News and Events:
Equity markets in the U.S are set to end the week lower for the first time in 9 weeks as data flows this week were less encouraging than the headliners of last week. This said it is apparent that markets are convinced a bottom is in and there is no going back, U.S jobless claims coming out at 637K against a consensus of 610K not even rattling markets. In the newsletter I wrote on Monday I mentioned that a lot of the “green shoots” rhetoric was to be taken with a pinch of salt, the GM and Chrysler debacle illustrates this clearly. Dealerships are closing across the U.S continent (even some that are profitable) the impact on jobs will soon hit home (an expected 150K jobs are to be lost) – many say that the housing sector is the economic temperature gauge – but the auto-sector is one of the biggest industries in north-America (and very labor intensive), as GM prepares for bankruptcy yet another All-American icon lays it's knee to the ground in defeat. While the government assures a properly executed chapter 11 filing would ease tensions on the whole sector the real-world effects of such an undertaking has yet to be seen.
The flurry of intervention and quantative easing we saw throughout this crisis hasn't diverted the increasing focus on deflationary fears. CPI numbers are out today (at 12:30 GMT) and are expected to show further declines in prices. The same can be said of the world's second economy, Japan's domestic CGPI (Corporate goods price index) slumped a further -0.4% MoM and stands at -3.8% YoY. The next GDP figures are expected to show a record quarterly decline in excess of 15% on an annualized basis. In other news Mizuho Financial group has announced it will raise 800Bln Yen in capital – with approximately 600Bln Yen coming from new stock issues. This further highlights the frail existence of large financial institutions – The Nikkei 225 was up 1.88% on the news March core machinery orders only slumped 1.3% compared to expectations of a -5.1% decline.
German GDP shrunk by the largest amount since 1970 (the start of the report), plunging 6.9% on a calendar adjusted basis in the first quarter of 2009. GDP fell 3.8% in Q1 on a decrease in price-adjusted exports. The same thing can be said of the French GDP figures out this morning, GDP down -3.2% YoY and -1.2% in Q1. On a whole the Euro zone GDP slumped -2.5% in Q1 and -4.6% YoY. This is set to be bearish for the Euro – EURUSD already down 70pips this morning (0.51%).
The currency markets have been trading range bound for the majority of the week, EURUSD staying between 1.3520 and 1.3730, while the Yen has continued it's rise against the dollar, how much of that is down to risk aversion has yet to be established but one this if for sure the 4.5-figure moves we've witnessed in the past week (from 99.50 to 94.98) has major macro-economic impetus behind it – the haven flows regaining strength.
Today's Key Issues (time in GMT):
12:30 USD Consumer Price Index MOM 0.0% vs. -0.1%
12:30 USD Consumer Price Index YoY -0.6% vs. -0.4%
12:30 USD Empire Manufacturing (May) -12.00 Vs. -14.65
The Risk Today:
EurUsd Euro zone GDP figures show an accelerated decline, current 1.3520 – 1.3730 range is set to be tested on the downside – a break of the 1.3526 support (double bottom) will allow for further declines to the 1.3343 levels (broad S-H-S formation) via 1.3470. A longer term view would take us to the strong support level we had last week – at 1.3248. On the upside initial focus is on 1.3611 (50.00% retracement on 1.3665 – 1.3556 move) started yesterday. A break past 1.3722 would focus 1.3842 with an end of month view on 1.400.
GbpUsd We see a slowing of the bullish momentum with a triple top resistance at 1.5244. The initial support stands at 1.5152 (50.00% retracement from 1.5060 – 1.5244 move). A break past this level would focus 1.5060 (week low) and neckline on large scale head and shoulder formation. On the upside 1.5202 stands as initial resistance. A break past 1.5244 would focus 1.5354 (12th may high).
UsdJpy Continuing haven seeking has strengthened the Yen against the dollar; we see the same dynamic we saw as the dollar gained against the world and the Yen against the dollar. Initial resistance is at recent support at 95.12 – retracement hit 23.60% level at 96.17 which would suggest the continued downside risk on the pair. Focus on the downside aims for 92.68 and then 90.54 with an initial support at 93.54.
UsdChf Neckline at 1.1242 breaks lower and falters at the strong and psychological support at 1.100. Initial resistance at 1.1122 will set sights on 1.1157 then regain 1.1268 levels (38.20% retracement). Downside risk will head for 1.0977 and Monday's support at 1.0860.
Resistance and Support:
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot