After a dismal day on Wall Street, we are seeing some respite in deleveraging and a positive bounce in risk appetite. Yesterday, Wall Street session saw the S&P 500 drop -3.48%. However, for the most part Asia and European equity markets have been able to shrug of concerns over the G20 (or “G2” as is the current fashion), collapsing Automakers, weak Japanese economic data and Fortis's eur28bn loss to trade higher. USD has come under selling pressure, as risk appetite seems to be creeping back into the FX markets. Gold is trending orderly upwards after a volatile day yesterday. The rational for the $15oz swings has been assigned to everything from buy stops at $920oz, to “flight to quality”. However, it would be a mistake to rule out statistics from the WGC which suggested Russia had increased their gold reserves by roughly 30 metric tons. Japanese labor data came in worse than expected, with unemployment deteriorating to 4.4% vs. 4.3% exp. and the jobs-applicants ratio slipping to 0.59x from 0.67x. In addition, consumption still looks weak with real household spending falling 3.5% y/y in February. The JPY was sold across the board on the back of the released economic data and the prospects of a decidedly negative Tankan report tonight. The USDJPY traded higher to 98.31, now targeting 98.88 resistance. The Yen fueled carry trades also got a boost, as the AUDJPY was able to reverse its downward slide trading up from 66.15 to 67.89. Perhaps a bright spot from Japan was the news that Finance Minister Aso will announce a major fiscal stimulus package today. The white elephant in the room has to be the G20 meeting. In a draft statement released over the weekend, core issues will be fiscal and monetary policy commitments and efforts to expand resources at the IMF. The critical issue to FX trades is that there was no specific mention of currencies (illustrating China's new weight) or specific plans for a coordinated stimulus package. However, there are still significant risks for a rogue commentary by officials, renewed support for the greenback as the world reserve currency or clarity from the ECB in regard to adoption and application of unconventional measures which would have significant repercussion across markets. In our minds, we think that the potential for a surprise from the ECB (at Thursdays press conference) poise the greatest risk event. With speculation ranging from purchasing of sovereign debt to buying eastern European currencies being circulated the near term risks are enormous.

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Today Key Issues (time in GMT):

  • 09:00 EUR CPI (Mar Prov.) 0.7% exp,
  • 12:00 CAD GDP -0.7 exp, -0.7 prior
  • 14:00 USD Case-Shiller 20-City House Price Index (Jan) -2.0%(-18.3%) exp, -2.5%(-18.6%) prior
  • 13:45 USD Chicago PMI (Mar) 34.0 exp, 34.2 prior
  • 14:00 USD Conf. Board Consumer Confidence Index (Mar) 25.0 exp, 25.0 prior
  • 14:00 GBP BoE MPC member Tucker testify to House of Lords
  • 17:00 USD FRB of Philly President speaks on “Financial Regulatory Reform”
  • 23:50 JPY Tankan Large Manufacturers (Q1) -40 exp, -24 prior

The Risk today:

EurUsd Bullish intermission subsides and weaker Euro resumes as continued pressure in European economies weighs on the single currency. Broad bearish trend regains strength as we fail to break 1.3493 – 1.3681 range. Declining neckline breaks lower, initial resistance sits at 1.3341. Focus is lower, initial support at 1.3088 setting the tone for a mid-term target at 1.2457.

GbpUsd Head and shoulder formation confirms and signals a change in immediate trend, regaining the broader scheme of things which points to sterling weakness. Initial support stands at 1.4163, with sights on resistance at 1.4361, then 1.4495.

UsdJpy Return of risk aversion trade only confirms our past weeks analysis that a firm call on risk appetite was premature. Yen rallies against the dollar as dollar rallies against other currencies – repatriation style Yen dynamic returning – inversely correlated to dollar moves. Break of yesterday 98.32 highs places initial resistance at 98.88 in the short term. On the downside one should be weary of bears extending too far ahead of the G20. Initial support at recent low of 95.96.

UsdChf Complete reversal of yester days gains now puts the emphasis on the bottom of the 1.1829 – 1.1171 range. Initial support stands at 1.1326 while resistance stands at 1.1546 (intersect of days high and 21d MA)

EURUSDGBPUSDUSDJPYUSDCHF
1.3727 S1.4640 S100.00 M1.1684 T
1.3598 M1.449599.71.1577 M
1.3441 K1.436199.21.15
1.32921.429198.351.1399
1.3088 S1.4163 M97.05 S1.1326 M
1.2845 M1.384596.651.1228
1.2457 K1.3653 T95.65 T1.1171 K
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot