Intraday Market Thoughts Archives

USD ended a miserable month as it lagged alongside the euro on Friday. CFTC data showed speculative dollar shorts climbing 14%. The week concluded with a focus on European banking worries and U.S. manufacturing.

The euro underperformed the dollar after a leaked EU report suggested that parts of the continents banking sector continue to require government life support and that large parts of the industry will need to be restructured. A downgrade to Irish growth forecasts also impacted EUR. Low yielders (CHF, JPY) led the market on Friday as carry trades were unwound ahead of the weekend and Japans golden week holidays. Gold soared nearly $30 to a record close of $1563. On the week, the Swiss franc was the top performer with the dollar falling broadly and badly. On the month, the franc and AUD led with the buck trailing badly.

LATEST CFTC DATA showed growing USD short positions with the EUR and GBP long positions building. The EUR net long position expanded to 68.3K from 62.2K, the highest since Dec. 2007. The only currency in a net negative position versus the dollar was the yen but traders appeared to be rushing to the exits as the net position climbed to -37.0K from -53.0K. Speculative longs in AUD and CAD were trimmed but remain at extreme levels.

Soft economic data on Friday wasnt able to slow the CADs rise. Canadian GDP fell 0.2% after two consecutive months of 0.5% growth. Economists were expecting a flat reading but lackluster international trade (due to a strong C$) led to declines in manufacturing and wholesale sales. Economists still expect Q1 growth of 3.8% but the trend is slowing. CAD shook off the report as USD/CAD touched a fresh three year low and closed at the weekly low.

In the U.S., the Chicago PMI fell to 67.6 from 70.6 (exp: 68.5). The decline doesnt reinforce the larger drops we saw in other regional PMIs but places a downside risk on Mondays ISM report.

By AB - AshrafLaidi.com Staff

US dollar index posts a 5th down month, the longest monthly losing streak since 2009. It lost 4.9%, similar to the 5.1% and 5.2% declines in September and July 2010 respectively. Gold hits new high at 1542. The last time USDX fell more than 5 consecutive months .....

The last time USDX fell more than 5 consecutive months was in 2002-2003 when it fell 10 months in a row. US Mar consumption data was in line with spending at +0,6% and core PCE price index held at 0.9% y/y. EURUSD has yet to break 1.49, while AUDUSD hits new high at 1.0965. The road to 1.5050 remains intact as long as there is NO daily close below 1.47.

SUBSCRIBERS of our PREMIUM INTERMARKET INSIGHTS will find the tactical trades for the Canadian dollar after the unexpected 0.2% contraction in Feb Canada GDP. http://www.ashraflaidi.com/products/sub01/

AL

USD majors have coiled into tight ranges over the past 24 hours as markets continue to digest the implications of stagflation scenario painted by Chairman Bernanke on Wednesday followed by a slump in Q1 GDP and weekly claims on Thursday. Instead, emperor's birthday in Tokyo and the royal wedding in London have kept the heavy hitters away from the trading desk.

EUR/USD has consistently found selling interest around 1.4850. Cable has carved out a base at 1.6625, while USD/JPY slide has been contained around 81.25.

The start of Friday's US session will see the 8:30ET release of Fed's preferred measure of inflation - Personal Consumption Expenditures (PCE) index. Consensus for core m/m figure is 0.1%, down from 0.2% prior. A slowdown would go a long way to adding credibility to FOMC thesis of anchored inflation expectations. However, we also note PCE indices released for the 1st quarter on preliminary basis - headline rose 3.8% q/q while the ex-food/energy number was 2.2%. Both marked the highest level since Q3 of 2008.

Concurrently, Canada will release its own GDP scorecard. Posted on a monthly basis, this backward looking February report further suggests some troubling signs of a North American slowdown with consensus of flat growth m/m - marking Canada's first month of no growth in 6 months. Also at 8:30am ET, US is set to release its monthly personal spending and income metrics, followed by Chicago PMI at 9:45ET. Consensus for the PMI stands at 68.6

Later in the day at 9:45, Chicago PMI is set to slow for the second consecutive month after 6 months of increases to 68.8. On the US earnings front, Chevron and Merck will round out a busy week of quarterly results.

By GG - AshrafLaidi.com Staff

The Australian dollar is a minor laggard in Asia-Pac trading after failing at 1.0940 for the second consecutive day. Japan is closed for holiday and the Royal Wedding will slow trading with the UK closed as well. Later European economic data could prompt some excitement.

AUD/USD struggled to overcome yesterdays high of 1.0947 in early trading and fell 50 pips as traders take profit ahead of the weekend. Australian private sector credit was a bit better than expected but not enough to move the market. AUD/USD is consolidating between 1.0880 and 1.0940 and will likely stay there at least until Europe comes online.

New Zealand trade figures showed a surplus of $464m compared to the $204m expected. The data sparked a 25 pip rally but the gains were quickly wiped out.

Korean industrial production rose 8.7% in March y/y. Its obviously a healthy rise but was well short of the 12.0% consensus. This may be an early sign that the disaster in Japan has caused backlogs and slowdowns elsewhere.

Some are saying the Royal Wedding could draw the largest television audience in history so trading may come to a standstill as the future king of England takes his wife. Otherwise, data on German retail sales, Italian consumer prices, Italian employment and Spanish retail sales may take precedence.

By AB - AshrafLaidi.com Staff

Disappointing readings on first quarter growth and initial jobless claims washed out USD gains before the struggling currency could get any real traction Thursday. Warnings on U.S. growth and inflation from Wal-Mart and Japans former top currency official weighed on the USD. The Australian dollar remains within striking distance of record high ahead of data on private sector credit.

No strong theme took hold in North American trading. The dollar ended the day virtually flat against the euro and pound. The yen proved resilient despite a drop in industrial production and growth downgrade from the BOJ. Gold hit a record $1538 on the fallout from a dovish Fed. The best that can be said is that todays volatility generated some interesting technicals with cable forming a potential reversal.

U.S. economic data remains lackluster as GDP expanded at a 1.8% clip in Q1 compared to the 1.9% expected. Bernanke telegraphed a weak print in his press conference yesterday. As Bernanke hinted, some of the details of the report were strong, such as consumer spending. This points to a Q3 acceleration to around 3.5%. Perhaps more worrisome than the GDP reading was a jump to 429K from 404K in the weekly jobless claims data.

Outside of economic data, some headlines grabbed our attention, and may better explain the USD volatility and record high in gold. The first was from Wal-Mart where top executives said cost increases are starting to come through at a pretty rapid rate, that U.S. prices will start rising in June and that shoppers are running out of money due to gas prices.

Another interesting read was from Eisuke Sakakibara Mr. Yen, who warned that USD weakness will be a long-term trend. He also said debt uncertainty will begin to cut into US growth in 6-9 months and warned of stagflation. Sakakibara chooses his words carefully and is not prone to headline-grabbing proclamations.

ASIA PACIFIC PREVIEW

Flows will likely overshadow economic data in the final day of the week for Asia-Pacific traders. New Zealand trade balance will be released shortly at 1845 GMT and the consensus is for a surplus of NZ$204 million. A miss of at least $30-40 million would be needed to get kiwi traders attention. The NZD/USD chart formed a volatility-signaling doji star on Thursday but we may see continued consolidation inside of the 0.7970-0.8100 range.

By AB AshrafLaidi.com staff

Ashrafs Latest Cantos Video Charting Gold Relative to the CRB Index. http://bit.ly/lvcYyI . While gold stretches to daily record highs vs most currencies, it is important to measure it relative to this popular index of broad commodities.

AshrafLaidi.com's Premium Service of Intermarket Insights and Market News Internationa's Real Time FX Bullets is under way. Click here for a FREE 1-WEEK TRIAL http://www.ashraflaidi.com/products/sub01/

The Bank of Japan lowered its baseline target for the current fiscal year to 0.6% from 1.6%, pushing back expectations of faster recovery to FY12/13. Ranks of Germany's unemployed fall but at a slower pace. The first print on US Q1 GDP is expected to show the slowest growth in 3 quarters.

Euphoria from the Bernanke press conference that saw the dollar plummet to the benefit of just about everything else has given way to a consolidation, while concerns over a more pronounced slowdown in the global recovery resurface. EUR and AUD are retracing their impressive gains, NZD remains under pressure in the wake of a dovish RBNZ statement, while gold hit a new high at $1,533/oz. Following the 2011 GDP forecast downgrade from the FOMC, the Bank of Japan lowered its 2011 growth outlook to 0.6% from 1.6% due to the earthquake related production disruption. The BOJ has allowed for faster growth in FY12/13 at 2.9%, up from 2.0% prior target.

Similarly, the advanced figure on Q1 GDP in the US is expected to slow to 1.9%. This is in line with Fed Chairman's Q/A forecast that Q1 will likely come in slightly below 2%, but also marks the lowest sequential growth in at least 3 quarters. Special attention will once again be paid to the inventories component showing a large decline in the prior report.

Economic news out of Germany was a mixed bag. The ranks of unemployed fell by 37K - the fourth consecutive month of decline - but the unemployment rate rose to 7.1%. Furthermore, 37K decline was the lowest drop in 3 months, suggesting the hiring in the reinvigorated manufacturing base appears to be slowing. This also sets the stage for tomorrow's German sales expected to show a modest uptick.

US earnings ahead of the open are highlighted by Exxon Mobil looking to avoid a disappointing result seen from ConocoPhillips overnight. Outside of the oil prices screaming higher, XAOM stands to benefit from a 7% dividend increase announced before close on Wednesday.

By GG AshrafLaidi.com staff

Dollar selling has been relentless so far as Asia-Pacific traders digest the dovish FOMC statement. The big winner has been the Australian dollar, which touched 1.0947. Japanese data was a mixed bag. The upcoming session features German employment data.

A plunge in Japanese industrial production along with Japanese CPI and employment were brushed aside in Asia-Pacific trading as market watchers continue to digest the FOMC. There was nothing in it to frighten dollar bears and they have responded aggressively.

The key takeaway is that the Fed will continue to do whatever necessary to back the economy. The sentiment is crushing the dollar and helping risk appetite. Another headline boosting sentiment was a hike in the World Banks China 2011 GDP forecast to 9.3%. AUD/USD has rallied to a fresh record high and NZD/USD has rebounded after falling on the dovish RBA decision.

The headline-grabbing number from Japan was a 15.3% monthly drop in industrial production after the disaster in March. A reading of -10.3% was forecast but we warned of a soft number. We thought such a large drop may trigger risk aversion but stocks in Japan are up 1.2% and the lone fx trade remains dollar selling.

Other releases say Japanese national core CPI falling 0.1% (-0.2% exp). The unemployment rate held steady at 4.6% compared to the +4.8% expected. USD/JPY fell following the data and has continued to drift lower, falling 60 pips on the session.

Its a similar story across the board: cable has already gained 100 pips already in the Asia-Pacific session. EUR/USD has climbed 200 pips in the 12 hours since Ashraf reiterated a bullish call on in a video (see below). The pair rose to within 18 pips of the 1.49 target so it may be a good time to book some profits ahead of German employment data.

GERMAN EMPLOYMENT will released at 0355 GMT and the consensus is for a drop to 7.00% from 7.10% in the unemployment rate. The ranks of unemployed are expected to fall by 36K. The risks are certainly skewed to the negative side ahead of this release. EUR/USD has gained 300 pips in the past 24 hours and the hourly RSI is at 76. The pair has gained 700 pips since April 18.

By AB AshrafLaidi.com Staff

P.S. The AshrafLaidi.com Premium service shall start later today.

No fireworks emerged from Bernanke's first press conference but a somewhat dovish Fed gave traders the green light to continue selling dollars as gold, EUR and GBP hit fresh highs. The kiwi is falling after a dovish RBNZ statement while the remainder of the Asia-Pacific session will feature Japanese CPI, industrial production and the BOJ decision. Gold hit new high of $1529.90/oz.

Key takeaways from the FOMC/Bernanke:

1) The Fed will continue to re-invest maturing mortgage-backed and Treasury securities. This is what hurt the U.S. dollar most on the day and led to a stock-market rally. Although it was generally expected, it further pushes out the date for asset selling/rate hikes.

2) QE3 is off the table for now. The Fed hiked its inflation forecasts (even though it maintained inflation will be transitory) and Bernanke said the risk of QE-induced inflation is greater than the potential benefits of QE3. That said, Bernanke did not completely rule out further action saying that going forward officials will need to make judgments if additional easing steps are warranted.

3) Q1 is increasingly looking like a weak quarter. Bernanke said the economy likely grew at a rate at or below 2% in the quarter. The consensus is for a 2.0% reading in Thursdays report. His comments point to a downside miss. This wasnt the focus of todays trade but it may materialize into CAD weakness in the days to come.

4) Growth forecasts downgraded. The Fed now sees the U.S. economy growing between 3.1% and 3.3% this year, down from a prior projection of 3.4% to 3.9% but above the consensus economist view at 2.9%. The Fed has tended to overestimate growth, so this brings them into line with the consensus.

EUR, GBP and AUD were the big winners each climbing around 100 pips since the statement. The Canadian dollar fell in step with the USD due to continental ties, and that may continue through next week. The yen was unable to join in the rout due to the lowered outlook from S&P and nervousness ahead of todays data slate.

The New Zealand dollar has fallen 60 pips since the RBNZ headlines crossed. Interest rates were left at 2.50%, as expected. Bollard said rates are likely to remain appropriate for some time and that the outlook is very uncertain. He also talked down the NZD. A fall below 80.00 in NZD/USD will trigger further selling (spot at 0.8019).

ASIA-PACIFIC PREVIEW

A busy day lies ahead in Japan with reports upcoming on CPI, unemployment, industrial production and the BOJ decision. The data will start to paint a clearer picture of the impacts from the disaster. We warn, however, that economist estimates around disasters are guesses at best. Even the official statistics will be highly prone to revision and interpretation because of difficulties getting complete data and the uneven nature of the recovery.

For CPI, the national core figure is expected down 0.2% y/y. Unemployment is expected to rise to 4.8% from 4.6%. The most noteworthy number may be industrial production, which is expected to fall 10.6% in March due to the earthquake. Given the miss on retail sales yesterday and talk of large declines in automotive production, we see a scope for a much greater decline. A fall of around 12% or more may spark yen selling but a larger fall could trigger risk aversion, leading to a yen rally, especially against AUD as the carry trade unwinds.

The session builds up toward the Bank of Japan decision. There is no fixed time but its usually released around 0300 GMT. No action is expected but the risk stems in economic growth downgrades and strong fx intervention threats. Either would prompt yen selling.

By AB AshrafLaidi.com Staff

The FOMC statement produced changes in the description but ended up with a similar conclusion. The inflation reference was different in that it descried it to have picked up and Commodity prices have risen significantly but the conclusion remains the same i.e. longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued. There is no mystery that . . .

There is no mystery that the $600 bln QE program will end in June. The more important part for the markets is the fate of the Feds mortgage principal payments, which the Fed will decide to what extent it will re-invest them (a way to extend the easing) and to NOT re-invest them and hence, allow a gradual shrinkage of the balance sheet as these holdings expire. The FOMCs next meeting will be on June 22, at which point the Committee would have ended its POMO programs but may reinvest part of its mortgage payments, which will become the key lever of shifting liquidity and monetary policy depending on the interplay between growth, unemployment and inflation. These are the points that will likely be communicated by Bernanke at today's conference. Some FX and bond traders may have had their attention drawn by todays inflation reference, but I continue to see the road to $1.49 unhinged for EURUSD as is clarified in this video charts presentation:

http://bit.ly/kONwpr

AL

Ashraf explains in this video charts presentation for Cantos why EURUSD will reach $1.49 with a focus on trendlines and the misleading tendencies of the RSI http://bit.ly/eu8ISQ

Also, Ashraf's CNBC Interview on the probability of an Eastern European Single Currency: http://bit.ly/hEiZQ1

Cable rose over a full figure above $1.6550 in the immediate aftermath of preliminary Q1 GDP from the UK. Yen retreats as S&P remains vigilant on Japan's fiscal imbalances. Fed decision pushed forward as markets brace for the first accompanying press conference by Chairman Bernanke.

UK preliminary Q1 GDP came in at 0.5% on a q/q basis, averting a double-dip recession and reigniting speculation the BOE may soon follow the ECB with a rate hike. While the figure was right in line with consensus, the market was less bullish GBP relative to both EUR and AUD - both have made multi-year highs on the greenback in recent days just as Sterling went nowhere. $1.66 presents the next important resistance as the highest level since late 2009.

Barely a week after warning on the deteriorating fiscal state of the US, S&P sharpened its focus on Japan, cutting its outlook on AA- rating to Negative from Stable. Disruptions to production following the events of the March 11th earthquake are the primary risk to rising deficit, however the move also reflected a lack of urgency by the government in planning for reconstruction. This should only exacerbate the political turmoil facing embattled PM Kan, who continues to lose support within his own party. USD/JPY jumped to 81.90 after the downgrade, paring its earlier losses to April lows below 81.30.

FOMC rate decision takes center stage in the US session, with the timing of the announcement pushed forward to 12:30 ET to make room for Fed Chairman's first accompanying press briefing at 14:15 ET. Aside from the timing change, this decision carries an added weight in that it represents the last meeting before the Fed is forced to decide on the future of QE expiring in June, since no meeting is scheduled for May. Baseline scenario is for QE2 to expire at $600B, paving the way to gradual unwinding of monetary stimulus in months to come. However, minority camps do maintain a market presence on both sides of the spectrum - namely, the Fed may either communicate it can curtail the asset purchase program shy of its final amount or hint it would consider QE3 in the event of slower than anticipated recovery. Any departure from the assessment of commodity-driven inflation being "transitory" would then be perceived as hawkish, while a downgrade of economic assessment being on "firmer footing" would renew speculation for further easing.

