News and Events:
We are seeing a return of buying risky assets. However, movements have been choppy and of little significance. Yesterday's Philly Fed survey positive surprise help give markets the lift they needed after a difficult week. In early Asian trading, Reuters reported that the British Bankers' Association (BBA) said it will allow more institutions to take part in the daily survey that sets the London interbank offered rate. Markets took this as a USD bullish move as they expect higher average fixing and the greenback to benefit from growing interest rate differentials. The EURUSD sold off on the news to 1.3875 from 1.3970 and has yet to fully recover. The EURCHF had a busy day yesterday, after a relatively stable week. The catalyst for the sudden activity was the SNB policy meeting. As was widely expected, the SNB maintained the three-month CHF Libor target between 0.00% and 0.75%, shooting for a target of 0.25%. The more import issue to FX traders was the SNBs activity in the currency markets The SNB reiterated its comments from the 12th of March that it would prevent an appreciation of the CHF against the EUR, however, this time the comment regarding currency purchases to achieve was dropped. The markets took this as a signal that the central bank would allow further EURCHF depreciation and pushed the pair to 1.5008. The subsequent rapid appreciation to 1.5140 led to suspicions of official intervention, but the SNB and related entities refused to comment. While deflation risks have subsided with inflation falling to -0.4% in 2009 then rising to 0.4% in 2010, the SNB is still acutely aware of the risk of further price contraction. Equity indexes in Asia closed on a positive note (reversing the week's slide) and European markets are currently trading higher. Given the light economic calendar we expect risk appetite to continue throughout the day with USD selling being the broad theme. Canadian Retail Sales and Retail Sales Less Auto figures, both for April, will be the highlight of the US session. Markets are expecting a slight decline in the headline figure, however we are leaning to an upside surprise but either way the broader macro themes should help push the USDCAD below the 1.1225 horizontal support. On a side note, BoC Governor Carney spoke today, commenting that he watches the movement of the CAD carefully. And to wrap up the week, Mexico 's Banxico is expected to cut rates by 50bp to 4.75% this afternoon. Although this week's soft Mexican industrial production remains a stark reminder that the underlying economic is still struggling growth, confidence in risk should help the MXN find buyers.
Today's Key Issues (time in GMT):
13:30 CAD Retail Sales m/m 0.1% exp, 0.3% prior
13:30 CAD Retail Sales less Auto m/m -0.1% exp, -0.2% prior
14:00 MXN Banxico interest rate announcement, % Jun 4.75%exp , 5.25% prior
The Risk Today:
EurUsd Choppy trading this week. Risk of a further correction to 1.3720 seems less likely now. Move above 1.4170 will reinstate bullish theme. Current consolidation pattern will be watched for breakout opportunity. Intraday expect range bound trading between 1.3970 resistance and 1. 3875 support.
GbpUsd Sharp reversal at 1.6240 horizontal support. Initial resistance stands at 1.6640. Bearish flag points to further downside however a close above 1.6560 will restate bullish theme.
UsdJpy Risk appetite has crept back into markets pairing back recent JPY gains. Rapid decline to 96.08 then breach of 95.30 trendline support cleared out short term support (however seller quickly departed). Now daily cloud cover at 97.40 caps upside move.
UsdChf SNB is seems to be waiting at 1.500 or perhaps its just traders seeing shadows. Either way for now downside is limited. Initial resistance at 1.0952 with a breakout level at 1.0988. On the downside 1.0650 is floor, with crucial (previous necklines) levels at 1.0750 and 1.0650. For now the pair is broadly bullish.
Resistance and Support:
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot