News and Events:
As was widely expected, Chrysler, the US automaker, filed for chapter 11, which helped to eliminate some of the indecisiveness surrounding the problematic sector. Creditors to the company refused to give-way in talks that would have seen them lessen the $6.9Bn Chrysler owed them, this despite the government pledging to add $250m to the $2..0Bn already allocated to this effect. The plan now calls for the US firm to reorganize with FIAT in what the Obama administration says will be a swift and orderly process. The move was already priced in and risk appetite stayed buoyant. The EURUSD rallied off the 1.3200 level, while the USDJPY saw a clear break of 98.00 trading up to 99.17 (positive economic news from China and US re-enforced the “green shoot” theory). The AUDUSD saw good demand and pierced the 0.7300 for the first time since Oct 08. The financial market and media seems to have eased off the Swine Flu story (despite new cases being reported globally) with the MXN holding steady at around the 13.81 level against the USD. Besides the temporary resolution in the auto sector, good news for the US labor market help risky asset buying. US initial jobless claims fell to 631k from a revised 645k the previous week. A portion of the decline could be attributed to the Easter holiday, but any sort of persistent decline could be a signal that the US labor markets have turned the corner. In this current environment of discounting negative news and embracing event the slightest positive events, we will be looking to sell USD and JPY in the short term. That said, with the watered down results of the US stress test and the ECB meeting next week we will be monitoring market sentiment closely.
It is reported that the scheduled May 4th unveiling of the infamous “Stress Test” would be postponed till later in the week as regulators and officials debate the means, manor and tone to use on the release. The reason for this cautious stance is to preserve the stock prices of the banks that will need capital re-injections to “stay afloat”. Regulators have made it clear that they are favoring TCE (common equity) hikes, as they seem them as the best indicator of a bank’s financial health.
In the UK, Nationwide house price series, following a trend set a few months ago, posted a better-than-expected outcome in April with prices falling only -0.4% hinting that the y/y pace of decline has bottomed out. And in Japan National core CPI inflation fell into negative territory in March, -0.1% y/y, for the first time since September 2007.
Due today are the US manufacturing ISM and the final release of the University of Michigan Consumer Sentiment Index . Since the pace of positive surprises in global business surveys globally has picked up over the past few weeks, we wouldn't be astonished to see a continuation of this pattern today.
Today's Key Issues (time in GMT):
00:00 GBP holiday
08:30 GBP Manufacturing PMI, index Apr 40.0 exp, 39.1 prior
08:30 GBP BoE mortgage approvals, K Mar 40 exp, 38 prior
08:30 GBP BoE net mortgage lending, £ bn Mar 1.6 exp, 1.5 prior
08:30 BoE net consumer credit, £ bn Mar 0.1 exp, -0.2 prior
00:00 USD USD Total vehicle sales, mn (saar) Apr 9.6 exp, 9.8,
13:45 USD FRB of St. Louis President Bullard (FOMC non-voter) speaks
13:55 USD Michigan consumer sentiment Apr-F 61.5 exp, 61.9 prior
14:00 USD ISM manufacturing, index Apr 38.0 exp, 36.3 prior
14:00 Factory orders, % m/m (y/y) Mar -0.7 (-20.6) exp, 1.8 (-18.8) prior
The Risk Today:
EurUsd The pair was able to rally off the 1.3200 lvl yesterday. 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 currently prefer herding with the “green shoots” hypothesis rather than a definite change in general trend. FOMC bullishness and good data out of the U.S failed to shift risk sentiment. Initial support at 1.3290 and on the upside today’s moves higher target 1.3360 (channel resistance) then the psychological 1.3500.
GbpUsd Positive risk sentiment (USD selling) 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 1.4731 (5 & 21 day ma) would mark a strong support.
UsdJpy The pair was able to easily take out trendline resistance at 98.70 and is focused on the psychological 100 lvl. We expect a short period of consolidation then a continuation of bullish momentum and a test of resistance.
UsdChf Despite the frequent spikes under 1.1300 the pair has been unable to close below its 200 day MA (1.1374). However failure to move above yesterday 1.1433 session high and further consolidation around 1.1370 will be a bearish signal and preparation for a move towards 1.1160 horizontal support.
Resistance and Support: