• USD: Higher, supported by safe haven flows as equity markets tumble
  • JPY: Higher, supported in cross by a spike in risk aversion
  • EUR: Lower, pressured by Trichet's comment that rates may be cut 25 basis points next month
  • CHF: Lower, downside limited by safe haven flows, threat of intervention is rising
  • GBP: Lower, pressured by report of rising cost of UK bank bailout, CBI cuts growth forecast
  • CAD and AUD: AUD & CAD lower, Australian PPI declines, tracking weaker equities and falling CRB

Overview

USD and JPY traded higher as equity markets tumble. Equity markets turned lower pressured by concern that the global economy has not yet reached bottom. Revived concern about the global economy was fueled by report that the OECD sees extreme uncertainty for the world economy and a BBK report that the EU recession has intensified. US equities were also pressured by concern about US earnings reports with about one third of the DOW stocks expected to report Q1 earnings this week. EUR traded sharply lower pressured by comments from ECB President Trichet that he expects ECB rate cuts to be measured. ECB monetary policy may be reacting too cautiously and too slowly to accelerating EU economic downturn. GBP was pressured by report that the cost of the UK bailout may amount to GBP 60 Billion and the CBI forecasts a bigger drop in UK 2009 growth. AUD traded sharply lower pressured by report of weaker than expected Australian Q1 PPI and continued pressure from last weeks report of slowing Chinese GDP. Last week there appeared to be a breakdown in the close correlation between equity markets and the USD with USD trading higher along with firming global equity markets Monday's price action suggests that currencies have re-linked to the inverse correlation to direction of equity markets as USD and JPY rise and as equity markets fall. Risk aversion has returned with a vengeance.

Today's US data:

Chicago March National Activity Index fell to -2.96 from -2.82 in February. The Chicago Fed said that employment, production, consumption and housing all worsened last month. March leading economic indicators fall 0.3%, a 0.2% decline was expected. USD rallied after the release of these reports as US equity market decline accelerated.

Upcoming US data:

On April 23rd, initial jobless claims for the week ending 4/18 are expected at 600K compared to 600K. Existing home sales will also be released on April 23rd expected at 4670K compared to 4720K last month. On April 24th, March durable goods will be released expected at 1.5% compared to 3.5% last month.

JPY

JPY traded higher supported by rising risk aversion and gains in cross trade as equity markets decline. The EUR was pressured by comments from ECB President Trichet that the ECB may cut rates 25 basis points at next months policy meeting. Trichet also suggested that the ECB may consider unconventional monetary measures. This may mean that the ECB will move closer to quantitative ease. GBP was pressured by report that the cost of the UK bailout could amount to GBP 60 Billion. EUR/JPY traded more than 1% lower and GBP/JPY traded over 2% lower. AUD/JPY traded over 3% lower with the AUD pressured by report of falling Australian inflation and fresh concern about the global economy sparked by slowing growth in China. Australia's PPI decline was negative for the first time in six years. Last week China reported its lowest quarterly growth in a decade.

This week's Japanese economic calendar includes the April 23rd release of March trade balance expected at - ¥200bn compared to ¥82bn last month. On April 24th, all industry activity is due for release expected unchanged at -2.1%.

Key technical levels to watch in USD/JPY include support at 98.15 the April 15th low and 97.20 the March 30th low with resistance at 99.75 the April 17th high.

EUR

EUR traded at a one-month low versus the USD pressured by deteriorating economic outlook in Germany and ECB rate cut speculation. The DIHK says that German business expectations are at a record low. The BBK says that the German recession has intensified. ECB President Trichet said that future rate cuts will be measured; the ECB may lower rates 25 basis points in May and the ECB will discuss the possible implementation of unconventional measures. ECB's Bini Smaghi said that the inflation risk in the EU must not be overstated. Some analysts argue that the EUR is being pressured by what is perceived as divided ECB citing comments from ECB officials like today's statement from Bini-Smaghi. Last week the ECB's Weber said that interest rates should not fall below 1%. ECB's Provopoulos says that interest rates may fall below 1%. Other analysts say that Trichet's comments suggest that the ECB is moving closer to quantitative ease and this is the reason why the EUR is under selling pressure. EUR price direction has also re-linked with the direction of equities and risk sentiment. EUR traded lower Monday tracking weaker equity markets. EUR downside was partly limited by gains in cross trade to GBP with GBP pressured by report that the UK budget may include provision for GBP 60 Billion for UK bank bailout. The preferred strategy is to sell the EUR on rallies to 1.3100.

This week's EU economic calendar includes the April 21st release of April ZEW Index expected at -87.1 compared to -89.4 in March. On April 23rd EU April manufacturing and services PMI will be released. Manufacturing PMI is expected to show modest improvement to 34.4 from 33.9 last month. The services PMI is expected to show slight improvement to 41.2 from 40 last month. February industrial orders will also be released on April 23rd expected to fall 2% compared to -3.4% last month. On April 24th, April German IFO index is due for release expected at 82.4 compared to 82.1 last month.

The technical outlook for the EUR is turning negative with today's breakout below 1.3000. Expect key EUR support at 1.2835 the March 16th low with resistance at 1.3049 the April 20th high. Look for major EUR downside support at 1.2730 the January 12 th low.

CHF

CHF drifted lower with downside limited by a spike in risk aversion. CHF upside should be limited by deterioration of the Swiss economy and threat of intervention. The economic outlook in Switzerland continues to deteriorate. Last week, Switzerland reported a sharp drop in producer and import prices and 3.8% decline in February retail sales. The data confirms lower Swiss inflation and weakening Swiss economy. SNB officials remain concerned that strong CHF is a major contributor to falling inflation and weaker Swiss economic growth. SNB officials continue to pledge intervention to stop the appreciation of the CHF. The last time the SNB intervened it was in the EUR/CHF cross during March. EUR/CHF is trading below 1.5200. The SNB is expected to defend the 1.5100 level in the cross. This week's Swiss economic calendar includes Thursday's release of Swiss trade balance and ZEW business expectations survey. Swiss trade balance is expected to narrow to 0.34 bln from 0.73 bln last month. The April ZEW index is expected to fall to -56 compared to -57.1 last month. SNB's Hildebrand will speak Thursday. Hilderbrand has been quite vocal in his support of the need for intervention to weaken the CHF. He will likely talk about the growing risk of deflation in Switzerland as strong CHF contributes to tightening of monetary conditions. Expect USD/CHF support at 1.1510 the April 17th low with resistance at 1.1900 the March 17th high.

GBP

GBP traded sharply lower pressured by rising risk aversion as equity markets decline. GBP was also pressured by selling in cross trade to EUR and JPY, and in reaction to a report that the UK budget will include a provision of GBP 60 Billion for the UK bank bailout. UK Chancellor Darling will announce the UK budget on Wednesday. Apart from focus on the direction of equities, GBP price direction will hinge on this week's UK economic calendar which includes reports on inflation, employment, and MPC minutes for the last policy meeting. The UK budget report and Friday's release of Q1 GDP are this week's key economic reports for GBP trade. The budget is not expected to include more new fiscal stimulus. UK Q1 GDP is expected to fall 1.4%. The GDP report will be important to investor perception of whether recent actions taken by the UK government and Bank of England to boost UK growth are having any impact. GBP traded lower despite reports that UK April Righthouse asking prices rise 1.8% and that the UK Confederation of business industry says the worst of the UK recession is over. The CBI says the UK will return to modest growth in second half of 2010. The CBI indicated that there are signs of stabilization in the housing market and bank lending but the recession in UK is not over yet. The CBI expects UK consumer inflation to fall below the Bank of England's 2% target and remain there through 2010 with unemployment to rose above 10% into the first quarter 2010. CBI expects the UK 2009 growth to contract by 3.9% compared with an earlier prediction of a 3.3% 2009 contraction. UK March CPI inflation data will be released Tuesday and is expected to show an annualized decline to 2.9% from 3.2% in February. March RPI is expected to post an annualized negative rate. The UK budget is expected to focus on jobs and investments.

This week's UK economic calendar includes the April 21st release of March CPI expected at 0.2% compared to 0.9% last month. On April 22nd, February unemployment will be released expected at 6.7% compared to 6.5% last month with claimant count expected at 100K. PSNBR for March will also be released on April 22nd expected at 17 bln. MPC minutes for the April 8th and 9th BOE meeting and UK budget will also be released Wednesday.

The technical outlook for GBP is turning negative as GBP breaks support at 14600.Look for key GBP support at 1.4450 the April 2nd low with resistance at 1.4850 the April 17th high.

CAD

CAD traded sharply lower pressured by declining equity markets and falling commodity prices. Concern that this week's US earnings reports may be disappointing sparked selling of US equities and safe haven flows to the USD. Crude prices declined over 3% pressured by concerns about weakening global demand as growth in China slows and the OECD warns of extreme uncertainty for the world economy. Canada's net foreign investment rises C$6.11Billion compared to C$10.43 Billion in January. CAD decline accelerated after the release of the net foreign investment data and acceleration of the declining US equity markets as US LEI falls more than expected. Focus turns to Tuesday's Bank of Canada policy meeting. The trade expects steady BOC policy decision and possible announcement of quantitative ease. About a third of the analysts surveyed expect a 25 basis point rate cut from the BOC. If the BOC elects to implement quantitative ease it may boost demand for CAD by encouraging investors to conclude that the BOC is prepared to do whatever it takes to boost growth. The BOC cut its overnight rate to record low 0.5% last month. Thursday the BOC will announce its quarterly policy statement. The BOC's quarterly policy statement may address the issue of quantitative ease. The preferred strategy is to buy dips in the CAD on rallies to 1.2400.

This week's Canadian economic calendar includes the April 21st release of February wholesale sales expected at 0.8% compared to -4.2% last month. On April 22nd, March Leading Index will be released expected at -0.3% compared to -1.1% last month. On April 23rd, February retail sales are due for release expected at 1.1% compared to 1.9% last month.

The technical outlook for CAD is turning mixed as the rally corrects sharply from the 1.2000 level and the trendline breakout of 1.2090 failed to attract fresh CAD demand. Look for near-term resistance at 1.2450 with support at support at 1.2123 the April 20th low.

AUD

AUD traded sharply lower pressured by weaker equity market trade, falling commodity prices, report of weak Australian inflation data and selling in cross trade to JPY. Renewed selling pressure in equity markets appeared to be sparked by an OECD report that suggests that clear signs of global economic are unlikely to emerge until the end of 2009 and jitters about the release of this weeks US earnings reports. Australia's Q1 final goods PPI falls 0.4%, a 0.6% rise was expected. This marked the first drop in Australian PPI in almost 6 years as construction costs decline. The decline in Australia PPI generates risk of deflation and the data may revive RBA rate cut speculation. AUD selling in cross trade to the JPY is attributed to rising risk aversion and weaker equity market trade. AUD came under pressure last week in reaction to reports of slowing growth in China. China is a major export destination for Australia. Weakening Chinese growth may mean a more prolonged global slowdown. AUD was also pressured by concern that divisions at the ECB may contribute to deepening of the global slowdown. Risk sentiment has re-emerged as the main market driver for the AUD. The trade will look to the direction of equities and this week's Australian inflation data as key market drivers for AUD direction.

On April 21st Q1 CPI will be released expected at 0.4% compared to -0.3% last month. On April 23rd, March new car sales are due for release expected at -3% compared to -18.6% last month.

The technical outlook for the AUD is mixed on today's break of key support at 7100. Look for AUD support at 7000 with resistance at 7240 the April 20th high.