News and Events:
The EUR continues to be helped by recent risk-appetite, supported by equity market rallies and declining VIX and growing credibility to the ‘green shoots' theory. In addition, as the market discounts the probability of a “black swan” event in the financial sector, the flight to safety trades becomes less relevant. With focus being put back on the Fed's massively bloated balance sheet, timing of recovery and clean break of 200d ma, we expect traders are looking to build long position in the EUR. Comments by Bernanke and Trichet have added to the growing optimism surrounding the global recovery. Bernanke attempted to talk up the USD yesterday, stating that the USD will be strong because the US economy is strong. On the comment both EUR and GBP sold off dropping to intraday lows but then quickly recovering, as trader focused/ believing the “US economy is strong portion” of more than the rational of a strong USD. In addition, Bernanke acknowledged the market's uncertainty with the bank stress test results, yet argued that overall the tests serve a significant purpose of reducing uncertainty in the markets and boosting confidence in the financial system.
Jean-Claude Trichet commented yesterday that the global downturn had bottomed with some large economies already on the path to recovery. Overnight, UK released the RICS house price balance, which showed the slowest decline since Jan 2008 at -59.9 vs last month's reading of -72.1. UK BRC retail sales monitor was also positive at 4.6 % y/y, the largest jump since April 2006. With liquidity conditions improving in Sterling and positive economic readings, the GBP traded up to 1.5294 against the USD. With risk appetite improving, risk-correlated assets have seen a large rally in the past few weeks and look to continue to outperform. Specifically, we see EM Asia as a beneficiary, as a large improvement in terms of trade will provide the currencies with a tangible fundamental rational for buying.
Speaking of Asia, China's exports fell on an annual basis by much more than we and the market expected, down -22.6% y/y in April vs. -15.3% exp. after -17.1% in March. After the initial disappointment a closer look into the details suggests that the underlying momentum is still supportive of the global recovery.
Today's Key Issues (time in GMT):
08:30 GBP Trade Balance £bn mar -7.2 exp,-7.3 prior
08:30 GBP Industrial Production mar -0.8,-12.8 exp, -1.0,-12.5 prior
08:30 GBP Manufacturing Output mar -0.9,-14.0 exp, -0.9,13.8 prior
11:00 ZAR Manuf. Production mar -15.0 prior
12:30 CAD Trade Balance C$ 0.5 exp,0.1 prior
12:30 USD Trade Balance $bn -29.4 exp, -26.0 prior
18:00 USD Budget Balance $bn apr -63.0 exp, 159.3 prior
The Risk Today:
EurUsd Constructive under immediate resistance (Piercing line on daily chart) at 1.3669 (Yesterday's high), consolidation subsides as we head higher, we continue to aim for 1.3740 area, a break past this level would set our sights on 1.3971 within the week. The bias really is for the upside here as the retracement only managed a 38.20% counter. On the downside 1.3557 serves as initial support but real test for bearish bias comes at 1.3507.
GbpUsd dollar weakness continues to shine through as bullish channel persists. Strong double top resistance at 1.5246, decisive push past this level would set sights on 1.5456 via 1.5352 (100% move after 50% retracement). On the downside 1.5180 (50% retracement) holds as soft support for a constructive bearish reversal with a floor on today's moves at 1.5074.
UsdJpy Yen gained against the dollar yesterday as other pairs retraced. We are currently trading particular range, with a double top head and shoulders about to confirm, initial resistance at 97.99 proves crucial, a push past would allow for 98.35 and 99.56 (50% and 100% respectively). A failure to break 98.00 with enough panache would focus morning lows of 97.14 – via 96.35.
UsdChf pair is trading a perfect mirror image to the EURUSD pair, EURCHF holding steady in 1.5080 – 1.5160 range with a bias for the downside would indicate USDCHF is set for further declines (strong recommendation for 3 graph comparison). Yesterday's support at 1.1022 was respected in early hours, we are set to test it again, eyes on 1.0670 (for monthly forecast) via 1.0960. On the upside (while a significant move up is countered by clear rounded top culminating at 1.1109) we see resistance at 1.1133 (38.20%) then 50.00% level at 1.1167.
Resistance and Support: