News and Events:
The week drew to a close in Asia with the Dollar showing no signs of recovery whatsoever. USD selling was the highlight yesterday with an early charge of EURUSD and GBPUSD getting sharply reversed on the back of S&P cutting its outlook forthe UK's AAA sovereign rating. Similar comments were made early this morningin regards to the USA.Price action however came back in the late European afternoon with further aggressive USD losses to drive both pairs to new highs.Technically the picture has decisively turned bearish from a medium term perspective. Another interesting point is that the USD weakened despite a 10bp increase in 10yr Treasury yields and a weak equity market - a combination that is utterly unusual and may suggest that investors are demanding a higher risk premium for holding USD denominated assets. In a speech last night, BoE Deputy Governor Bean reiterated the MPC's view that the outlook for growth and inflation remains subdued, and sought to quell concerns about the QE exit strategy. Mr Bean said that the combined policy stimulus and the lower value of sterling would probably lead to a resumption of growth by the end of the year. However, he thought it likely that the supply of credit would remain impaired for some time, and this would ensure that the recovery was subdued. Inflation, he believed, would fall below target and remain there for the next couple of years. EUR/USD edged up to 1.3955 before supply pushed it back to 1.3930. There is talk in the market of sizeable selling at the 1.4000 level. GBP/USD rose towards 1.5900 but lacked the momentum to push higher and slipped back to 1.5850. It was a similar story in USD/JPY where selling to 93.90 was seen thanks to comments from Japanese Finance Minister Yosano who said that Japan is ‘not currently thinking about Forex intervention' but a lack of follow through saw it recover to 94.20. The BoJ Policy Board ended its two-day monetary policy meeting with a unanimous vote to leave the uncollateralized overnight call rate at 0.1%, as widely expected. Separately, the Bank decided to expand the range of eligible collateral to include cross-border instruments, namely bonds issued by the governments of the US, UK, Germany and France. This move is meant to ensure stability in financial markets by further facilitating money market operations - specifically, to make it easier for Japan branches of foreign banks to raise liquidity from the BoJ. With both the US and UK enjoying a holiday on Monday, trading will likely be subdued and could well see a corrective move as positions are adjusted and pared back for the long weekend.
Today's Key Issues (time in GMT):
08:30 GBP Gross Domestic Product (QoQ) -1.9% vs. -1.9%
08:30 GBP Gross Domestic Product (YoY) -4.1% vs. -4.1%
08:30 GBP Private Consumption (1Q P) -1.0% vs. -1.0%
08:30 GBP Government Spending (1Q P) 0.8% vs. 1.3%
08:30 GBP Gross Fixed Capital Formation (1Q P) -4.1% vs. -1.4%
12:30 CAD Retail Sales (MoM) (MAR) 0.5% vs. 0.2%
12:30 CAD Retail Sales Less Autos (MoM) (MAR) -0.1% vs. 0.6%
18:00 USD Bernanke Speaks at Boston College Law School Graduation
The Risk Today:
EurUsd The uptrend in EUR/USD is gathering pace, fuelled by buying out of the US time zone. We expect the move to extend up to 1.4185. Next resistance comes in at 1.4000.
GbpUsd A precipitous decline yesterday stopped dead on the 1.5520 level and the pound recovered. This implies the short-term trend is up and is likely to continue.
UsdJpy Support is steadily being eroded and price is slipping steadily towards the Mar spike low at 93.55. The risk is that this fails and when it does it would confirm the 2009 uptrend is over and would point to a run at 90 and probably to the Dec/Jan lows in a broad based USD negative environment.
UsdChf This morning USD/CHF has dropped below weekly cloud support at 1.0970. Over the last 15 years we have learned to respect the cloud as it has proved useful in identifying 1-2 year trends. A close today below 1.0970 would imply the corrective USD rally of the last 18 months is over and the cyclical downtrend has resumed.
Resistance and Support:
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot