News and Events:
The ECB and BoE are both meeting respectively today to discuss monetary policy. The MPC is set to keep rates the same and announce step 2 of their QE policy. Furthermore the BoE is expected to announce further GILT purchases – tapping into the remaining £75Bn of the £150Bn committed by the government.
The ECB is expected to be cutting Refi rates by 25bps down to 1.00% and announce further “non-conventional measures” (QE). The ECB is largely seen to be a laggard in dealing with the adverse affects of the global economic slowdown – China, Japan, the UK and the US all proactively cutting rates and quickly moving to quantative easing to ease credit tensions in their economies. The lack of a concerted effort on the part of the ECB countries has been detrimental to their collective push to get out of the current crisis. It is safe to say that the world will be hung on every word that ECB president Trichet has to say, the 25bp cut is already priced in – press conference starts at 11:45 GMT.
Jobless numbers in the U.S and Australia both surprised the markets. In Australia a projected decline in jobs was actually countered by a rise of 27.9K bringing unemployment down to 5.4% from a previous 5-year high of 5.7%. The AUD traded higher all day yesterday and crosses crucial resistances, heading for 0.800 against the greenback on a long-term view. The U.S ADP employment number was much lower than the markets had expected coming in at -491K instead of the projected -645K. Both these figures are a healthy sign of a slowing global economic crisis. One analyst using the seasonal metaphor to support the “Greenshoots” hypothesis as a return to the sunny spring days (in the northern hemisphere) has investors feeling better about the financial outlook of the markets in general – further proof of the positive effect of the sun on morale.
The news that will be on all headlines late today and on the front pages tomorrow is the result to the “Stress tests” carried out by the U.S Treasury. It has already been widely reported that BofA will necessitate $34Bn in refinancing but that none of the 19 banks tested are at risk of insolvency. Since the announcement that results had been pushed back from the 4th to the 7th the pertinence and credibility of the test.
Today's Key Issues (time in GMT):
11:00 GBP BoE Rate decision.
11:45 EUR ECB Rate announcement & Press conference 1.00% vs. 1.25% Refi Rate.
12:30 USD Initial Jobless Claims 635K Vs. 631K
12:30 USD Non-Farm Productivity 0.6% Vs. -0.5%
21:00 USD Stress Test results
The Risk Today:
EurUsd Volatility continues to see the pair oscillate in a 1.3214 – 1.3439 range. Head and shoulders started in May see's a neckline at 1.3251 which we tested this morning, a retest of this level would see the pair head lower and aim for bottom of the range for support. 50% retracement on resumption of the bull move on April 28th stands at 1.3200, a break of this level would see the pair head for 1.2964. On the upside the continuing upward channel would target 1.3484, via 50% retracement of counter wave at 1.3341.
GbpUsd Strong bull continues, BoE meeting today keeping rates the same could provide further impetus for gains - however a substantial buying of Gilts will weigh on the Sterling. resistance at 1.5163 as we break a broad neckline at 1.5097 which now becomes initial resistance Next target on the upside is 1.5397 – Jan 8th high. On the downside stops to be triggered at 1.5015 et 1.4923 after initial support stated above.
UsdJpy We see strong resistance at 99.65 (shoulders top) which indicates a turn in trend however we also see impetus from fundamentals for further yen weakness as risk sentiment improves and traders head away from the Yen as a haven. A break above initial resistance would cap moves at 103.33 though the recent high at 101.49. On the downside initial support stands at recent consolidation point at 98.66.
UsdChf triple top in the 1.1432 area points to further Swissie gains are probable as the May 4th gains by the Swiss Franc have been erased, however the move fails at previous resistance. While in the long term we can expect the pair higher, we are set to test further lows at 1.1250 levels.
Resistance and Support: