The first blow to risk appetite was concerns over the spread of Swine Flu which has moved out of Mexico into the US and New Zealand (Mexican officials has raised the death toll to over 100). Report from Bloomberg that a German newspaper is claiming that German banks were exposed to $1trn worth of bad debt loss due to exposure to Eastern Europe. Criticism of last week�s UK Budget came fast and furious over the weekend which today has spilt over to Cable selling down to the 1.4516 lvl. Direct exposure to the Swine flu caused a 6.0% sell off in the MXN against the USD and should be the catalyst to reverse recent strength
[B]News and Events:[/B]
While last week’s assault on optimism was repelled, we don�t expect the same resiliency this week. On Friday, the Fed introduced its oddly uncontroversial stress test methodology called, �Supervisory Capital Assessment Program�, and stated that most U.S. banks currently are well capitalized. The paper contained two scenarios; a base line and more severe economic downturn. The baseline scenario for real GDP for 2009 was -2.0% and 2.1% for 2010 while the more severe scenario was for GDP growth of -3.3% in 2009 and 0.5% in 2010. Overall there was little real insight into the parameters for investors to dissect, which provided room for equities to rally. The S&P closed higher and US Treasury yields retraced their post-QE move below 3.0%. However the optimism failed to spillover into the start of this week’s trading. The first blow to risk appetite occured as traders pondered the effect Swine Flu’s rapid move out of Mexico (Mexican officials has raised the death toll to over 100) into the US and New Zealand might have. The initial market reaction was clinical with equity lowers with pharma stocks moving higher and airlines stocks were sold off. Next was the report from Bloomberg that a German newspaper claimed that German banks were exposed to $1trn worth of bad debt loss due to exposure to Eastern Europe . Then was the lack of agreement by G7/G20 officials on how exactly to fund the much hyped $1.1trn worth of new funding to the IMF. China and Brazil recommended that the IMF should issue bonds for the cash, while the developed nations maintain the call for straight cash. While the markets have played down the outcome of this weekend’s meetings, it highlight cracks in the G20. These events have clearly dampened investor�s confidence. As stated earlier, we don�t believe the bounce in risk appetite witnessed last week will continue this week. Equity markets are trading lower with DAX down -1.57% while the USD is broadly stronger. JPY is seeing good demand in the crosses with the GBPJPY falling to 140.50. Criticism of last week�s UK Budget came fast & furious over the weekend which today has spilt over to Cable selling, down to the 1.4516 lvl against the USD. The EURCHF is coming very close to the 1.5000 �line in the sand� and it will be interesting to see how the SNB responds (given recent rhetoric, we like selling CHF). Gold has retraced slightly from today’s $918oz highs to $913.88oz. In the emerging market’s currencies, our focus will be on Mexico and South Africa . Direct exposure to the Swine flu caused a 6.0% sell off in the MXN against the USD and should be the catalyst to reverse recent strength. And in SA this weekend�s land slide win by the ANC and Zuma can only be negative in our perspective for the ZAR mid term.
[B]Today’s Key Issues (time in GMT):[/B]
08:30 GBP BBA mortgage approvals, K Mar 28 prior
08:30 GBP BBA net mortgage lending, � bn Mar 3.9 prior
08:30 GBP BBA net consumer credit, � bn Mar -0.2
13:30 Israel BoI interest rate announcement, % 30-Apr 0.50 exp, 0.50% prior
16:45 EUR ECB President Trichet delivers keynote speech to the Global Financial Forum in New York
[B]The Risk Today: [/B]
[B]EurUsd:[/B] With risk aversion dominating trading and failure to hold above 21d MA ( 1.3202) we expect another test of 1.2980 then 1.2880 support. Bear channel resistance at 1.3270 will cap any upwards move.
[B]GbpUsd:[/B] Pressure is clear mounting on the sterling with the bull rally off of 1.3656 (march 11th) lows fading. RSI has a neutral tone so expect a choppy move down lower to 1.4400/40 cloud support and 1.4389 horizontal support. Trendline resistance at 1.4720 will cap rallies.
[B]UsdJpy:[/B] Strong Yen continues to defy the dollar � now compounded by dollar weakness � expect a move to daily cloud support and Fibo retracement near 95.70/96.00 to come into play. Initial resistance at 97.56 (congestion area).
[B]UsdChf:[/B] The SNBs commitment to a weak CHF will be challanged. Our bais is fro markets to push the pair to 1.1350 (200 day MA) but there is a significant risk of a recovery back to 1.1550 intra. Until we see a reaction by the SNB expect 1.1350/1.1800 range to remain intact.
[B]Resistance and Support:[/B]
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland