The equity market continued its recent rally in Asia but are now selling off in Europe. With the EURUSD breaking below 1.2987 and neutralizing it bullish theme, the markets will be focused on 1.2834 near term. In Australia, producer price index unexpectedly fell to -0.4% m/m against expectations of a 0.6% m/m increase. In Hungary, the NBH needs to stall on the rate cuts at 9.50%, as the latest developments in the HUF could revert very quickly and possibly even need supporting with a hike.
[B]News and Events:
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On the start of the trading week markets have scant new data to help guild trading decisions. The start of the US earning season was overall positive, with a few banks posting better than expected earnings. The equity market continued its recent rally in Asia but are now selling off in Europe. Within the fragile positive sentiment framework, the USD has continued to gain strength primarily against the EUR. Several comments from ECB governing council members on the likelihood of a rate cut and possible new non-standard measures weighed on the EUR and will continue to do so near term.
Today�s empty economic calendar will only amplify the speculation and debate of events to come. The first major event which has been driving risk sentiment is the results of the 19 US banks stress test scheduled for May 4th. An article on Bloomberg cites “people familiar with the matter” that there have been heated discussions between the US treasury and financial regulators in regard to how the results should be released (a debate which would be less important if the results were positive, in our view). There are well founded fears that indentifying banks with weak capital positions could create a panic-like environment in banks and then in the wider financial system. In addition, there has been considerable speculations on surrounding methodology of the actually stress test. As the information comes to light, the creditability of the results will need to be examined, which should increase market volatility. Due to the impeding event, the USD has once again reasserted its credentials as a safe haven currency.
Commenting on the stress tests, President Obama raised the prospect that further government support may be warranted “Different banks are in different situations”, sending higher yielders lower .With the EURUSD breaking below 1.2988 and neutralizing it bullish theme, the markets will be focused on 1.2834 near term.
The other issue giving the market additional concern is the ECB and its May 7th monetary policy meeting. It is widely expected that the ECB will cut the refi rate by 25bp to 1.00% and some decision on non-standard monetary policy. However, the bigger question will be whether the ECB can go below 1.00% and what types of non-standard action is actually on the table. In Japan, Trichet, in an interview to the Nikkei newspaper, hinted that changes in the refi rate would be �very measured�. This implies a floor at 1.00%. However, comments from other key members show a divergent view within the ECB. In the week ahead, Treasury Secretary Geithner will host the G7 finance ministers and G20 officials, on the 25th. The meetings will likely build upon the broader agreement from the G20, as the IMF is expected to take on a larger role in the crisis.
In Australia, producer price index unexpectedly fell to -0.4% m/m against expectations of a 0.6% m/m increase. The data could inform a further easing of inflationary pressures as CPI data due on Wednesday is already likely to show a reduction in inflation to 2.8% y/y from 3.7% y/y previously. Waning inflation will give the RBA more room to maneuver in setting the RBA�s cash target. In Hungary, the NBH needs to stall on the rate cuts at 9.50%, as the latest developments in the HUF could revert very quickly and possibly even need supporting with a hike.
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Today’s Key Issues (time in GMT):[/B]
12:00 USD Hungary - NBH interest rate announcement, % 21-Apr 9.50% exp, 9.50% prior
13:00 USD FRB of Chicago President Evans (FOMC voter) gives welcoming remarks at Money Smart Week event
14:00 Leading indicators, % (y/y) Mar -0.2 (-3.6) exp, -0.4 (-3.6) prio
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Continued broad bearish breaks 1.3000 level and dropping as low as 1.2967 with as we test previous 1.2988 support again. Initial resistance stands at 1.2967 (new low and 61.80% retracement on 1.2461 � 1.3770 rally). Mid to long-term focus is now on 1.2517 with loose supports at 1.2785. On the upside, initial resistance stands at 1.3068, however previous key level at 1.3117 � with 1.3180 as strong pivot, any significant push past this level would signal a momentary turn in direction.
[B]GbpUsd:[/B] Sterling strength is set to continue as the slowing momentum in the global crisis brings on the bulls. Initial support at 1.4607 which would set the tone for 1.4517. On the upside a return to 1.4725 would mark a valiant effort to retrace (23.60% retracement level) however we see 1.4651 and 1.4671 as crucial levels on the way up
[B]UsdJpy:[/B] amplitude of moves has subsided somewhat since the 15th of April settling into a 99.76 � 98.55 range. While the Yen has risen against the dollar in recent moves we see market dynamics evolving, a straight forward inverse dollar/yen relationship is showing signs of thawing. This is why we don�t see Yen extending gains past 98.14 (April 15th Lows) as Japan eases in QE measures.
[B]UsdChf:[/B] Dollar gain has strong momentum against the Swissie after SNB Roth�s speech last week. 1.1459 � 1.1718 move shows an initial support level at 1.1657. Dollar strength set to continue as data improves � pair remains bullish for the time being. Technical levels are more longtime views than other majors.
[B]Resistance and Support:
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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland