US consumer confidence dropped back from a five-year high in March, The headline confidence index fell to 107.2, from a revised 111.2, (previously 112.5). Consensus was 108.5. Conference Board’s measure is still at a relatively high level compared to the University of Michigan series, which has fallen sharply since the start of the year.
German business Confidence survey, 107.7 vs 107, reinforced expectations that Euro-zone rates are heading higher. Consensus was 106.5. ECB’s Garganas said Euro-zone rates do not seem to have peaked and the ECB may need to act of upside inflation risks appear. Analysts are already looking for a hike and the market is pricing in Euro-zone rates of 4% by the end of 2007, while US rates are seen falling to 4.5%.
News and Events:
The Dollar fell against the Euro and the Yen on Tuesday, weighted down by softer-than-expected data on US consumer Confidence and persistent worries about a slowing market that could lead to interest rate cut. US consumer confidence dropped back from a five-year high in March, thanks to a sharp decline in the forward-looking expectations index. The headline confidence index fell to 107.2, from a revised 111.2, (previously 112.5). Consensus was 108.5. Conference Board’s measure is still at a relatively high level compared to the University of Michigan series, which has fallen sharply since the start of the year. Looking ahead, there is still plenty of room for further large falls in the Conference Board measure as the full impact of last year’s housing market slowdown starts to come through and unemployment starts to rise. Earlier, a strong German business Confidence survey reinforced expectations that Euro-zone rates are heading higher. ECB’s Garganas said Euro-zone rates do not seem to have peaked and the ECB may need to act of upside inflation risks appear. Analysts are already looking for a hike and the market is pricing in Euro-zone rates of 4% by the end of 2007, while US rates are seen falling to 4.5%. This outlook may drive the EurUsd higher.
The Benchmark Euro-zone rate is currently 3.75%, while the Federal Reserve’s federal funds rate is 5.25%.
With US data out of the way, investors are now turning their focus to Fed Chairman Ben Bernanke’s congressional testimony on Wednesday. All market awaits his view about the wider economic impact of the sub-prime mortgage sector’s troubles.
EurUsd rose 0.14% to 1.3350 in light trading while GbpUsd was fairly unchanged -0.14% to 1.9656. UsdJpy slipped -0.21% to 117.98. UsdCad went down -0.45% to 1.1561 as an election in Quebec knocked the separatist opposition to third place.
Today’s Key Issues:
EUR 09:00 GMT: European Central Bank’s Gonzales-Paramo speaks in Madrid
EUR 09:30 GMT: February Euro-zone M3 seasonally adjusted 9.8% unchanged (YoY)
GB 09:30 GMT: 4Q Gross Domestic product 0.8% unchanged (QoQ) and 3% unchanged (YoY), Private Consumption 1% unchanged (QoQ), Current Account �-9.0B vs �-9.4B
CHF 10:30 GTM: March KOF Swiss Leading Indicator 1.83 vs 1.79
US 13:30 GMT: February Durable Goods Orders 3.5% vs -7.8%, ex-transportation 1.6% vs -3.1%.
US 14:30 GMT: Bernanke testifies at joint Economic committee
EUR 16:30 GMT: ECB’s Trichet and Ordonez speak in Valencia
NZD 23:45 GMT: 4Q Current Account Balance NZD -4.1B vs -4.6B
The Risk Today:
EurUsd defined support at 1.3260 following Monday’s rebound and a break of this support is required to trigger a fresh round of weakness opening 1.3200 (61.8% retracement of the 1.3072-1.3412 rally). A break there would open the risk down toward 1.3180. On the topside, initial resistance is at 1.3343. There is little resistance toward 1.3411 and then 1.3480.
GbpUsd outlook remains positive following the push through last week’s 1.9500 high and the 1.9517 former resistances. 1.9675 initial resistance may be tested again and could open the way for 1.9750 important resistance, early February high. Further, there is little resistance above until the 1.9917 major trend high from late January. An initial support marks 1.9582 Monday low.
UsdJpy looks negative as the range of 118.50 to 118.98 blocks the way up. While this zone holds, the outlook remains bearish with the focus on 115.76 and the 115.55 supports. A break would clear the way for a run at the 115.15 trend low from early March.
UsdChf reversed course after hitting a high of 1.2230 Monday. Initial intraday support lies at 1.2076. It will take a break there to get the underlying bear trend back on better footing for a run at its 1.2030 mid-March level, after what there is little support till the 1.1881 early December low. On the topside, a break of 1.2230 would instead reinstate a short-term bullish theme.
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Resistance and Support:
