Forex News and Events:
The WHO upped its Global alert from 4 to 5 – one short of a full blown pandemic yesterday, stating that this was a callout to all governments, pharmaceutical companies and families to take appropriate action to limit the extent of the pandemic. The human to human transmission has officials worried over the widespread impact of the mutated swine-derived flu virus. This said, officials have also said that the virus was deadliest for young children and the elderly who couldn’t be administered the proper care in a timely fashion. Markets seem to have shrugged off the heightened alert by the WHO, and posted gains in Asia, Europe and the U.S.
Earnings season continues as 37 of the 44 S&P 500 companies reporting yesterday provided better than expected earnings releases. Today 55 S&P companies report Q1 earnings. The FOMC meeting last night was optimistic, stating that “the economic outlook has improved modestly since the March meeting”, and “household spending has shown signs of stabilizing…” Given that the Fed already has the results to the Bank’s Stress tests markets see their bullish tone yesterday as a preemptive sign of a favorable outcome. The greenback has declined on the back of a firm return to risk appetite, favoring the EURUSD long, the pair – uncharacteristically – offers carry trade potential as the EU maintains it’s resilience to cut interest rates at 1.25%.
The main news out of the U.S today is the imminent bankruptcy filing by Chrysler – the Ailing automakers’ April 30th deadline to negotiate an easing of its debt failed late last night. Banks and hedge funds were asked to forego a $6.9Bn credit line for the automaker despite the government increasing it’s commitment to lenders by $250m to $2.25Bn. The speculation that the car-company would enter chapter 11 has been on the newswires for weeks now and its eventual demise should already be priced into the markets. However, the fall of the company that popularized the mini-van will come as a blow to the 20th century industrialism and American “dream-ism” the U.S is so well known for. It is expected that Fiat awaiting to pick up the pieces of the auto-maker once it is ridden of the unwanted environmental and asbestos liabilities. President Obama stated that the bankruptcy court filing would be swift and efficient. It is widely said that President Obama has prepared 2 speeches, one for a positive resolution with creditors and another if the Chapter 11 filing was confirmed.
Japanese Industrial output rose 1.6% in March, the first gain in 6-months. This, along with the slowing in the rate of contraction of Japanese manufacturing activity has markets optimistic that the Nippon economy may have seen the worst of Japan’s deepest postwar recession. In the news today we are looking for a slight drop in initial U.S jobless claims from 640K previously 630K, with Chicago PMI out too.
Today's Key Issues (time in GMT):
00:00 CAD ZAR SARB interest rate announcement, % Apr 8.50 exp, 9.50% prior
12:30 USD GDP, % m/m Feb -0.2 exp, -0.7% exp
12:30 USD Personal income, % m/m (y/y) Mar -0.2 (0.4) exp, -0.2 (1.0) prior
12:30 USD Personal spending, % m/m (y/y) Mar -0.1 (-1.1) exp, 0.2 (-0.4) prior
12:30 USD Core PCE price index, % m/m (y/y) Mar 0.1 (1.8) exp, 0.2 (1.8) prior
12:30 USD PCE price index, % m/m (y/y) Mar 0.3 (1.0) prior
12:30 USD Initial jobless claims, thous (4wk mvg avg) 25-Apr 640 (647) exp
13:45 Chicago PMI, index Apr 34.0 exp, 31.4 prior
The Risk Today:
EurUsd We have reached a crucial turning point in the pair’s dynamic. Our Chart clearly shows that we have broken away from the 3-month declining channel – however, more importantly the upper extremity of the channel is also the extremity of the broad trend (wedge) we have been trading for over a year now. This tentative breakout needs to confirm 1.3386 (April 13th high) before we can consider a serious – short term – bull. We prefer a “green shoots” hypothesis rather than a definite change in general trend. FOMC bullishness and good data out of the U.S will be compounded by the Chrysler debacle which could hurt the greenback. Initial support at 1.3346 (previous resistance and breakout trigger) with further bearishness heading for 1.3314 – return of risk averse trades would see 1.3269. On the upside today’s moves higher target 1.3434 then the psychological 1.3500.
GbpUsd Risk sentiment continues to drive Sterling higher against the dollar. Next resistance at 1.4963 (6-April high), a strong push past this level would target 1.5071 via the psychological 1.5000. On the downside 1.4888 is initial resistance, while 1.4870 would mark a strong support for a return higher (50% retracement). However if bearishness persists we can aim for morning low of 1.4793.
UsdJpy we are trading near the upper extremity of the current declining channel, testing it 3 times today. Resistance at 97.74 will set the tone for a breakout to 98.00 and continue to 98.26. On the downside we are targeting 97.15 (morning low) and 95.63 as the 28th April low.
UsdChf we broke yesterday’s support at 1.1305, traded as low as 1.1271 – a level that the pair bounced off with notable vigor – returning to trade above the 1.1305 support. On the upside, 1.1328 would mark a break from 2-day declining channel however continued haven seeking in the Swiss Franc would cap upward moves to 1.1390.
Resistance and Support: