- Lower, jobless claims drop, equity markets rally, risk appetites improves on Greek bailout hope
- Lower, Japanese markets closed for holiday
- Higher, swift action expected on Greek aid to prevent a Greek debt default
- Higher, house prices rise, election uncertainty limits gains
- AUD & CAD higher, improving risk appetite, crude prices rise above $85 a barrel
Overview
The USD traded lower Thursday pressured by optimism that the EU and IMF are moving more quickly towards agreement on a large aid package for Greece. ECB officials called for quick approval of the Greek aid package to avoid contagion, German SPD party drops its opposition to Greek aid and Greek credit spreads narrowed. USD was also pressured by improving risk appetite as equity markets trade higher in reaction to Greek bailout hopes and Thursdays FOMC policy statement. The FOMC elected to maintain the status quo and was upbeat about the US economic recovery. EUR was also supported by positive economic data as Germany reports a sharp drop in jobless claims and improvement in economic sentiment. GBP traded higher supported by report of rising UK house prices with gains limited by UK election uncertainty. Commodity currencies traded higher supported by improving risk appetite and firmer crude prices. Japanese markets were closed for holiday and the JPY traded lower in reaction to improving risk sentiment. US jobless claims declined .The jobless claims report came in spot on market expectation. Focus turns to Friday's release of US advanced Q1 GDP and the Greek bailout package.
Today's US data:
Initial jobless claims for week ending 4/24 declined by 11k to 448k, a reading of 448K was expected.
Upcoming US data:
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
Japanese markets were closed for holiday. JPY traded mixed to lower pressured by improving risk sentiment and firmer equity markets. Equity markets traded higher in reaction to the FOMC's reaffirmation of maintaining low yields for an extended period and optimism that a Greek aid package will soon be announced. The cost of financing the Greek debt dropped sharply as a Greek aid package is expected within days. EUR/JPY traded higher with the EUR supported by Greek optimism, improving EU economic sentiment and falling German jobless claims. GBP/JPY traded higher with GBP supported by report of rising UK house price. AUD/JPY traded higher supported by firmer equity market trade. JPY direction is expected to continue track equities. Focus turns to Friday's release of Japan's CPI and the BOJ's semiannual economic outlook. The CPI is expected to post a modest rise and the BOJ is expected to upgrade its CPI and growth forecast.
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 92.99 the April 28th low with resistance at 94.78 April 5th high.
EUR
EUR traded higher supported by optimism that the EU and IMF will soon announce a large Greek rescue package and by positive EU and German economic data. ECB officials have turned up their rhetoric and call for quick action on aid to Greece to avoid a contagion from the Greek debt crisis. Press reports suggest that the Greek aid package could be as large as €120bln and that Greece is considering what type of austerity measures it will take to reduce its budget deficit. One report suggests that Greece may enact a VAT tax of 23 to 25% as a part of the rescue deal. The cost of financing the Greek debt declined today in reaction to Greek bailout hope with Greek/ German 10 year bond spread declining to 775 bps and the five-year credit default swap spread declined to 726bps. EU April economic sentiment improved to 100.6 from 97.9 last month. German April jobless fell by 68k, a 10k decline was expected. German unemployment rate declined 7.8% from 8% last month. March M3 growth came in at -0.1% compared to -0.3% of a percent last month. These reports confirm that the EU economic recovery is gaining momentum. Despite the recovery in the EU economy the ECB is expected to maintain steady policy because of concern about the impact of the Greek debt crisis. The EUR experience an additional relief rally when the Greek aid package is announced but the rally is likely to be temporary. New York professor Roubini warns that Greece may eventually be forced to leave the EU and this could spark additional selling of the EUR and make the EUR a less liquid currency. Bloomberg reports that investors are abandoning the EUR at a rate not seen since the collapse of Lehman Brothers and analysts at Morgan Stanley see potential that the EU may break up. If EU break up speculation gains momentum it could spark a new leg down for the EUR. Analysts at UBS forecast that EUR may be heading to 120.
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 breaks 1.3200. Expect EUR support at 1.3184 the April 29th 2009 low with resistance at 1.3395 the April 27th High.
GBP
GBP traded higher supported by report of rising UK house prices with gains limited by UK election uncertainty. UK April house prices rose by 1% and 10.5%y/y according to the Nationwide survey. The rise in UK house prices is further confirmation of improving UK economic outlook and may contribute to speculation that UK inflationary pressures are building. Earlier in the month the UK reported that its annual inflation rate rose by 3.4% in March which puts UK inflation above the high-end of the ECB's 1 to 3% inflation target range. UK election uncertainty limits the scope of the BOE's maneuverability on policy but if inflationary pressures continue to BOE may be forced to move to normalize monetary policy sooner than expected. The latest UK election polls continue to point towards a hung parliament with none of the three major parties gaining a majority. Lack of a majority in parliament could lead to gridlock and prevent quick action to reduce the UK budget deficit. Failure to reduce the UK budget deficit could result in the UK losing its AAA rating. Credit ratings were cut in Greece Portugal and Spain this week and NYU professor Roubini says that Ireland and the UK could be next. The last UK pre-election debate will be held tonight on economic policy and the election is scheduled for May 6th.GBP continues in a sideways pattern as investor's debate the potential impact of the UK election, the UK budget outlook and uncertainty about BOE monetary policy.
The technical outlook for GBP is mixed as GBP struggles to hold above 1.5400. Expect near-term support at 1.5126 the April 28h low with resistance at 1.5487 the April 27th high.
CAD
CAD traded higher supported by rising crude prices and improving risk sentiment as global equity markets rally on news that a large Greek EU/IMF aid package will soon be announced. Crude prices traded back above $85 a barrel. CAD plunged in Tuesday's trade tracking sharp drop in equities and commodities sparked by S&P downgrade of Portugal and Greek debt rating. The Greek debt crisis overshadows positive news from Canada. Private economists have raised their forecast for Canada's 2010 GDP to 3.1% from 2.6% in the survey taken in December with exports expected to grow by 11% in 2010. These economists expect Canada's unemployment rate to drop to 8.1% from original forecast of 8.5%.Canada's March help wanted index rose by 5.7%. CAD traded higher despite a statement from BOC Governor Carney Thursday that BOC was prepared to intervene against excessive CAD because strong CAD hurts Canadian exports to drag on Canadian economic growth. CAD price direction will continue to track risk sentiment with gains possibly limited by threat of intervention and BOC policy uncertainty. Earlier in the month Carney said that he was open to a rate hike possibly as early as June. Carney testifies before the Canadian Parliament today and his testimony may dampen speculation of a June rate hike. Focus turns to Friday's release of Canada's GDP and raw material prices 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 mixed as USD/CAD trades above 1.0100. Look for near-term support at 1.0000 the April 27th low with resistance at 1.0302 the March 26th high.
AUD
AUD traded higher supported by improving risk sentiment sparked by Greek rescue hopes, Thursday's decision by the Fed to maintain steady policy and RBA rate hike speculation. ECB officials are urging the EU and IMF to take quick action on the Greek bailout package to prevent contagion from the Greek debt crisis. ECB's Weber says that a Greek debt default would have severe consequences. The panic in the Greek financial markets eased a bit today on report that the EU and IMF are putting together a larger Greek rescue package. AUD was also supported by yield outlook as the Fed holds policy steady and the RBA is expected to hike rates next week. The RBA hiked rates by 25bps to 4.25% earlier this month. Report that the reserve Bank of New Zealand elected to hold monetary policy steady and issued a less hawkish policy statement appeared to limit the AUD rally. Thursday Australia reported higher than expected CPI. Australia's Q1 CPI rose by 0.9%. The rise in CPI will increase pressure for the RBA to hike rates next week. The CPI report follows yesterday's report of higher than expected Q1 PPI rise. Q1 PPI rose by 1%, a 0.6% rise was expected. The higher than expected CPI may increase the chance of an RBA rate hike at the May 4th policy meeting. AUD was also supported by a statement from RBA Deputy Governor Debelle that the EU sovereign debt crisis is having no impact on Australia.
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 9131 the March 31st low with resistance at 9339 the April 21st high.
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