The shift in risk appetite continues to be the primary driver in FX pricing. Even the awful Non-Farm Payroll, which printed at -663k, couldn't silence the growing choirs of stabilization in the industrial and global demand cycle. Equity markets are trading higher with the FTSE up 1.41% following Asia's strong showing (although gains have been attributed to short covering). The Jpy and the Usd continue to come under selling pressure with GBPJPY breaking above the 151.00 handle and AUD shaking off the rumor that the RBA will cut 50bp this week, trading above 0.7200 against the USD. The EURUSD is trading higher on the back of a weaker USD and the greenback's correlation with risk. Asian EMs are also benefiting from global economic indicators, which are pointing to more robust trade, with KRW making a run at 1300 and SGD also gaining on speculation that the MAS will widen the currency's band this week. We expect the AUD will continue to see strong gain on the back of better global economic data and rising commodity prices. However, there is still some risk that local events could derail its momentum. First will be the RBA rate announcement where we, and the markets, are expecting the central bank to hold rates at 3.25%. Yet, there is some risk to this forecast as a few analysis are calling for a 25-50bp cut due to the pause at the last meeting.. Next will be Thursday's unemployment data, where a significant rise could prompt the markets to begin speculation on additional policy easing. The million dollar question is clearly: can the markets risk appetite be sustained? We suspect the rally to be fragile at best. With weak quarterly GDP expected this month it would be hard to imagine expectations for corporate earnings to deviate significantly. Global labor markets are repressed and lending/credit remains difficult. And finally global central banks foray into unconventional measures have just begun and its effectiveness is questionable. Today Eurozone retail sales printed at -4.0% y/y vs. -2.5% exp. confirming spending has not be helped by falling inflation as PPI fell -1.8% y/y.


Today Key Issues (time in GMT):

  • 00:00 EUR Monetary Policy meeting starts (to 7 Apr)
  • 08:20 EUR ECB Executive Board member Bini Smaghi speaks at a conference entitled “Towards a European Economic Policy”
  • 09:00 EUR Retail sales, % m/m (y/y) Feb -0.4 exp, 0.1 (-2.0) prior
  • 08:00 PPI, % m/m (y/y) Feb -0.5 (-1.5) exp, -0.8 (-0.5) prior

The Risk today:

EurUsd Broad bullish trend assuredly resumes post G20 as concrete measure spur on risk appetite. ECB rate cut has unlocked further Euro strength. Inclining channel started March 5th resumes, initial resistance at 1.3590. 1.3736 remains key test for further gains. On the downside, initial resistance stands at 1.3366.

GbpUsd Bull move consolidates and loses steam after strong move ahead of the weekend. Initial resistance stands at recent high of 1.4951, which allows for a strong key and psychological level at 1.5016 (triple top since beginning of 2009). First support level stands at 1.4880.

UsdJpy Risk appetite sees the pair extend gains past 100.00. For the time being we see the bull continuing with initial resistance at 101.76 (61.80% Fibonacci level on 110.81 – 87.12 move). A return of risk aversion would see a retracement with initial support at 100.00 (23.60% fib level), then 99.22.

UsdChf Return of risk appetite has sent the dollar packing, old haven status of the swissy continues to be elusive. Strong support at 1.1235, with a floor at 1.1171 on March lows. On the upside, initial resistance seen at 1.1392 (last week's retracement highs).

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot