Recent euphoria generated by the US Treasury�s Public-Private Investment program, that has swept the marketplace, is wearing off, exposing the fundamental issues burdening the global economy. From China, PBOC Governor Zhou yesterday called for a new Super Currency to replace the role of the US dollar as reserve currency. The Norges bank is widely expected to reduce the sight deposit target rate to 50bp to 2% but excluding any deviation, NOK traders will be focus will be on the central projection of the policy rate going ahead. Bank projections place the bottom of easing at 2.00% while the market is discounting a rate around 1.25%.
[B]News and Events:
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The postive trend in dollar strength has garnered some momentum, as the rally in risk appetite subsides. As expected, the recent euphoria generated by the US Treasury�s Public-Private Investment program, that has swept the marketplace, is wearing off, exposing the fundamental issues burdening the global economy. The EurUsd dropped 146pips through 1.35, while the UsdJpy gained 117pips to the low range of 98. Equity markets ended negative with the Dow weaker by 1.49% or 115pts, while European stock indexes were mostly flat. Bond yields made limited moves across the UST curve, but jumped substantially in UK gilts and Eurobonds. Commodities were mixed, with gold sliding 1.1% to $928oz and oil traded sideways settling at $53bbl. Global inflation is slowly creeping higher, as yesterday’s Eurozone PMI came in better than expected at 40.1 vs. 39.2. Despite the small uptick, growth is estimated to remain anemic over the next several months. The economic data is critical in gauging the timeline for a recovery. Once we see a rally in the underlying fundamentals there will be certainty that stabilization in the market is underway. In the UK , CPI also surpassed estimates rising to 3.2% vs. 2.6% which was a key driver in the Sterling �s move to the upside today. The BoE expressed their key concern would be to counter deflation, a significant challenge in zero percent interest rate environment. From China, PBOC Governor Zhou yesterday called for a new Super Currency to replace the role of the US dollar as reserve currency. Zhou stated that the current economic crisis “calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.” We expect China rhetoric on currencies will be destabilizing and negative for sentiment. On a side note both President Obama and Fed Chairman Bernanke quickly dismissed the concept of a global currency. Today brings the German Ifo survey, a monetary policy announcement from the Norges Bank, US durable goods orders and new home sales. The Norges bank is widely expected to reduce the sight deposit target rate to 50bp to 2% but excluding any deviation, NOK traders will be focus will be on the central projection of the policy rate going ahead. Bank projections place the bottom of easing at 2.00% while the market is discounting a rate around 1.25%. If there is an indication in today�s announcement that the market is correct it will be decidedly bearish for the Krona. However, should the Norges bank stick to 2.00% and should crude prices continue to trend upward we should have a resurgence in NOK buying interest.
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Today’s Key Issues (time in GMT):[/B]
00:00 PLN NBP interest rate announcement, % 26-Mar 3.75exp, 4.00% prior
09:00 EUR IFO business climate, index Mar 82.2 exp, 82.6 prior
09:00 EUR IFO current assessment, index Mar 82.5 exp, 84.3 prior
09:00 EUR IFO business expectations, index Mar 81.8 exp, 80.9 prior
11:00 GBP CBI distributive trades, reported sales Mar -30 exp, -25 prior
12:30 USD Durable goods new orders, % m/m (y/y) Feb -2.0 exp, -4.5 prior
13:00 NOK Norges bank interest rate announcement, % Mar 2.0% exp, 2.50% prior
13:00 NOK Norges bank Monetary Policy Report
14:00 USD New home sales, thous. Saar Feb 300 exp, 309 prior
21:45 NZD Current account balance, NZD bn (nsa) Q4 -5.994 prior
23:50 JPY CSPI, % y/y Feb -2.5 exp, -2.2 prior
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Triple top at 1.3733 holds as pair heads for strong support at 1.3417 after having broken crucial level at 1.3480. Momentum past 1.3417 would break 5 day range and regain 1.3107 � breakout from bullish channel that started on March 4th. A bounce off support would target upper extremity of current range via 1.3579 and 1.3683.
[B]GbpUsd:[/B] Waning momentum not to deter the bulls, 1.4774 tested twice has failed but initial support at 1.4626 will shed light on corrective nature of yesterday�s moves. Break above resistance would put 1.4981 in our sights. Further dollar gains would unlock 1.4557.
[B]UsdJpy:[/B] Correction from 93.56 � 98.57 move see�s strong support at 97.36 (23.60% Fibonacci level). Further slowing momentum would set our sights on 38.20% (96.67). Regaining bullish view would have to see the pair firmly break 98.57 resistance, leaving the door open for 99.75.
[B]UsdChf:[/B] Dollar strength more subdued against the Swissy as haven status remains. Resistance at 1.1330 would unlock 1.1463. On the downside 1.1214 remains crucial level that would allow for strong support at 1.1159 to be tested.
[B]Resistance and Support:
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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland