Overview
USD and JPY traded lower as Greek default fears recede and equity markets rally. Reassuring statements from German officials and ECB President Trichet coupled with report of the better than expected Greek budget sparked short covering in the EUR. Trichet said that Greece is not in need of a rescue and the German finance minister pledged that the EU and IMF would rescue Greece if needed. Equity markets traded higher with Asian equities trading at 22 month high. EUR traded to the day's highs supported by report that the EU has agreed to be a backstop for Greece and will provide Greece with bilateral loans. Stronger than expected March sales for US retailers generates optimism about the global economic outlook sparked demand for equities. Today's improvement in risk sentiment competes with lingering concern about sovereign debt risks in Europe. Optimism about the global recovery trumped EU sovereign debt fears in Friday's trade. GBP traded higher supported by report of a surge in UK producer prices and in reaction to UK election polls would indicate that the Conservative party has widened its lead over Labor. Commodity currencies were mixed with the CAD pressured by report of weaker than expected Canadian employment growth. AUD traded higher supported by improving risk appetite and Yuan revaluation speculation. JPY was initially pressured by improving risk sentiment and a statement from Japan's finance minister calling for more action to end deflation. JPY turned higher as USD declines on rumor that the EU will announce a Greek bailout plan over the weekend. Focus turns to next week's release of US retail sales, industrial production, housing starts and consumer sentiment to gauge the strength of the US recovery.

Today's US data: March wholesale inventories rose by 0.6%, a 0.3% was expected. March wholesale sales rose 0.1% as expected.

Upcoming US data: Next 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 improving risk sentiment as equity markets rally. JPY was also pressured by a statement from Japan's Finance Minister Kan calling for more action to end deflation.  Kan said that the economic outlook in Japan is improving and recent weakness of JPY helps strengthen Japanese business but he went on to say more must be done to end deflation. His comments suggest that the Japanese government plans to again press the BOJ to take more action to combat deflationary pressures in Japan. BOJ Governor Shirakawa met with the Japanese prime minister today and said that PM did not make any requests but investors suspect that if deflationary pressures continue in Japan the government will pressure the BOJ to take more action to end deflation. The BOJ has been reluctant to take more aggressive monetary policy action because of data which suggests that the Japanese economy is recovering. According to some of the BOJ policy board members recovery in Japan makes it harder to justify additional monetary ease. Wednesday the BOJ elected to hold policy steady and kept its economic assessment unchanged. In its policy statement the BOJ said it expects the economy to pick up, noted the improvement in business sentiment and pledged to maintain accommodative policy. The BOJ reaffirmed its commitment to combat deflationary pressures in Japan. In March the BOJ eased monetary policy and doubled the size of its refunding operation. Increase in the size of the BOJ funding operation helped to weaken the JPY. The fact that Kan welcomed the recent weakness in the JPY suggests that strength or weakness of the JPY will be a key factor to the degree of Japanese government pressure will be brought to bear upon the BOJ. JPY direction is re-linking with risk sentiment and the direction of equities.

Next week's Japanese economic calendar includes the April 12th release of March money supply expected unchanged at 0.1%. 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 traded higher supported by reassuring statements from EU officials that Greece will get international aid if needed. ECB President Trichet said that Greece is not in need of rescue and the German finance minister says that the EU and IMF would rescue Greece if needed. These statements coupled with report of improvement in the Greek budget data helped to calm investor jitters about the risk of a Greek debt default. The impact of these statements may be limited as the cost of financing the Greek debt remains high and there are fears that the Greek crisis may spread. EUR was also supported by report that the German February trade surplus widened to 12.6bln. The widening of the German trade surplus reflects a 5.1% rise in exports and imports expanded by 0.2%. EU efforts to talk down concern about the Greek debt crisis may not have lasting impact. Investors will continue to monitor the Greek bond spreads for clues to whether risk of the Greek debt default has truly receded and wait to see if EU rhetoric on Greece is backed up with action. EUR surged midsession in reaction to report that the EU has agreed to a deal to be a backstop for Greece. The EUR gains were limited as Fitch cut its Greek long term default rating to BBB- from BBB+.

Next week 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 negative as EUR trades below 1.3500. Expect EUR support at 1.3267 the March 25th low with resistance at 1.3590 the April 1st high.

GBP traded higher supported by report of a surge in UK producer prices and in reaction to the latest UK election polls. 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 increases 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. The latest UK election polls showed the Conservative party with a nine point lead over Labor. If this poll is accurate it may reduce the risk of a hung parliament as the Conservatives move closer to a majority in the UK Parliament. The UK general election will be held on May 6th. Recent UK election polls have heightened the risk that neither Conservative nor Labor party would gain enough control to avoid a hung parliament. A hung parliament will reduce the potential for quick action from the UK to reduce the government deficit. Failure to reduce the UK budget deficit could lead to a downgrade of the UK AAA sovereign debt rating.

Next week's UK economic calendar includes the April 12th release of leading indicators, BRC retail sales and RICS house price balance. 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 1.5200 with resistance at 1.5475 the February 23rd high.

CAD
CAD traded lower pressured by report of weaker than expected Canadian employment growth. Canada's March unemployment growth was 17.9k, a rise of 25k was expected. The March unemployment rate was unchanged at 8.2%. Full-time employment declined and part-time employment rose. The slower than expected Canadian employment growth may dampen speculation that the BOC will hike rates earlier than expected. CAD has been supported by speculation that the Canadian domestic recovery was faster than expected and that this would lead the BOC to hike rates as early as June. Today's slower employment growth suggests that the Canadian economy is not growing as fast as expected. 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. Earlier in the week CAD traded at parity to the USD for the first time since July of 2008. 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.

Next 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 higher supported by rising commodity prices, higher equity markets and Yuan revaluation speculation. Asian equity markets traded at a 22 month high supported by optimism about the global recovery and receding fears of an imminent Greek debt default. AUD rallied despite report that China may soon raise interest rates and revalue the Yuan in October. A rate hike from China may dampen the outlook for Asian growth and demand for Australian exports. Yuan revaluation is generally thought to be a positive for the AUD. AUD was also supported in cross trade to the JPY with JPY pressured by improving risk sentiment and continued concern about deflationary pressures in Japan. 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. McCrann went on to say that the RBA will eventually move towards normality in monetary policy. The normal average for Australian overnight rate is seen at 4.25% to 5%. 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.

Next week's Australian economic includes the April 12th release of February housing finance expected  at -2.1% compared to -7.9% last month.

The technical outlook for the AUD is positive as the AUD rallies above 9300. Expect AUD support at 9266 the April 9th low with resistance at 9378 the November 17th high.