News and Events:
The USD has begun the new month on a weak footing, as news from the automotive sector has increased the risk premium on the greenback. It's all but certain that the US largest car manufacturer, GM, will enter bankruptcy protection today. Proceedings should go relatively quickly as negotiations have proceeded for some time and we expect the impact on the market sentiment to be tempered. Risk appetite remains high and both Asian and European equity markets are trading higher ( Shanghai 3.35% & Hang Seng 3.89%) as China's PMI dipped less then expected. The long end of the US curve continues to trade higher, even as Treasury Secretary Geithner attempts to soothe the markets directly from China . He reiterated the US strong USD policy in order to prevent any sovereign debt selloff, stating that Chinese financial assets in US dollar-denominated assets are very safe. We doubt any recycled rhetoric would appease Beijing, which eyes further balanced sheet expansion with increasing concern. While last week's auctions went better than the market and media had anticipated, we expect that China as well as other central banks to search for other options and slowly adjust their reserve investment policies. The USD exodus has continued uninterrupted from last week's sell off, as optimism surrounding the global economic outlook improves. In our view, it will be global fundamentals which will drive fx pricing near term. Positive global data and rally in commodities have been broadly supportive for the AUD, which pierced the 0.8100 level against the USD. Carry trades look attractive as volatile drops and interest rates have leveled off, with the NZDJPY trading safely above the 61.00 handle. In addition, risk-correlated assets should be well supported with FX investors eyeing EM currencies cheerfully discounting much of the underlying domestic economic conditions. While trading should remain light today as the economic calendar is devoid of headlight releases and a few counties in European and Scandinavia have the day off, there are plenty of events to trigger volatility this week. The BoC, ECB, BoE and the RBA all meet, and we expect the respective banks to keep rates on hold. And should central banks be confident enough to start sounding more hawkish as economic conditions improve, this should be negative for the USD. Today's data will be focused on the US. Manufacturing ISM is due and the market is looking for a headline print of 42.0 vs. 40.1 prior reading.
Today's Key Issues (time in GMT):
07:58 EUR Final Manufacturing PMI, index May 40.5 P 40.5
08:28 GBP Manufacturing PMI, index May 44.0 exp, 42.9 prior
12:00 Brazil Industrial production, % y/y Apr -14.2 exp, -10.0 prior
12:30 CAD GDP, % q/q saar (y/y) Q1 -6.5 (-2.2) exp, -3.4 (-0.7) prior
12:30 USD Personal income, % m/m (y/y) Apr -0.2 (0.1) exp, -0.3 (0.3) prior
12:30 USD Personal spending, % m/m (y/y) Apr -0.2 (-1.4) exp, -0.2 (-0.9) prior
12:30 USD Core PCE price index, % m/m (y/y) 0.2 (1.9) exp, 0.2 (1.8) prior
12:30 USD PCE price index, % m/m (y/y) Apr (0.4) exp, 0.0 (0.6) prior
14:00 USD ISM manufacturing, index May 42.0 exp, 40.1 prior
14:00 USD Construction spending, % m/m (y/y) Apr -1.8 (-12.2) exp, 0.3 (-11.1) prior
14:00 Brazil: Trade balance, $ mn May 3712 prior
The Risk Today:
EurUsd weekly close above the 52-week average on Friday keeps the outlook for EUR/USD bullish theme Today, once again the pair blew through all near term resistance in European session as the USD was sold across the board. Break above 1.4220 resistance give scope to 1.4320. 1.4034 5d ma should act as intraday support.
GbpUsd following the eur's lead, the pair took out resistance. A weekly close above 1.6040 suggest the surge higher to continue. Clear break of 1.6310 resistance gives scope to 1.6430 (38.2% retracement) then thoughts of 1.6800. 1.6080 should act as intraday support.
UsdJpy in this USD bearish environment JPY was able to reverse in cloud cover. Despite broad based Yen weakness we are still seeing USDJPY selling. A break of 95.65 span and trendline support suggests move a move back to 93.90 key support. Bearish sentiment will persist under 95.65.
UsdChf Last weeks break of trendline support gives further evidence of a move toward parity. Intra-day heavy below 1.0840. Pressures on 1.0610 should be the trigger for 1.0490.
Resistance and Support:
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|