- Mixed, EU/ IMF Greek bailout plan calms investor fears
- Lower, diminished Yuan revaluation speculation as China posts its first trade deficit in six years
- Higher, trades at a three week high in reaction to IMF/EU Greek aid plan
- Lower, threat of SNB invention limits gains, consumer prices rise
- Lower, election polls point to no majority in the UK Parliament
- AUD lower & CAD higher, diminished RBA hike speculation, Canada's housing starts slow
Overview
The initial euphoria generated by report of an IMF/EU $45bln aid plan for Greece gave way to uncertainty as German officials indicate that summit may be required to activate the aid plan. EUR initially rallied 1% in reaction to the announcement of the IMF/EU Greek aid plan but EUR gains were limited by uncertainty about how the plan will be activated. Uncertainty about the activation and lack of details of how the aid plan for Greece may be implemented sparked fresh selling of the EUR and USD demand. USD was also supported by report that China posted its first trade deficit in six years. The Chinese trade deficit may dampen Yuan revaluation speculation and raise concern about the strength of the global recovery. GBP traded lower pressured by the latest UK election polls which show that the Conservatives are unlikely to reach a majority in parliament increasing the risk of a hung of Parliament. AUD traded lower pressured by report of weaker than expected Australian housing finance data and in reaction to a statement from the RBA's Debelle that interest rates are close to normal levels. CAD traded mixed initially pressured by report of weaker than expected Canadian housing starts. Focus turns to this week's release of US retail sales, industrial production, housing starts and consumer sentiment to gauge the strength of the US recovery and developments in regard to the Greek aid plan.
Today's US data:
The March Treasury budget will be released after this report is posted.
Upcoming US data:
This week's US economic calendar includes the April 12th release of the March Treasury budget expected at $ -193.3bln compared to $-191.6bln last month. On April 13th March import prices and February trade balance will be released. Import prices are expected to rise by 0.9% compared to falling 0.3% last month. The trade balance is expected to widen to -38.6bln from -37.3bln last month. On April 14th March CPI will be released expected to rise by 0.1% compared to flat last month. March retail sales and February business inventories will also be released on April 14th. Retail sales are expected to rise by 0.8% compared to 0.3% last month and business inventories are expected to rise by 0.3% compared to flat last month. On April 15th April Empire Manufacturing Index will be released expected at 23.75 compared to 22.78 last month along with initial jobless claims for the week ending 04/10 expected and 451k compared to 460k last week. March industrial production, capacity utilization and the April Philly Fed will also be released on April 15th. Industrial production is expected to rise by 0.4% compared to 0.1% last month. Capacity utilization is expected at 73.1 compared to 72.7 last month and the Philly Fed is expected at 19 compared 18 in March. On April 16th March housing starts, building permits, and April University of Michigan consumer sentiment will be released. March housing starts are expected at 590k compared to 575k last month with building permits expected at 620k compared to 612k last month. Michigan consumer sentiment is expected at 74 compared to 73.6 last month.
JPY
JPY traded lower pressured by diminished Yuan revaluation speculation as China reports its first trade deficit in six years. Over the past few weeks there has been a great deal of speculation that China was moving closer to a change in its currency policy that would allow the Yuan to gradually revalue. JPY would likely benefit from Yuan revaluation as it would help Japan and other Asian nations become more export competitive with China. The WSJ reports that the announcement of the Chinese trade deficit could complicate the outlook for Yuan revaluation. The Chinese trade deficit reflects lower export sales and a Yuan revaluation would make Chinese goods less competitive. Chinese officials may see the monthly trade deficit as a roadblock to Yuan revaluation. A custom official from China said that the trade deficit was a short-term blip and that exports and imports are still at higher level than March of 2008. This custom official and number of analysts suggest that the blip in the Chinese trade deficit will not be a barrier to Yuan reform. BOJ minutes for the March policy meeting indicate that some of the BOJ board members are against further easing of monetary policy. The BOJ minutes could be seen as a mild positive for the JPY if the BOJ elects to continue to maintain steady rate policy. According to analysts at Dai-ichi Life Insurance JPY could trade to 100 versus the USD in reaction to tightening of Fed policy. The only economic data released from Japan today was report that Japan's money supply for March rose by 0.2%.
On April 13th March CGPI will be released expected flat compared to 0.1% last month. On April 15th revised February industrial output will be released expected to fall by 0.9% compared to a 2.7% rise in the original report.
Key technical levels to watch in USD/JPY include support at 92.75 the March 31st low with resistance at 94.27 the April 7th high.
EUR
EUR traded lower giving back some of the gains sparked by the announcement that the IMF and EU have offered standby loans of $45bln to Greece. The EUR decline is attributed to a statement from a German official that a summit agreement would be needed to activate the aid plan for Greece. This statement generates uncertainty about the Greek aid plan and sparked selling of the EUR .EUR remained on the defensive despite a statement from the EU commission that no summit is needed to activate the Greek aid. EUR remains vulnerable to uncertainty about the activation and implementation of Greek bailout plan with investors unsure whether the plan will prevent Greece from defaulting on its debt. According to another German official Greece has yet to ask for EU/IMF aid. The initial positive reaction to the announcement of the Greek bailout plan has turned negative as investors wait for further details of how the plan may be implemented. The IMF/EU aid plan for Greece diminishes the Greek default risk but does not completely rule out the possibility that Greece will have to reschedule its debt. There were no major EU economic reports released Monday. Focus remains on the details of the IMF/EU Greek aid plan and investor reaction to upcoming Greek bond auctions.
This week's EU economic calendar includes the April 13th release of German CPI expected at 0.5% compare to 0.4%last month. On April 14th EU industrial production will be released expected flat compared to a 1.7% rise last month. On April 16th EU March CPI will be released expected at 0.9% compared to 0.3% last month along with the February trade balance expected at -1bln compared to -8.9bln in January.
The technical outlook for the EUR is mixed as EUR holds above 1.3500. Expect EUR support at 1.3520 the April 12th low with resistance at 1.3692 the April 12th high.
CHF
CHF drifted lower with upside limited by threat of continued SNB intervention. SNB officials have reaffirmed their commitment to take action to prevent a sharp appreciation of the CHF. Limiting CHF gains may be more difficult as recent Swiss economic data show the economy is improving and increased inflationary pressures. Switzerland reported improvement in export sales, stronger GDP growth and a rise in inflation during January. Swiss CPI rose at its fastest pace in 16 months. These reports will likely encourage the SNB to consider beginning its exit strategy from anti-deflation and accommodative monetary policy measures. EUR/CHF cross has stabilized above 1.4300 aided by rumors that the SNB had intervened in the prior weeks trade. This week's Swiss economic calendar includes Friday's release of producer import prices expected to fall 0.1% compared to a 1% decline last month. Expect USD/CHF support at 1.0435 the April 1st low with resistance at 1.0763 the April 9th high.
GBP
GBP traded lower weakening from a one month high pressured by the latest UK election polls which suggest that the UK is heading for a hung parliament. Weekend polls suggest that the Conservatives will fall seven seats short of a majority in the UK Parliament. This will increase the risk of a hung parliament. A hung parliament is unlikely to take action to reduce the UK budget deficit. Failure to take action to reduce the UK budget deficit may lead to a downgrade of the UK AAA debt rating. GDP downside was limited by gains in cross trade to the EUR with the EUR pressured by uncertainty about the details of the IMF/EU aid plan for Greece. GDP downside was also limited by spillover from last week's release of higher than expected UK producer prices. UK March producer prices rose by 0.9% and input prices rose by 3.6%. The surge in input prices may be a red flag to the BOE in regard to inflationary pressures building in the UK. BOE officials expect the current rise in inflationary pressures to be temporary with the UK inflation rate falling below target within the next two years but continuing sharp increase in near-term inflation may encourage speculation that the BOE will need to rethink the timing of the withdrawal of its monetary stimulus. The surge in input prices should reduce the odds of additional asset purchases by the BOE. Thursday the BOE elected to hold rate policy steady and maintain the current level of asset purchases at £200. BOE minutes for the March policy meeting will be released on Wednesday. Investors will be looking to the minutes to see whether the BOE maintains a dovish policy bias or is becoming concerned about UK inflationary pressures.
On April 13th the February trade balance will be released expected it -7.35bln compared to -7.98 billion last month.
The technical outlook for GBP is positive as GBP holds above 1.5200. Expect near-term support at 1.5365 the April 12th low with resistance at 1.5575 the February 23rd high.
CAD
CAD traded mixed initially pressured by report of weaker than expected Canadian housing starts and diminished risk appetite in reaction to reports of China posted its first monthly trade deficit in six years. CAD turned higher as US stocks break above 11k and a BOC poll finds businesses upbeat. Canada's March housing starts declined by 1.5% to 197.3k, a reading of 200k was expected. Weaker Canadian housing starts may dampen BOC rate hike speculation and suggest that the Canadian recovery remains uneven. Friday Canada reported weaker than expected jobs growth. These reports contrast with recent report on stronger than expected Canadian GDP. Last month BOC Governor Carney said that he was open to consideration of a rate hike as early as June 1st. The BOC has pledged to maintain record low yields until June as long as inflation remains in check. Uncertainty about the timing of a BOC rate hike may limit demand for the CAD. The Chinese trade deficit report may dampen optimism about the global recovery and could reduce demand for commodities. CAD may be vulnerable to the increasing threat of intervention. Thursday Canada's PM Harper repeated earlier comments that the BOC has expressed concern that the CAD rise may slow the recovery. Harper's comments may inject fresh risk of intervention by the BOC to try to slow the rate of the CAD rise. Canada's Finance Minister Flaherty says CAD rise has been relatively orderly. His comments cloud the outlook for BOC intervention.
This week's Canadian economic calendar includes the April 13th release of February trade balance expected at 1.25bln compared to 0.799bln last month. February New Housing Price Index will be released on April 13th expected at 0.3% compared to 0.4% last month. On April 16th February manufacturing shipments will be released expected at 1.6% compared to 2.4% last month.
The technical outlook for CAD is mixed as USD/CAD holds above1.0000. Look for near-term support at 0.9991 the April 9th low with resistance at 1.0230 the March 30th high.
AUD
AUD traded lower pressured by report of weaker than expected Australian housing finance data and in reaction to diminished RBA rate hike speculation. Australia's February investment housing finance declined by 1.1%. The decline in the housing finance may be an indication that Australia's domestic recovery is slowing. The RBA's Debelle said that interest rates are close to normal levels. Debelle's comments dampen RBA rate hike speculation. Recent AUD strength has been partly a reflection of RBA rate hikes and RBA rate hike speculation. Last week the RBA raised interest rates 25bps to 4.25% and left the door open for future rate hikes. AUD was also pressured by report that China posted its first trade deficit in six years. The Chinese trade deficit may be an indication that the global recovery is slowing. There were reports late last week that China may be considering a rate hike and Yuan revaluation. The announcement of China's trade deficit may dampen China's rate hike and Yuan revaluation speculation. AUD is trading at a 19 month high versus the USD supported by this week's 25bps RBA rate hike and improving risk sentiment. The AUD rally may begin to slow with pressure sparked by uncertainty about the global recovery and speculation and the RBA will be in no hurry to hike rates again. RBA watcher McCrann Wednesday said that the RBA will be in no rush to hike rates further. In addition the long side of the AUD is getting crowded and this may make the AUD vulnerable to a technical correction. According to a Bloomberg report investors are the most bullish the AUD since 2000.
The technical outlook for the AUD is positive as the AUD rallies above 9300. Expect AUD support at 9165 the April 6th low with resistance at 9367 the April 12th high.
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