Steep Decline in Euro-Zone Industrial Production

China’s Q1 GDP came in lower than expected at 6.1% vs. 6.2% exp. Euro-zone industrial production dropped 2.3% m/m confirming that the manufacturing sector is still contracting sharply. Today’s key releases will be weekly jobless claims and March housing starts.

[B]News and Events:
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The recent improvement in market sentiment, regarding the global prospects, has been highlighted more in asset prices than firm economic data. A reasonable phenomenon, given the backward looking nature of economic data. However, it seems markets have gotten slightly ahead of themselves, once again, in predicting the bottom. Corresponding has been AUD/NZD, that has broken out of its 1.20-1.25 range and threatens further short-term upside. We believe what we are seeing in the FX markets is a moderating of expectations. While the US and global data has surprised to the upside, we believe it�s to early to call the recovery. Sooner or later asset prices will need to adjust to the more cautioned forecasts. Much of this optimism has been based on the revival of EM, specifically from Asian countries. However, expectations came down as China’s Q1 GDP came in lower than expected at 6.1% vs. 6.2% exp. Yet, the acceleration in fixed asset investment was very encouraging and should push 2009 GDP to 7.0%. We expect the recovery in China to continue and for it to be the strongest anywhere in the world but not just yet. In the mid term, stronger growth should support “risky” currencies, especially those in Asia (ie the AUD and NZD in the G10). In Europe, the February�s 2.3% m/m drop in euro-zone industrial production validates that the manufacturing sector is still contracting sharply. With these figures, a 2009 GDP forecast of -3.5% /-4.0% is starting to sound optimistic. Overall, forward looking indicators in Asia and Europe have provided mixed signals at best. Now more than ever, the US will be the economy most traders will be paying attention to. Yesterday’s economic data contained enough encouraging signs to sustain Wall Street as the Empire manufacturing index was particularly strong. Today’s key releases will be weekly jobless claims and March housing starts.

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Today’s Key Issues (time in GMT):[/B]

09:00 EUR HICP, % m/m (y/y)Mar- 0.4 (0.6) exp, 0.6 “flash” prior
09:00 EUR Industrial production, % m/m (y/y wda) Feb- -2.7 exp, -3.5 (-17.3)- prior
12:30 CAD Manufacturing shipments, %m/m Feb -5.4 prior
12:30 USD Building permits, mn units saar Mar 0.550 exp, 0.564 prior
12:30 USD Housing starts, mn units saar Mar 0.545 exp, 0.583 prior
12:30 USD Initial jobless claims, thous (4wk mvg avg) Apr-11 654 (657) prior
14:00 USD Philadelphia Fed index Apr -32.0 exp, -35.0 prior
16:00 TRY CBT interest rate announcement, %Apr 10.00% exp, 10.50% prior
17:00 USD FRB of Atlanta President Lockhart (FOMC voter) speaks on "Meeting the Challenges of Financial Crisis"
22:45 NZD CPI, % q/q (y/y) Q1 0.3 (3.0) prior, -0.5 (3.4)
23:30 USD FRB of San Francisco President Yellen (FOMC voter) speaks on the economic crisis-

[B]The Risk Today: [/B]

[B]EurUsd:[/B] Broad bearish trend resumes (momentary lapse in corrective bull) and even gains momentum as risk appetite wanes. Initial resistance stands at 1.3090. On the upside a break above trendline resistance at 1.3465 is needed to point to the wider range high/200 day average.

[B]GbpUsd:[/B] Still bullish despite enormous headwinds. Yesterday cable finally broke out above its recent 1.4960/80 range high but the rally failed to hold gains. Consolidation above 1.4775 will prepare the cable for a move towards 1.5155.

[B]UsdJpy:[/B] Little movement indicates market is balanced. Pair fails on 61.80% retracement support line at 98.09, 98.41 stands as initial soft support, while a break below the 61.80% level would aim for March 30th low of 95.96. On the upside resistance comes at 99.40 but a test at 100.77 would allow us to retest recent highs at 101.53.

[B]UsdChf:[/B] Break of 1.1451 initial resistance not point ot a test of 1.1540 trend resistance. On a more fundamental note the SCB is rumored to be planning intervention this could reassert the bullish nature of the pair � the greenback�s haven status outshining the Swissy�s for the time being. Initial support stands at 1.1414 with a strong floor in the 1.1391 area.

[B]Resistance and Support:

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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland