- Higher, optimism about the US and global recovery competes with Greek debt worries
- Lower, improving risk sentiment, corporate goods prices rise
- Lower, Greek German bond spread widens to a new record high
- Lower, Jordan says rates are right for now, reaffirms SNB commitment to stop CHF appreciation
- Higher, house prices rise, conservative party expands their lead
- AUD higher & CAD lower, tracking equities, RBA and BOC policy uncertainty limit gains
Overview
USD starts the week mixed with EUR pressured by pessimism about the Greek aid plan. Greek German ten-year bond spreads widened to a new record high. The growth led currencies outperform supported by optimism about the global recovery as equity markets rise. Improving US economic data and a statement from the G-20 that the global recovery has been better than expected fuels demand for equities and encourages risk appetite. AUD and CAD gains limited by RBA and BOC policy uncertainty and weaker crude prices. GBP traded higher supported by report of rising UK house prices and BOE rate hike speculation. JPY traded lower pressured by improving risk appetite sparked by a surge in the Nikkei. No major US economic data was released in today's trade. Focus turns to the FOMC policy meeting Tuesday/Wednesday and further developments on the Greek aid package. Today's press is filled with negative articles about Greek debt worries which include conflicting reports about the type and timing of aid for Greece, German reticence to provide aid to Greece, fears that the Greek debt crisis will spread and one report suggests pressure is mounting for Greece to leave the EU. Canada's Finance Minister Flaherty said the G-20 fears the current Greek aid plan is insufficient. The FOMC is expected to hold policy steady and may announce the start of asset sales. Signs of global recovery compete with Greek debt worries for FX price direction.
Today's US data:
No major economic data was released in today's trade.
Upcoming US data:
This week's US economic calendar includes the April 27th release of February Case Shiller Home Price Index expected to rise by 0.5% compared to the 0.7% decline last month. April consumer confidence will also be released on the 27th expected to rise to 54.2 from 52.5 last month. FOMC policy meeting will be held on April 27/28th. No policy change is expected. On April 29th initial jobless claims for the week ending 4/24 will be released expected at 448k compared to 456k last week. On April 30th Q1 employment cost index, GDP, core PCE index, Chicago April PMI and April University of Michigan final consumer sentiment will be released. The Q1 employment cost index is expected unchanged at 0.5%. Advanced Q1 GDP is expected at 3.5% compared to 5.6% last quarter. Q1 core PCE is expected at 1.4% compared to 1.8% last quarter. Chicago PMI is expected at 60 compared to 58.8 last month and the Michigan consumer sentiment is expected unchanged at 69.5.
JPY
JPY traded lower pressured by improving risk appetite as the Nikkei closed to 251 points higher. Recent improvement in US housing and jobs data, the G-20 communicate which said that the global recovery is better than anticipated and NABE report which expressed optimism about the US economy and job creation combined to fuel today's stock market rise and improving risk appetite. Additionally, the Nikkei may have benefited from report that the FSA plans to extend restrictions on short selling of stocks. JPY downside was limited by gains in cross trade to EUR with the EUR pressured by ongoing uncertainty about the Greek debt situation and higher inflation. March corporate service price index rose by 0.5%. The rise in corporate good prices may be a sign that deflationary pressures are abating. Last week Japan reported a widening of its trade surplus as exports surge. The surge in exports is confirmation of improving outlook for Japan's economy. Improving outlook for Japan's economy coupled with today's report of higher corporate good prices will reduce the likelihood of additional easing measures by the BOJ. Focus turns to the start of the two-day FOMC policy meeting Tuesday and April 30th release of Japan's CPI. The FOMC meeting and Japan's CPI report will be key to the outlook for Fed in BOJ policy. JPY remains vulnerable to widening of yield differential as the Fed is seen moving closer to withdrawing liquidity and the BOJ is expected to remain on hold for the remainder of the year. JPY direction is expected to continue track equities.
This week's Japanese economic calendar includes the April 28th release of March retail sales expected to fall by 1.1% compared to 0.9% rise last month. On April 30th March CPI will be released expected to rise by 0.3% compared to -0.1% last month. March household spending, unemployment, industrial output, housing starts and construction orders will also be released on April 30th. Household spending is expected to decline by 0.7% compared to a 0.5% decline last month. The unemployment rate is expected unchanged at 4.9% with the participation rate rising to 59.1 from 58.9 last month and employment growth to decline by 100k. Industrial output is expected to rise by 1% compared to a 0.6% decline last month. Housing starts are expected to rise by 3% compared to 8% fall last month and construction orders are expected to decline by 6.4% compared to 20.3% last month.
Key technical levels to watch in USD/JPY include support at 93.31 the April 23rd low with resistance at 94.78 April 5th high.
EUR
EUR drifted lower pressured by uncertainty about the timing and details of the Greek aid plan. Pessimism about the Greek aid plan sparked widening of the Greek/German 10 year bond spread to a new record high of 633bps. The widening of the Greek German bond spread increases the cost of funding the Greek debt. There are numerous press reports raising concern about the Greek debt outlook with some German officials warning that Germany could reject aid for Greece and that Germany is not ready to write a blank check for Greece. In addition The Times reports that the Greek meltdown is in danger of spreading and the Financial Times reports that this is the most important week in the EMU's history. Harvard professor Rogoff says that the Greek rescue won't be the last as focus will shift to Ireland and Spain. ECB's Nowotny says that interest rates are adequate but he warns that divergence of EU economies could complicate monetary policy. Nowotny went on to say that he expects the central bank to make no policy changes for the foreseeable future as price pressures remain subdued. He downplayed the risk of contagion from the Greek debt crisis. Investors will be watching closely to see if Germany seeks to hold back on the bailout. In a statement today German Chancellor Merkel gave few clues about Germany's aid plans for Greece
This week's EU economic calendar includes the April 29th release of EU business climate expected at 99.8 compared to 99.6 last month. On April 30th EU March unemployment will be released expected unchanged 10% along with April HICP expected at 1.5% compared to 1.4% last month.
The technical outlook for the EUR is negative as EUR struggles to hold above 1.3300. Expect EUR support at 1.3206 the April 23rd high with resistance at 1.3422 the April 22nd High.
CHF
CHF drifted lower as the SNB's Jordan reiterates the central bank's commitment to stop CHF appreciation. Jordan said that interest rates are right for now and he is against excessive CHF rise. For the year the CHF is down about 5% versus the USD and remains near record high versus the EUR.CHF gains versus the EUR are attributed to safe haven flows as investors seek shelter from the turmoil of the Greek debt crisis. The SNB has been defending EUR/CHF cross around 1.4300 with intervention or the threat of intervention. Because of intervention the SNB' EUR holdings rose to 56.4bln in the first quarter. Recent Swiss economic data points to a recovery in the Swiss economy with rising inflation. This may encourage the SNB to begin to move towards policy normalization. At the last SNB policy meeting the SNB upgraded its outlook for the Swiss economy and expressed concern about rising house prices. Last week the SNB reported that producer and import prices stopped falling. Jordan's comments suggest that the SNB is still taking a wait-and-see approach to monetary policy despite improving economy and rising prices. Jordan went onto say that the SNB is keeping close eye on the mortgage market. This week's Swiss economic calendar includes the March UBS consumption indicator due for release Tuesday expected at 1% compared to 1.2% last month. On Friday April KOF indicator will be released expected it 1.98 compared to 1.93 last month CHF price direction and has re- linked with risk sentiment. Expect USD /CHF support at 1.0674 the April22nd low with resistance at 1.0955 the July 6th high.
GBP
GBP traded higher supported by report of rising UK house prices and sharp gains in cross trade to the EUR. Hometrack reports that UK house prices rose by 0 .2% last month. Although the house price rise was modest the data suggest that the UK economy continues to recover and the report follows last week's release of higher than expected UK inflation. UK March inflation rose by 3.4%, well above the 3% limit of the UK government's inflation target range. The combination of improving UK domestic economy and rising inflation increases the likelihood that the Bank of England may raise interest rates before year-end. GBP gains in cross trade to the EUR are attributed to ongoing worries about the Greek debt outlook as the cost of financing the Greek debt rises to new record high. GBP was also supported by the latest UK election polls which suggest that the Conservatives lead with 34% of the vote. The Conservatives have pledged to take quick action to cut the UK deficit. GBP has underperformed pressured by concern that the UK election could lead to a hung parliament. A hung Parliament would be less inclined to take quick action to reduce the UK deficit. Failure to reduce the UK deficit could lead to a downgrade in the AAA debt rating.
On April 29th April GFK consumer confidence will be released expected at -12 compared to-15 last month.
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 1.5575 the February 23rd high.
CAD
CAD traded mixed with support from firmer equity market trade and Yuan revaluation speculation. As noted above the G-20 communiqué said the global recovery was faster than expected and the National Association for Business Economics (NABE) Expressed optimism about the prospects for US growth. The NABE cited better earnings and job creation with GDP expected to grow by more than 2% this year. The G-20 communiqué and the NABE report fueled demand for equities and contributed to improving risk appetite. Canada's Finance Minister Flaherty said that it is increasingly likely that China will revalue the Yuan. Yuan revaluation could be a boon for global exports and demand from China. CAD gains were limited by weaker crude prices. CAD is consolidating near parity versus the USD supported by improving Canadian domestic economy and BOC rate hike speculation. Last week the BOC elected to hold rate policy steady, raised its 2010 GDP forecast to 3.7% and 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. Last week Canada reported weaker than expected inflation and retail sales. Canada's annual inflation rate slowed to 1.4% from 1.6% last month with the core inflation declining by 0.2%. Canada's retail sales rose by 0.5% in February, a 0.8% rise was expected. These reports may dampen BOC rate hike speculation. Canadian inflation and retail sales data suggest that the BOC may not be in a hurry to withdraw stimulus. This week's Canadian economic calendar is relatively light with investors looking to the data to gauge the probability of an earlier BOC rate hike.
This week's Canadian economic calendar includes the April 30th release of Q1 GDP expected to rise by 0.8% compared to 0.6% last quarter. April raw material prices will be released on April 30th expected at 0.6% compared to 0.4% 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 higher as firmer equity markets fueled demand for growth led currencies. Optimism about the US and global recovery contributes to improvement in risk appetite and demand for commodity currencies. AUD has been firming supported by RBA rate hike speculation. Late last week AUD rally stalled in reaction to statements from the RBA which generate doubts that the RBA will hike rates next month. RBA Governor Stevens said that interest rates are close to the average and the future course of rates is an open question. His comments dampen speculation that the RBA will raise interest rates again next month. Last Thursday Australia reported weaker than expected vehicle sales with March new vehicle sales declining by 2.7%.The decline in vehicle sales may dampen enthusiasm about the strength of the Australian economic recovery and also dampen RBA rate hike speculation. AUD price direction is closely tracking risk appetite with recent gains are attributed to RBA rate speculation. 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. RBA Governor Stevens's comments cloud the outlook for RBA policy and may tip the scales in favor of a steady rate decision in April.
This week's Australian economic calendar includes the April 27th release of Q1 PPI expected at 0.7% compared to -0.4% last month and the April 28th release of Q1 CPI expected to rise by 0.8% compared to 0.5% last quarter. On April 29th February leading Index will be released expected at 0.1% compared to -0.2% last month and Q1 business conditions expected it 14 compared to 13 last month. On April 30th March private sector credit will be released expected unchanged at 0.4%. Next RBA policy meeting will be held on May 4th.
The technical outlook for the AUD is mixed as the AUD struggles 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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