The much anticipated results of the US bank Stress Test failed to soften investor�s optimism, despite 10 firms requiting nearly $75bn in new capital. Fed Chairman Bernanke said the stress test results should give the public “considerable comfort”. ECB announced unconventional policy of purchasing covered bonds, which Trichet has strenuously denied that this is quantitative easing. The Bank of England kept the official rate unchanged and increased the size of its Asset Purchase Facility (APF) by �50bln to �125bln. Ahead today, the employment report is expected to show a 600k decline in non-farm payrolls, forcing the unemployment rate up to 8.9%.
[B]News and Events:
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The much anticipated results of the US bank Stress Test failed to soften investor�s optimism, despite 10 firms requiring nearly $75bn in new capital. US equity markets closed slightly lower and the USD was able to make some headway, as traders braced themselves for uncertain events (US 30year yields rallied sharply after the 30year auction went quite badly). However, on the release, with no significant deviation from previous leaked results, the USD was sold off and Asian regional indexes were able to open higher. In FX markets EM and commodity currencies found buyers as risk appetite improved…again. Fed Chairman Bernanke said the stress test results should give the public “considerable comfort”. Although we see that systemic risks are clearly still in place, the result does clear a major risk hurdle. Stimulus efforts and cyclical factors have helped stabilize overall conditions, but for growth to truly begin, credit needs to start flowing back into global financial systems and that will be the next big hurdle for the financial sector. Earlier in the day, the ECB announced unconventional policy of purchasing covered bonds, which Trichet has strenuously denied that this is quantitative easing. Although this was a historical step for the ECB, the 60bn Euros are a small amount in comparison to other central banks and could be a case of too little, too late. The EUR was able to gain on the news (after a knee jerk sell off) as market now views QE in a more positive light, after the Fed’s and BoE’s success. In addition, the ECB cuts rates 25bp to 1.00%, held the refi rate at .25%, and expanded fixed priced funding all the way out to 12-months, as was widely expect. The Bank of England kept the official rate unchanged and increased the size of its Asset Purchase Facility (APF) by �50bln to �125bln while remaining under the maximum possible size of the APF of �150bln, which the BoE and Chancellor Darling had decided previously. The MPC’s decision to increase total asset purchases by a full �50bn to �125bn was a surprise, in particular in light of the recent improvements in UK survey data, spurring Sterling selling. In Australia today, the RBA’s minutes provided a clear signal that it maintains an easing bias. First, the RBA pointed to its shift towards making smaller and less frequent changes to monetary policy. Second was that the RBA is looking for GDP contractions in Q1 and Q2 of 2009 of -1…25% and -1.0% and finally underlying inflation running at the bottom of its 2-3% target band in late 2010. Ahead today, the employment report is expected to show a 600k decline in non-farm payrolls, forcing the unemployment rate up to 8.9%. We expect labor market indicators to deteriorate further, although a better-than-expected ADP employment report implies upside risks. However, the correlation between the two series is small at best…
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Today’s Key Issues (time in GMT):[/B]
10:00 EUR German Industrial production, % m/m (y/y) Mar -1.3 (-21.1) exp, -2.9 (-20.3) prior
11:00 CAD Unemployment, % Apr 8.3 exp, 8.0 prior
11:00 CAD Net change in employment, thous Apr -50.0 exp, -61.3 prior
12:30 USD Nonfarm productivity, % q/q ar (y/y) Q1-P 0.8 (1.8) exp, -0.4 (2.2) prior
12:30 USD Unit labour costs, % q/q Q1-P 2.6 (2.2) exp, 5.7 (1.8) prior
12:30 USD Change in non-farm payrolls, thous Apr -620 exp, -663 prior
12:30 USD Unemployment rate, % Apr 8.9 exp, 8.5 prior
12:30 USD Average hourly earnings, % m/m (y/y) Apr 0.2 (3.3) exp, 0.2 (3.4) prior
14:00 USD Wholesale inventories, % m/m (y/y) Mar -1.0 (-2.5) exp, -1.5 (-1.7) prior
17:00 USD FRB of Richmond President Lacker (FOMC voter) speaks on the economy
17:15 USD FRB of Chicago President Evans (FOMC voter) gives the introduction at Chicago Banking Conference
19:30 MXN Trade Balance, $ mn Mar-F 160 prior
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Volatility continues to see the pair oscillate in a 1.3214 � 1.3439 range. Head and shoulders started in May see�s a neckline at 1.3251 which we tested this morning, a retest of this level would see the pair head lower and aim for bottom of the range for support. 50% retracement on resumption of the bull move on April 28th stands at 1.3200, a break of this level would see the pair head for 1.2964. On the upside the continuing upward channel would target 1.3484, via 50% retracement of counter wave at 1.3341.
[B]GbpUsd:[/B] The MPC unexpected APF incease triggered sterling weakness. Cable continues to consolidate above 1.4923yet yesterday move give the pair a bearish tone. Next target on the upside is 1.5397 � Jan 8th high. On the downside stops to be triggered at 1.5015 et 1.4923 after initial support stated above.
[B]UsdJpy:[/B] We see strong resistance at 99.68 (shoulders top) which indicates a turn in trend however we also see impetus from fundamentals for further yen weakness as risk sentiment improves and traders head away from the Yen as a haven. A break above initial resistance would cap moves at 103.33 though the recent high at 101.49. On the downside initial support stands at recent consolidation point at 98.66.
[B]UsdChf:[/B] triple top in the 1.1432 area points to further Swissie gains are probable as the May 4th gains by the Swiss Franc have been erased, however the move fails at previous resistance. Pair should continue to range trade between 1.1170 and the 200 day average at 1.1440
[B]Resistance and Support:
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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland