Intraday Market Thoughts Archives

US Roundup & Asia Monday Preview The yen gained further upside as weak corporate earnings outweighed generally positive U.S. economic data, while euro & sterling fell on sovereign worries. G20 will continue to meet in Washington DC into the weekend and the NZD hit a post-crisis high ahead of Mondays CPI data. It was an unlikely showing by both AUD & JPY to outperform simultaneously.

JPY & AUD made the unlikely occurrence of GAINING SIMULTANEOUSLY on Friday while the euro and pound lagged. No overriding theme developed as Europe focused on a potential Greek restructuring as German Deputy Fin Min Hoyer opened the door once again for a restructuring. Dow Jones also cited senior EU officials saying the majority of euro-zone countries believe a debt restructuring is inevitable and may happen next year. Soft earnings at Bank of America and Google hurt sentiment and boosted JPY. The Australian dollar got a lift from a fresh record high in gold ($1488).

On the week, the New Zealand dollar edged out the yen as the top performer while sterling and CAD trailed the pack. The themes that dominated were a weak U.S. dollar, rising global inflation related to commodities and the European sovereign debt. The S&P 500 declined for the second consecutive week.

U.S. economic data helped improve sentiment and boost CAD and AUD but it wasnt enough to turn the tide against the yen. 1) The U Mich consumer sentiment survey rose to 69.6 (exp: 69.0) from 67.5. 2) U.S. industrial production was good at +0.8% compared to the +0.5% expected. 3) CPI came in at +2.7% y/y (exp: +2.6%) while the ex-food and energy reading was in-line at +1.2%.

ASIA PACIFIC PREVIEW

THE G20 IMF-WORLD BANK meets continue to meet on the weekend. On Friday, the G20 agreed on guidelines to measure imbalances, according to Reuters. The details will be interesting but should not have a short-term fx impact. Brazil is leading developing countries who are fighting for the right to use capital controls. We could see an effort to talk down commodity prices.

THE COMING WEEK opens with New Zealand CPI on Sunday 10:45 pm GMT. The consensus is for a 1.0% q/q rise compared to the +2.3% prior. This pushes the annual rate to 4.6 per cent from 4 per cent in December. Roughly half of the rise is due to a 10% climb in gasoline prices. Look for an ex-energy and fuel reading at close to +0.3% as a better gauge of underlying inflation. The NZD heads into the report with some technical momentum. NZD/USD broke through Nov. 2010 post-recession highs on Friday but fell just short of popping the psychological 0.8000 mark.

LOOK THIS WEEKEND for any headlines from China on inflation as officials digest Thursdays unexpectedly high reading. On Friday a PBOC deputy said there may be some temporary pressures in Q2 but that they still expect to meet the 4% annual target. Any hints at rate increases would weigh on commodities and AUD.

By AB - AshrafLaidi.com Staff

EUR unable to stand above $1.45 as Moody's cuts Ireland and spreads continue to widen. Focus on Europe and US CPI to justify ECB rate hike and increasingly hawkish Fed. In addition to a busy US earnings release, US econ calendar is busy, with CPI, TICS and Indus Production.

For the third consecutive trading session, the euro cannot hold its ground above $1.45 handle as momentum behind last week's ECB tightening appears to be dissipating. Renewed sovereign debt focus on the periphery dragged the single currency back below $1.4450 after Moody's cut Ireland by two notches citing its weaker economic prospects. Meanwhile, sovereign debt swaps continue to blow out particularly for Portugal and Greece - the latter seeing its CDS rise to record highs despite reassurance from ECB's Orphanides that a restructuring is not inevitable.

US CPI to be released at 8:30ET (12:30 GMT) expected to stay unchanged at 0.2% m/m increase on a more closely tracked Core level. Anything stronger marks the highest rate of growth in almost two years, bolstering the case of the more hawkish FOMC members calling for tightening before the end of this year. US Mar Indus Production expected at +0.6% after -0.1, with Cap Utlization exp at 77.3 from 76.3. Apr prelim UMich consumer sentiment survey exp at 69 from 67.5.

EU CPI was slightly on the hotter side at 2.7%, sending EUR/USD above $1.4470, but Friday could see more defined risk aversion supporting the dollar. Note that Google, reporting results afterhours on Thursday was a major disappointment, with shares falling over 5% below $550 to a 2-month low. Following a disappointing result from high-flyer JPMorgan earlier this week, Bank of America also disappointed on both revenues and earnings. As was the case with Alcoa on Monday, risk aversion in equities still correlates, albeit not as pronounced with USD demand.

TIC data (9:00 ET, 13:00 GMT, 14:00 BST) may also support the greenback through higher Treasury rates, particularly if China remains a net seller as it has been for the past 3 months. Recall Japan, which until now has picked up the slack for China, is increasingly likely to shift its investment objectives inward to help meet the demands of earthquake recovery just as the June expiration of the 3rd key buyer of US debt - Federal Reserve - draws nearer. 10-year yields fell for much of this week to enter Friday below 3.50% but historically have a tendency to rise on disappointing TIC flows.

By GG - AshrafLaidi.com Staff

Fears of further tightening out of China could well impact risk appetite today after both Chinese CPI and GDP came in above expectations this morning. There had been speculation that CPI would come in around 5.4% and this proved well founded as it beat expectations of 5.2%, as prices rose at their fastest rate since 2008. Markets turn to US data (CPI, Empire State Survey & IP), as well as a flurry of US bank earnings, including BoA.

China GDP also beat expectations by rising at 9.7% beating expectations of 9.4% and down only slightly from the previous quarter.Despite efforts by Chinese officials to insist that the recent tightening measures are working the strength of these figure suggest further tightening could well be on the way to cool the economy. With that in mind, beware of RRR hike this morning and a fall back in commodity currencies.

Debt restructuring fears for senior bond holders spooked the bond markets yesterday as Greek and Portuguese bonds hit record post euro highs with Greece 2 year yields near 18%.

Yesterdays jawboning by ECB officials yesterday about rising inflation risks are expected to be borne out by Euro zone CPI figures for March, due to be released this morning confirming the earlier flash CPI reading of 2.6%, and justifying in their eyes the ECB decision to hike rates last week.

Contrasting that with US March CPI out later in the afternoon, which is also expected to come out at 2.6% year on year and the comparisons could not be more different as CPI is not the Feds preferred inflation measure, and is therefore largely meaningless with respect to the Feds inflation fighting credentials, which are slowly becoming discredited.

US damaged by widening yield differentials between, not only the Euro, but also as a safe haven currency with CHF making new all-time highs below 0.8900 and the US dollar index looking set to test its 2009 lows at 74.17.

If euro takes out options barriers at 1.4520/30 the next target is 1.4580 and the 2010 highs.

USDJPY breaks below the 200 day MA at 83.45 looking to retest last month's post intervention highs down towards 82.10, if it is unable to retake 83.80.

By KM - AshrafLaidi.com Staff

Rising US jobless claims and worries about Greece jarred sentiment, but markets gradually shrugged it off as the session wore on. Global market attention turns to China's GDP and CPI data (see detail below), both of which are seen on the strong side. Markets are now pricing in at least 3 more interest rate hikes of 25-bps each by the PBOC, which raises the question about the full impact, considering the rumblings from Greece and Portugal.

U.S. jobless claims shot to 412K compared to the 380K expected and 385K prior. A flight to safety followed with USD/JPY briefly falling below 0.8300 but the early reaction faded on speculation the rise might be a one-week phenomenon or due to a turn of the quarter. Next weeks number now grows in importance.

THE RISK TRADE CONTINUED TO REVERSE and USD/JPY gained after Noda said Japan continues to ask for G7 FX cooperation. A U.S. 30yr auction scored on the strong side at 4.531% compared to the 4.56% WI yield. The strong demand was a slight negative for USD/JPY but the lack of follow through showed a market that isnt committed one way or another.

PLOSSER (voter, hawk) said the Fed may need to act in 2011 and that officials havent decided on an exit plan. Most believed a plan consisting of selling assets followed by raising rates was already decided. Evidently not. Meanwhile Tarullo (voter, moderate) reiterated the core opinion of the Fed that there is no need to terminate or increase QE2 while also quipping that commodity price volatility is legendary.

BUT USD FELL ANEW after Germany hinted the Chinese yuan could be added to the IMFs SDR basket. World leaders are slowly chipping away at the dollars status as the lone reserve currency. The euro gained after Germany took back comments from Wednesday that endorsed a Greek restructuring.

Commodity currencies led the charge higher in late NA trading as the USD slumped. Silver continues to march toward the 1979 all-time high of $48.70 as it hit $42 on Thursday after Bolivia moved to nationalize production. Gold is back to within a shade of the all-time high and stocks were flat.

ASIA PACIFIC PREVIEW

Chinese GDP, CPI, industrial production and retail sales for March will be released at 02:00 GMT but we warn that these figures often trickle out ahead of the scheduled time. Media in Hong Kong said CPI will be between 5.3% and 5.4%, which is above the 5.2% consensus and 4.9% prior. It also suggests CHINA MAY HAVE MORE WORK TO DO THAN the 1-2 rate hikes priced in something that should weigh on CAD, AUD and NZD. Traders have been reluctant to act, until the rest of the figures are released. Retail sales (exp: +16.3%) and IP (exp: +14.0%) are important but will be overshadowed by GDP (exp: 9.3%). Given the strong import and export trade data earlier this week, we strongly suspect the market is pricing a higher figure than the consensus. Dont expect to see a lasting AUD rally even on a figure around 9.5%. Something close to 9.7%, however, would easily spark the 40 pip rally to drive AUD/USD to a fresh all-time high. At 0430 Japan also releases IP (exp: +0.4% m/m) but any misses will be blamed on the earthquake.

By AB - AshrafLaidi.com Staff

Greece & Goldman Sachs concerns revisit the Market one year later to the week. Today's euro pullback was partly attributable to German Fin Min stating Greece would have to restructure its debt. It was April 11 of last year when....

It was April 11 of last year when the IMF & EU agreed on the EUR 550 bln rescue package for Greece, causing a 2-day rebound in EURUSD before subsequently falling over 10 cents. Another Dj vu is happening with Goldman Sachs, as the US Senate alleges GS to have misled US Congress and deceived investors during the financial crisis. Goldman agreed to pay $550 mln last year to settle civil fraud charges, but it now it may face criminal charges. GS stocks down 3.7%. Recall, it was on April 16 of last year when the Justice Dept justice announced it was a investigating Goldman Sachs. 1 week later, markets began a 18% selloff. Keep an eye on these cycles, & re-occurrences.

AL

US PPI inflation expected to retreat to 1.1% from last month's 15-month high of 1.6%. Jobless claims are estimated to fall below 380K for the first time in 5 weeks. Minnesota Fed President Kocherlakota is expected to speak at a hometown meeting - audience questions may call on the FOMC voter to expand on his recent surprising suggestion for the Fed to tighten by as much as 75bps before the year-end. Hawkish Fed's Plosser to speak this afternoon as well as Tarullo

ECB ARPIL MOTHLY REPORT affirmed the notion that policy remains accommodative calling for more focus on inflation risks. Euro continued to test 1.45 handle but last seen putting in a potential triple-top at 1.4520. Sterling is outperforming on a relative basis on expected M&A flows, with IPO for Swiss commodities trader Glencore reported to be heavily balanced toward a London listing. EUR/GBP traded down 60 pips below 0.8860 while GBP/USD advanced above 1.6350, a 3-day high.

China monthly lending exceeds estimates but PBoC advisor warns its economy may slow ahead of may slow ahead of official monthly metrics. Yen demand remains firm - USD/JPY decline triggers stops below 200-day MA around 83.50. Weekly jobless claims expected at 6-week low below 380K. New FOMC hawk Kocherlakota takes the podium.

Risk damage was on display in Asia following a Chinese press report citing local central bank advisor warning that CHINAs ECONOMY COULD could "really slow". Markets further pared short-Yen exposure, sending USD/JPY pair to a 2-week low below 83.50 - technical damage exacerbated the selloff with reported stops building below 200-day MA around that level.

CHINESE INFLATION DATA LEAKED. March economic metrics from China, not expected officially before tomorrow but leaked in the local press, saw industrial production and new loans data - key measures of growth - well above expectations. March CPI was also hotter than expected, back above the 5% threshold around 5.3-5.4%. Official confirmation is expected at 22:00ET of tomorrow's session.

By GG - AshrafLaidi.com Staff

USD dollar stays weak ahead of US PPI and weekly jobless, euro firms ahead of ECB monthly report & GBP recovers ground on improving consumer confidence. Meanwhile, USDCHF at new lows.

The US dollar will once again be in the spotlight today, but if it is to arrest the declines of recent days then a pledge to cut $4trn off the deficit in 12 years by President Obama, while mildly supportive last night, will probably not be enough in the medium term. The combination of cuts and tax rises represents small change in the face of the ever growing national debt, and there is also the small matter of the debt ceiling and this will continue to target the 2009 lows in the US dollar index at 74.17.

In any event yesterdays slightly disappointing retail sales numbers for March suggest that the US consumer is starting to feel the pinch from rising food and energy costs, as they fell back to 0.4% from Februarys 1.1% figure.

The Fed beige book suggested that the US economy was growing gradually with some job growth, however commodity costs were starting to crimp margins and this afternoons producer prices for March look likely to confirm that synopsis with expectations of a rise of 6.4% for March.

Weekly jobless claims are expected to decline slightly to 380k from last weeks 382k.

For the US dollar to start to claw back some ground against a basket of currencies it needs to get back above the 75.25/30 level which was the March lows and to start to see some much more positive data.

The single currency continues to find support as members of the ECB queue up to talk up the prospect of firmer rates into the end of the year with Luc Coene and Yves Mersch the latest to stick their proverbial oars in, while the ECB monthly report should offer further insight into last weeks rate hike, though there shouldnt be too many surprises in it.

Some talk about the prospect of Greece having to restructure its debt prompted some euro weakness late in New York, but we would need to see a move back below 1.4250 to prompt a deeper correction.

The pound found some support from better than expected unemployment data yesterday, while GfK Nationwide consumer confidence data for March also improved to 44 from last months reading of 39.

The Swiss franc continues to surge making new all time highs against the US dollar taking out the double support at 89.15. Bids seen emerging right below the figure, but any resulting bounce seen capped at 08990s for now.

By KM - AshrafLaidi.com Staff

EUR lost ground as new default concerns hit Greece; Obama introduced plans to cut the U.S. deficit and the Beige Book suggested a slow, slogging recovery. EUR/USD stalled in another attempt to break above 1.45 and quickly turned lower after Greece's PM said the economic landscape is more challenging than forecast. Germany's Schaeuble also open the door to a restructuring before 2013. The bond market once again smells blood and credit-default swaps hit record highs. The story capped EUR/USD at yesterday’s high of 1.4520 and it turned 100 pips lower. The double-top suggests further gains towards Wednesday’s low of 1.4380.

JPMorgan goosed sentiment early as they cut loan loss reserves but weak US business inventories and a renewed commitment to let the 'Bush tax cuts' expire in 2012 reversed the trade. The picture was mixed for the USD as traders weighed the impacts on growth of raising taxes against the positive progress on cutting the deficit. Obama’s proposal to create measures that would automatically activate if debts hit a certain limit were seen as constructive and pushed bond yields lower, which led to a slip in USD/JPY. Any announcement from the US government at this point hardly moves markets because it's unknowable whether the ideas will ever become legislation. Late in NA, sentiment improved after the Beige Book continued to point to modest, subdued growth in virtually every part of the US economy, save for manufacturing which is strong. The only good news in the report was that there was no bad news. At this point, that's all it takes to boost the risk trade, commodities, AUD and CAD.

ASIA-PACIFIC PREVIEW

Early data in Asia-Pacific trading came from New Zealand where the business PMI fell to 50.1 – just above contractionary territory -- from 52.6 (revised down from 53.7. The data is pushing NZD/USD very slightly lower. The pair hit a fresh 2011 high on Wednesday and there is talk of intervention to weaken the kiwi if it breaches the 2010 post-recession high of 0.7975 and/or breaks the psychological 0.8000 barrier.

After a good level of activity early this week, expect low volatility and range-bound markets on Thursday with the data calendar quiet around the globe. Strong directional trading may be minimal (with EUR as a potential exception) until Friday when China releases its monthly data slate.

The only tradable data in the upcoming session will be the 0100 GMT release of Australian consumer inflation expectations but even that will likely yield less than 20 pips of movement. The most recent reading for the next 12 months was 3.6% -- there is no consensus estimate. We might expect the reading to creep back toward 4.0% on commodity prices but consider selling any AUD strength on a figure close to that level. Although it is above the RBA’s threshold, the direction of the trend is a better indicator than the overall level of this survey. After hitting 4.6% in February the indicator has been trending lower and this appears poised to continue.

By AB - AshrafLaidi.com Staff

Private economists continue to revise down their forecasts for US Q1 GDP, with JP Morgan revising its fcst for REAL Q1 GDP down to 1.5%. Goldman Sachs cut its nominal Q1 GDP fcst to 2.5% from the earlier 3.5%. Rising oil is increasingly becoming an issue for consumers as well as private economists' forward-looking views. But as long as USDX weakness is sustained by a QE2 remaining intact until end of June, the mechanics of the inverse OIL-USD relationship should prevail. We must NOT eliminate the possibility for prolonged USD weakness and a pullback in oil, an occurrence, which could unfold on the heels of prolonged Fed dovishness and receding global growth projections for H2. Early signs of such a rare development could be sighted via steady EURUSD and weakness in oil. EURUSD is seen remaining underpinned at its Feb 18 trendline support of $1.4250s, which should maintain the slow road for a possible $1.4970s target, especially now that the 1.4360s (76.4% retrcmt) has been cleared away.

AL

US MARCH RETAIL SALES on tap for 12:30 GMT (08:30 ET) highlight early US economic calendar. As indicated in the earlier IMT, a particularly strong set of numbers is a long-shot. March represents the first month since the price of crude oil rose above the psychologically significant $100/barrel. Last time it did so in February of 2008, headline retail sales saw a significant decline of 0.6% m/m - an 8-month low at the time. Tempered consumer appetite amid surging fuel prices would be justified, considering retail sales have now rose for eight consecutive months - a trend not observed in over a decade. Consumer caution would also justify the previously mentioned IBD/TIPP retail assessment, showing steep declines in both March and April surveys.

BANK OF CANADA POLICY REPORT (14:30 GMT) should offer more clarity for its near-term bias. Traders saw little indication the BOC is on the verge of resuming its policy tightening, with key language on stimulus reduction to be "carefully considered" restated verbatim along with more apparent indication of discomfort directed at the strong CAD.

USDCAD respected the 4-week trendline resistance of 09630s, now pulling back down towards 1-week support at 0.9570, a break (close) below which seen extending towards 0.9540s.

By GG - AshrafLaidi.com Staff

Markets await UK unemployment (8:30 GMT; 9:30 London) and US retail sales (12:30 GMT), while CRB extends losses on muted risk aversion.

Reduced growth forecasts and a bearish Goldman Sachs commodities note prompted some significant risk aversion overnight sending commodity FX into reverse. Copper, Gold, Silver and oil all fell, with AUDUSD looking set to test support at 1.0380, with a break targeting 1.0280, while USDCAD looks set to test 0.9690. These falls in commodity prices can also be explained from a technical standpoint as well as the fundamental reasons just outlined. The technical explanation can be seen by a quick glance at the Reuters CRB. Yesterday it pushed back from a key resistance level at $369 which happens to be a 61.8% Fibonacci retracement of the drop from the 2008 highs at $474 to the 2009 lows at $200.

Another reason for the fall in the Canadian dollar was the Bank of Canada holding pat on rates and stating that the recent strength of the Canadian dollar “could create even greater headwinds for the Canadian economy”. With this in mind the recent strength of the Canadian dollar could keep the Bank of Canada on hold for a fair few months yet.

JPY and CHF both gained from risk aversion but USDJPY bounced off 200 day MA which is a key support, while USDCHF close to potential double bottom at 0.8915.

GBP remains in the spotlight today after yesterday’s unexpected decline in UK inflation for March with unemployment data expected to show a net decline of 3k jobs while the ILO measure of unemployment for the 3 months to February is expected to remain at 8%.

US retail sales are also due out and expected to slip back, with a rise of 0.5% expected for March, down from February’s 1% rise.

Sterling rate index testing key support level at 2011 lows at 78.40, while key levels on GBPUSD remain at 1.6180, break targets 1.5960.

USD INDEX hit fresh 16 month low at 74.70, just shy of its 2009 lows at 74.17.

By KM - AshrafLaidi.com Staff

US Roundup & Asia/Pacific Preview: Yen pushed up as risk aversion rose for a second day; CAD fell as the Bank of Canada cut into rate hike expectations; and a survey of U.S. economic optimism crumbled on Tuesday.

=========== A round of risk aversion that kicked off in Asia circled the world on Tuesday. GBP and the commodity currencies were the laggards as U.S. stocks fell about 0.8% in the largest decline in a month. Sentiment is being driven by: 1) cascading DOWNGRADES to growth in advanced economies, especially the US, Japan and the UK. 2) Worries about the effects of HIGH OIL PRICES 3) uncertainty about CORPORATE PROFITS in light of high resource expenses.======== An UNLIKELY SOURCE of worry came from the IBD/TIPP economic optimism survey as it stumbled to 40.8 from 43.0 (Exp: 45.7). It’s a record low, beating out the 41.1 score in the depths of the recession 30 months ago. "The shock of the gasoline prices is going to suck up everything," The survey results put a downward bias in Thursday’s U.S. March retail sales report. The consensus is calling for +0.4% ex-autos and gas but the market will now be bracing for something weaker.

U.S. growth forecasts continue to be trimmed after large drops in imports and exports resulted in a $45.8 billion trade deficit (Exp: -$42.9B). In a separate report, the U.S. fiscal deficit hit $188.2 billion (near expectations) in March compared to $65.4 in the same month last year. The YTD deficit is at $829.4 billion compared with $717 billion at this time last year.

In CANADA The BoC was substantially less-hawkish-than-expected but upbeat about growth. They upgraded the 2011 growth forecast to 2.9% from 2.4% but downgraded 2012 to 2.6% from 2.8%. The BOC gave no hint they would be raising rates at the next meeting on May 31. Further details of economic forecasts will be released on Wednesday but there is enough here to call into question the likelihood of a rate hike in July (which is highly priced in).

ASIA PACIFIC PREVIEW: Economic data should not be a driving factor in Asia-Pacific trading unless there is a large surprise in Japan’s corporate goods price index (exp +1.9% y/y) or Australian consumer confidence from Westpac (prior: -2.4%). Expect the focus to stay on the nuclear crisis in Japan. A portion of Tuesday’s risk aversion was blamed on officials in Japan raising the rating for the nuclear disaster to 7, the highest level, from 5. The move, however, was a reflection (or admission) of the radioactivity that has already been released, not a warning that the condition is worsening. “I think it’s actually getting incrementally better,” Navy Admiral Robert Willard, the head of the U.S. military’s Pacific Command told Bloomberg Tuesday. We may see this manifest as a rebound, or at least stabilization, in risk appetite.

By AB - AshrafLaidi.com staff

Arabia TV & Budapest. View Ashraf's interview on AlArabia TV earlier today discussing UK Inflation, ECB Outlook, Sterling & Euro http://tinyurl.com/66a7lp7

Ashraf's Seminar in Hungary next Tuesday -- Budapest Kempinsky http://bit.ly/gJOZO6

30% Prob of BoC Rate Hike. Euro Pulls Back for 2nd Day. Would SPain beb Next ?

BANK OF CANADA RATE DECISION marks the key economic event of the early New York session. Last time, the BoC upgraded its assessment of domestic economy from "recovery proceeding broadly as anticipated" to "proceeding slightly faster than anticipated." Canadian central bank was more upbeat on consumption and business investment, but also attributed headwinds in the export sector to the strength of CAD. Even though the prior Conservative ruling party appears to have regained control headed into the national elections, political turmoil and budget uncertainty are likely to keep BOC at 1.00%. DESPITE A HEFTY 30% CHANCE OF A 25b-HIKE priced in the OIS market, a rate hike would indeed be surprising at this juncture. If Canadian central bank is truly concerned about the strength of CAD relative to USD, it would be wise to wait on the late-April FOMC decision to get some more clarity on the future of QE2 - recall that there is no Fed meeting in May. BOC last assessment on inflation was also rather lukewarm, suggesting expectations moved up but remain concentrated within the target control range. USDCAD spike topped out at the 4-week trendline resistance of 09620s. In the event that risk aversion deepens alongside the an unchanged decision may likely lift towards 09690s. In the unlikely event of rate hike, USDCAD seen at 0.9490s, but we could see broader CAD strength vs EUR & AUD.

EURUSD IS BACK BELOW $1.44 with what's shaping up to be a second losing session in a row. A quick glance at the daily chart reveals that over the last 5 occasions, consecutive sessions of EUR losses were followed by further weakness. If renewed risk aversion in the wake of a disappointing Alcoa result takes hold in the US session - and equity futures certainly point to more than just a modest selloff - safe-haven greenback demand may well result in further Euro losses. Today’s op/ed in the Financial Times by Wolfgang Munchau warning that an ECB rate projected to reach 2% by the end of this year would have a severe impact on the feeble Spanish housing. Munchau argues that while price per sq/m rose over 100% in the decade leading to 2007 crisis, by the end of 2010 it fell only 18%. Higher interest rates in a sector already tied primarily to the 1-year Euribor rate would only exacerbate the "stress already in the system - unemployment, higher oil prices, and rising interest rates." With ECB tightening in the rear view mirror and only a vague indication over the timing of the next policy move, Mar 22nd high/Apr 7th low around $1.4240 - also an area of trendline support for a 2-month channel - may well become a pull-back target.

By GG - AshrafLaidi.com

Asian markets firmly in the red at the expense of risk currencies after Japan raised its assessment of the radioactive fallout at its Fukushima Daiichi nuclear power plant to the highest severity level by international standards—a rating only matched by the Chernobyl accident of 25 yrs ago. AUDUSD drops by a full cent, cable and USDCAD off by over half a cent.

FALLING GBP TURNS to UK CPI for possible support following the IMF downgrade and continuously dismal RICS survey. The Bank of Canada is expected to hold, while Portugal hosts the IMF rescuers. UK MAR CPI seen at 4.4% y/y, a conservative figure considering the recent surge in oil prices. A figure above 4.5% could well increase the odds for a May rate hike. UK Feb trade balance expected to have deteriorated from January’s £7bn to £8bn. Key GBPUSD resistance stand between the recent highs at 1.6430 and the 2010 highs at 1.6460, while against the single currency there appears to be some significant resistance between 0.8850/60. Cable support at 1.6270 could be broken on downside surprise.

A POTENTIAL COUNTERBALANCE to a high inflation number in the UK could well be a strong German ZEW survey of economic sentiment indicator which is expected to drop slightly to 11.3, while Portugal plays host today to delegates from the IMF, ECB and European Union as they discuss a bailout package.

On the other side of the Atlantic the BANK OF CANADA is likely to hold rates at 1% given the proximity of the forthcoming election, as well as the current strength of the currency, due to high oil prices. Keep an eye on the BoC’s latest GDP forecast for any downgrades or upgrades. More on this in upcoming IMT

By KM - AshrafLaidi.com staff

US Roundup, Asia Preview:

Alcoa earnings disappointed, the carry trade unwound after the IMF warned of slowing growth and UK RICS remained weak, The Asia-Pacific calendar is filled with second-tier releases but the Bank of Korea could cause a stir.

ALOCA met earnings expectations but revenue was soft and shares fell 2% after hours. The company stuck by its forecast for 12% aluminum-demand growth in 2011 and that has minimized pressure on AUD and CAD. Readers of our earlier IMT (by GG) were reminded how Aloca also met earnings & disappointed on top line (revenues).

USD strengthened as the fear trade due the budget impasses evaporated, as we warned about on Friday. The strength came despite dovish comments from Yellen and Dudley. "We shouldn't be enthusiastic about tightening monetary policy too soon," Dudley said. I don't see any signs that expectations are becoming unanchored."

The IMF GRABBED THE HEADLINES by CUTTING US & UK GROWTH FCSTS. US 2011 GDP fcst was cut to 2.8% from 3.0% in January but this just follows similar moves from Wall Street economists. The IMF said rising commodity prices appear unlikely to derail the recovery the lack of conviction in the wording is a tad worrisome. The overall forecast for worldwide growth was bumped to 4.5% from 4.2% in October on developing market strength. UKs 2011 GDP fcst was cut to 1.7% from 2.0%, while keeping next years fcst intact at 2.3% .

ASIA PACIFIC PREVIEW:

APRIL UK RICS survey on house prices remained unchanged at -23%, showing similar pace of declines, while the BRC Retail Sales monitor fell 3.5% y/y from -0.4%. GBP EXTENDS LOSSES to $1.63350, while EURGBP looking to break 0.8850 barrier for the next key medium term target at 0.9930.

BANK OF JAPAN releases the minutes of the March 14 meeting at 23:50 GMT. The meeting was held three days after the earthquake but in light of last weeks meeting a new 1 trillion yen loan facility, the minutes will be more relevant to economic historians than traders. Japanese M2 money supply is expected at +2.5% and will be released at the same time.

SOUTH KOREA's CENTRAL BANK DECISION is one release under watch (02:00 GMT). The KRW slipped on fx intervention fears Monday even though the IMF raised the nations 2011 inflation forecast to 4.5% from 3.4%. In March the BOK hiked rates to 3.00% and they are widely expected to remain on the sidelines but with inflation at a 29-year high, a surprise hike or very hawkish rhetoric cant be ruled out and would boost KRW. Such a move could also weigh on AUD.

Other releases of note include Chinese FX reserves and M2 (Exp: +15.4%) at 00:00 GMT, National Australian Banks business confidence (Exp: +14) at 01:30 GMT and Japanese machine tool orders at 06:00 GMT.

By AB - AshrafLaidi.com staff

Japan aftershock spoils continued risk appetite in Asia; 3 Fed speakers on the docket; US earnings season kicks off with Alcoa.

Another week, another above 7 magnitude aftershock, and another retreat in equities/commodities/risk-on FX. High-flying AUD approached its late Friday US-session high around $1.0580, supported by better than expected China trade data, but has since been turned back below $1.0550. Recall a similar development taking place in the middle of last week - 7.1 magnitude event and a tsunami warning followed by brisk profit-taking. As we saw then, limited impact on infrastructure and no further damage to nuclear power plants saw investors rushing back into Japan equities and other risky assets. Any escalation in JAPAN POLITICAL THEATER could add further pressure on the Yen - over the weekend, ruling DPJ party lost some 70 seats in local assembly elections in evidence of low approval for embattled PM Kan.

ALCOA TAKES CENTER STAGE after the US closing bell with the official start to the US earnings season. The first Dow-30 component to report Q1 results, aluminum giant has had a tendency to disappoint. LAST TIME, AA BEAT EARNINGS BUT missed on the top line, sending stock price down 3% for the week. We are paying particularly close attention to company assessment of aluminum demand in 2011, last forecasted to rise 12%.

THREE FED SPEAKERS on deck; Chicago Fed President EVANS will speak on risk management, while FOMC Vice Chair YELLEN will continue to defend her dovish position in the face of rising commodity inflation. The topic for this more relevant 12:15pm ET address - "Commodity Prices, the Economic Outlook, and Monetary Policy" - could not be any more appropriate. We should note that prior to the post-earthquake retreat, crude oil extended its gains above $113.30 while silver nearly breached $42/oz mark. DUDLEY to also speak. Report of more LIVE FIRE by SYRIAN SECURITY forces targeting protesters overshadows speculation Libya government is willing to discuss a ceasefire with the rebels.

See CALENDAR for more DETAILS

http://www.ashraflaidi.com/economic-calendar/

By GG - AshrafLaidi.com staff

Last week, USD hit its lowest since 2009 and this week doesnt look as if it will be any different. The backdrop of political turmoil inside the US allied to loose monetary policy continues to erode the appeal of the greenback as global central banks combat rising prices with rate hikes, further widening yield differentials over the US currency.

INFLATION DATA out of the US later this week is unlikely to lead to tighter monetary policy anytime this year, while rising inflation from German, UK and China is likely to show further rises in price pressures. US retail sales and industrial production will also be in focus later in the week.

With little in the way of data today, the main focus will be on tomorrows UK and German inflation numbers, as well as Portugal's meeting with IMF, ECB and European Union officials. Geopolitical factors are also likely to continue to put upward pressure on oil prices with US Crude surging through $110 a barrel at the end of last week, further boosting the Canadian dollar as turmoil throughout the Middle East and Africa threatens to spread.

EURUSD faces immediate resistance at the 2010 highs of around 1.4580, with support near the November highs of 1.4280. GBPUSD still looks set to test its 2010 highs of 1.6460. AUDUSD pushing to fresh float highs, boosted by the Aussies large yield differential against USD and yen and surging commodity prices. These 2 factors combined remain the winning formula for the currency as long as equity indices are not in sell-mode and the risk button is firmly pressed. Support now at 1.0420, the 4th April highs.

By KM - AshrafLaidi.com staff

China Trade Balance surprises to the upside. 11th hour deal averts US govt shutdown. Yellen retains dovish tone.

CHINA MARCH TRADE BALANCE showed a modest surplus of $140M but well above consensus estimate of a $3.4B deficit. While the popular press headlines paint the release in more gray tones of the first QUARTERLY deficit in years, the monthly result should be seen as a welcome surprise even to China Commerce officials - late last month, Commerce Minister Deming foreshadowed an even wider deficit than the 7-year high $7.3B seen in February. As we underscored on Friday, EXPORTS component - goods manufactured in China and shipped overseas - are perhaps the most notable part of the report, coming in well above the expected 21% y/y rate of growth at 36%. The data is also likely to be perceived as a boon to the surging AUD given Australia's direct exposure to Chinese demand for hard commodities.

Late Friday night dealing on Capitol Hill finally yielded a BUDGET COMPROMISE between the agreeable Democrats and the increasingly frustrated GOP cowtowing to the fiscally hard-line Tea Party faction. Extended to September, the federal budget saw spending cut to the tune of about $38.5B - above the $33B Democrat target but slightly below the $40B demanded by the House Republican majority. The deal should begin to answer whether the late-session Friday dollar damage was the direct result of increasing US government fiscal uncertainty or a more entrenched weakness on the heels of post-ECB interest rate differential factors. We do allow for the probability of the former playing a part in late-Friday Euro spike and would not be surprised at some modest USD strength in the opening hours of Asia trade.

Speaking at a Yale panel, FOMC VICE CHAIR JANET YELLEN (known for her dovishness back in her days as SF Fed pres) reiterated her dovish bias to Fed policy, suggesting economic conditions remain sufficiently subdued to contemplate an exit from accommodative stance at this time. Yellen once again defended QE2, targeting $2.8T Fed balance sheet at the time of completion of its asset purchase program.

By GG - AshrafLaidi.com