower, Greece/German ten year bond spread at record high
- Lower, SNB intervention threat dampens safe haven demand, re-linking to risk sentiment
- Lower, UK election polls suggest a deadlocked Parliament
- AUD & CAD lower, Yuan revaluation may delay RBA rate hikes, commodities lower
Overview
The USD traded higher Monday supported by a spike in risk aversion as global equity markets decline in reaction to report that the SEC is widening its probe of Wall Street. Greek fiscal troubles continued to pressure the EUR as the Greek/German ten year bond spreads widened to a record 468bps. GBP traded lower in reaction to the latest election polls which point to a possible hung parliament as the UK's third largest party, the Liberal Democrats surge in popularity. Commodity currencies weakened in reaction to a drop in commodity prices as crude drops below $81 a barrel and the price of gold falls by more than 1%. AUD was pressured by speculation that if China elects to revalue the Yuan the RBA may delay future rate hikes. CAD was pressured by report of smaller than expected investment inflows last month and weaker crude. JPY initially traded higher supported by safe haven demand sparked by the Goldman probe and Greek debt worries. JPY turned lower as stocks rise in reaction to strong US leading indicators. US economic data was positive with leading economic indicators rising above forecast. USD pared early gains after the leading indicators release as equity markets stabilize. There was limited reaction to report that the IMF plans to raise its global growth forecast to 4%. Focus turns to the BOC policy meeting Tuesday. Risk sentiment is the dominant driver of FX trade.
Today's US data:
March leading indicators rose by 1.4%, a reading of 0.9% was expected.
Upcoming US data:
On April 22nd initial jobless claims for week ending 4/17 will be released expected at 460k compared to 484k last month. March PPI and existing home sales will also be released on April 22nd.PPI is expected to rise by 0.3% compared to 0.6% last month. Existing home sales are expected at 521k compared to 502k last month. 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 opened higher supported by gains in cross trade and by safe haven demand as equity markets dropped in response to widening of the SEC's probe of Goldman and ongoing concern about the Greek debt. UK and EU officials also seek information on Goldman. The Nikkei closed 193 points lower and European equities traded 1% lower. EUR/JPY traded lower pressured by rising cost to finance the Greek debt as Greek/German 10 year bond spread widened to a record level. GBP/JPY traded lower with GBP pressured by the latest UK election polls which point to a deadlock in Parliament. AUD/JPY traded lower with AUD pressured by falling commodity prices and speculation that a revaluation of the Yuan could encourage the RBA to delay future rate hikes. A Yuan revaluation could be a possible drag on China's economy and would contribute to the tightening of liquidity. JPY gains were limited by threat of intervention and BOJ policy uncertainty. Friday a spokesperson for the Japanese ruling party said that monetary easing and currency intervention are needed to weaken the JPY and combat deflation. The direction of equity markets and risk appetite are the main drivers for JPY trade. JPY pared overseas gains versus the USD and in cross trade after the release of stronger than expected US leading indicators and firmer US trade.
On April 20th revised February leading indicators will be released expected at 1% compared to 2.2% in the original report. March trade balance and February all industry activity will be released April 22nd. March trade balance is expected at ¥750bln compared to ¥651bln last month. All industry activity is expected to decline by 0.4% compared to the 3.8% rise last month.
Key technical levels to watch in USD/JPY include support at 91.60 the April 19th low with resistance at 92.90.
EUR
EUR traded lower pressured by report that an EU/IMF meeting on Greece has been delayed in reaction to rising cost of financing the Greek debt. Late last week it was reported that Greek officials would seek to tap aid from the EU and IMF. At this writing there has been no announcement of the type of EU/IMF aid for Greece and the Greek German ten year bond spreads widened to a record 468bps. The rising cost of financing the Greek debt increases the risk of a Greek debt default. Greek officials continued to state that they plan to finance their debt on their own and the Greek PM Papandreou said that Greece will decide on EU/IMF aid in the next few weeks. EUR was also pressured by concern that the continued closure of major European airports because of the volcanic ash in the skies above much of Europe could hurt the EU recovery. The deteriorating fiscal outlook in peripheral European nations and the continued closure of EU airports will encourage the ECB to maintain accommodative policy. Yield differential is moving in favor of the USD as the ECB is seen on hold for the remainder of 2010 and improving US economic outlook suggests that the Fed is likely to hike rates before the ECB. Last week the EU reported weaker than expected CPI and ECB President Trichet said that he expects growth to remain moderate. Trichet's comments coupled with subdued EU inflation point to steady ECB monetary policy. EUR remains vulnerable to uncertainties about the Greek debt outlook. Focus turns to this week's release of EU inflation, investor business confidence and manufacturing and services PMI.
On April 20th German March Producer Price Index will be released expected at 0.1% compared to flat last month along with EU February current account expected at - €12.3bln compared to minus -€16.7bln last month. On April 20th German ZEW survey will also be released expected at 45.2 compared to -44.5 last month. On April 22nd EU manufacturing and services PMI for April be released. The manufacturing PMI is expected to improve to 56.7 from 56.3 and the services index is expected to improve to 54.5 from 53.7. 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 1.3600. Expect EUR support at 1.3341 the April 9th low with resistance at 1.3667 the April 15th high.
CHF
CHF traded lower Monday pressured by broad USD demand sparked by weaker equity markets and fear that the SEC may widen its probe of Goldman. Since the SNB intervened in April to support the EUR/CHF cross the cross has stabilized above 1.4300 and traded in a narrow range. Last week Switzerland reported a 0.5% rise in Swiss producer and import prices. The rise in Swiss inflationary pressures may encourage the SNB to shift its policy guidance and begin to consider the timeframe for raising interest rates. SNB rate hike speculation and ongoing concern about the Greek fiscal crisis may make SNB intervention in the EUR/CHF cross less effective. This week's Swiss economic calendar includes Thursday's release of March trade balance expected to improve to 1.4bln from 1.29bln last month. CHF direction is likely to track risk sentiment. CHF remains vulnerable to the current spike in risk aversion as recent intervention dampens save haven demand for the CHF. Expect USD/CHF at 1.0435 the April1st low with resistance at 1.0795 the March 10th high.
GBP
GBP traded lower pressured by UK election uncertainty as the latest UK election polls show that support for the Liberal Democratic Party has surged. The Liberal Democratic Party is the third largest party in the UK and growing support for the Liberal Democrats could mean that the UK is facing a hung Parliament. The UK Parliamentary election will be held on May 6th. If the election results in a hung Parliament it would greatly reduce the likelihood that the UK will take action to reduce its budget deficit. Failure by the UK government to reduce its budget deficit could result in a downgrade of the UK AAA sovereign debt rating. UK election uncertainty coupled with improvement in the UK economy clouds the outlook for BOE policy. UK economic data suggest that the UK economy is improving and inflation rising. GBP focus may shift from the UK election back to the UK economy. This week's UK economic data is expected to confirm that UK inflation pressures are building and the economy is recovering. The improvement in the UK economic outlook and rising inflation may encourage the BOE to end its asset purchases and move towards normalization of monetary policy. Focus turns to this week's release of UK inflation data Tuesday, the MPC minutes for the April meeting Wednesday and Friday's release of UK GDP. Investors will be looking to see if UK inflationary pressures are continuing to build and if the MPC is shifting its focus from growth risks to inflation risk.
On April 20th March CPI will be released expected at 3.1% compared to 2.9% last month. On April 21st February average earnings, April mortgage approvals, March claimant count, February unemployment rate and March money supply will be released. Average earnings are expected to rise by 0.6% compared to 8% last month. Mortgage approvals are expected at 38.4k compared to 35.2k last month. Claimant count is expected unchanged at 4.9% and the unemployment rate is expected at 7.7% compared to 7.8% last month. Money supply is expected to rise by 0.4% compared to 0.2% last month. The minutes for the April 7/8 BOE policy meeting will be released on Wednesday. On April 22nd March retail sales will be released expected to rise by 0.8% compared to 2.1% last month. On April 23rd Q1 GDP will be released expected at 0.5%.
The technical outlook for GBP is mixed as GBP fails to hold above 1.5300. Expect near-term support at 1.5130 the April 6th low with resistance at 1.5359 the April 19th high.
CAD
CAD traded lower pressured by spike in risk aversion sparked by weaker equity markets. Equity markets were pressured by concern that the SEC may widen its probe of Goldman. The probe may spread to Merrill Lynch and UBS. The SEC probe of Goldman dampens investor risk appetite and demand for growth linked currencies like the CAD. CAD was also pressured by a sharp drop in the price of crude and weaker metals prices and smaller than expected net investment flows to Canada last month. Crude oil traded below $82 a barrel in the price of gold declined by more than 1%. USD strength contributes to weaker commodity prices. Canada's net foreign investment inflows for February came in at 6.7bln, a reading of 7 billion was expected. This week's main focus is Tuesday's BOC policy meeting. The BOC is expected to leave monetary policy unchanged but may signal that interest rates will soon rise. Recent Canadian economic data has confirmed faster than expected growth and inflationary pressures are rising in Canada. Investors will be looking to see whether the BOC makes reference to the strength of the CAD or the prospect for Yuan revaluation. Strengthening CAD and Yuan revaluation are seen as a potential drag on the Canadian and global recovery. The impact of a shift in BOC policy may be limited because it has been widely discounted.
BOC meet on April 20th. No policy change is expected. The BOC is expected to change its policy guidance. On April 21st February wholesale sales will be released expected to rise by 3.2% compared to 3% last month. On April 22nd March leading indicators will be released expected at 1% compared 0.8% last month. 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 mixed as USD/CAD trades above 1.0100. Look for near-term support at 1.0003 the April 16thlow with resistance at 1.0304 the March 26th high.
AUD
AUD traded lower as investors reduce risk positions in reaction to weaker equity and commodity prices. Fresh worries about the Greek fiscal crisis coupled with report that the SEC may widen its probe of the Wall Street firms sparked selling of global equity markets and a spike in risk aversion. AUD was also pressured by speculation that the increased likelihood that China will revalue the Yuan may encourage the RBA to delay future rate hikes. The Yuan revaluation could be a drag on the Chinese economy and Asian recovery and would act as a tightening of monetary policy conditions in the region. The tightening of monetary conditions in China may cloud the outlook for the RBA policy. Earlier in the year the RBA paused its tightening cycle because tighter monetary conditions in China did the job for the RBA. Last Thursday, Australia reported that inflation expectations rose to the highest level since October 2008. The rise in Australia's inflation expectations could revive RBA rate hike speculation. In contrast Australia reported weaker home loans and business confidence. These reports may suggest that the domestic recovery is slowing. Over the past few weeks there has been growing uncertainty about RBA policy outlook and whether the RBA is nearing a pause in its rate hike cycle. Earlier in the month the RBA raised interest rates 25bps to 4.25% and left the door open for future rate hikes. Thursday's Australian inflation report may tip the scales back in favor of another 25bps RBA rate hike next month.
This week's Australian economic calendar includes April 22nd release of March new car sales expected to rise by 3% compared to -1.9% last 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 9200. Expect AUD support at 9131 the March 31st low with resistance at 9365 the April 15th high.
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