Ahead of the Fed decision, one of the more leading economic indicator - durable goods orders - is expected to bounce from prior month's contraction. Late in the US session, RBNZ is widely expected to leave policy rates unchanged at 2.50%.

US earnings season rolls on with more defense names GD and NOC looking to follow strong suit of Lockheed Martin. In energy, HES and COP will follow quarterly results from BP in European session along with Dow Industrials component Boeing.

By GG - AshrafLaidi.com Staff

The Australian dollar rallied to a fresh record after inflation surged in the first quarter to give Aussie bulls reason for possible tightening ahead. Meanwhile, the pound is settling into a range ahead of Wednesdays GDP data. The average miss in UK GDPs for the past two years has been 0.5 percentage points. Will we see a second consecutive quarter of negative growth ie the return to recession?

AUD/USD jumped 50 pips to a record 1.0851 after a 1.6% quarterly rise in the CPI compared to the 1.2% expected. Rising inflation could eventually force the RBA to hiking rates but the market reaction wasnt overly enthusiastic. After the initial rise, AUD/USD gave back about half its gains in a sign that 11-cent rally since March 15 may be growing tired. The trimmed mean, which measures core inflation, rose 0.9% compared to the 0.7% expected. Price rises werent confined to a particular sector as education costs jumped 5.7%, transportation rose 2.7% and health care increased 3.9%.

The yen also slumped after Japanese retail sales fell 8.5% y/y in March compared to the -6.1% expected. Consumer spending will continued to be squeezed following last months earthquake. USD/JPY climbed 30 pips after hitting a one-month low on Tuesday. A slumping economy magnifies the risk of currency intervention to boost USD/JPY.

The New Zealand dollar rallied above 0.81 after business confidence rebounded to 14.2 in April from -8.7 last month.

UK first quarter GDP is the highlight of the European session. The consensus is for a 0.5%-0.6% quarterly rise after a 0.6% contraction in Q4 2010. The average miss for the past two years has been 0.5 percentage points. Its unlikely but a second consecutive quarter of negative growth would push the UK back into an official recession. A positive reading is expected because poor weather and a trough in construction were the drivers of the Q4 negative print. There is also talk of an upward revision to Q4 because official figures often underestimate growth after a recession.

Ahead of the release, cable is bounded by the 1.6431 - 1.6533 range but those levels are unlikely to mount significant support/resistance following the release. The slumping dollar also complicates the trade. The impacts will be felt in a clear and sustained way on the EUR/GBP cross. A poor reading (+0.3% or lower) will drive EUR/GBP toward the Oct. high of 0.8940. A breach of that level would open the way to 0.9150 (spot currently at 0.8900).

By AB AshrafLaidi.com Staff

USD extends its decline despite strong earnings and improved consumer confidence. In Asia-Pacific trading, Japanese retail sales and Australian CPI are on tap.

Efforts by Trichet and Geither to endorse a strong dollar were fruitless as AUD, NZD, EUR, CHF and JPY moved to fresh extremes against the USD. Risk appetite was the catalyst for strength in AUD, NZD and CAD as the S&P 500 broke above a double top to the highest since 2008. Meanwhile, CHF and JPY gained as 10-year US Treasury yields fell to a one-month low of 3.32%; 4 bps lower on the day. Its rare for stocks to surge and yields to fall on the same day and suggests that positioning coming out of the long weekend and ahead of the Fed meeting were primary drivers, not fundamentals. Gold and silver slipped while oil was flat. After the bell, Amazon earnings were very weak.

Earnings from Ford and 3M were touted for the stock market rally. A rise in U.S. consumer confidence to 65.4 in April from an upwardly revised 63.8 in March was another factor. A fall in the Case Shiller house price index was brushed off. The 20-city index now sits just 0.5% above its April 2009 low and is likely to hit a fresh low in the coming months.

Of all the price action on Tuesday, the euro rally to a fresh 2010 high following a drop in Asia was the most impressive. EUR gains came despite: 1) Greeces budget deficit exceeding estimates 2) Trichet talking up the dollar 3) A Merkel aid saying Greece should restructure sooner rather than later. We warned last week that a restructuring is priced in and that any future EUR declines on restructuring talk will be buying opportunities, pending details of the announcement. Ashraf will show in tomorrows Video presentation for Cantos how and why the EURUSD path towards $1.49 remains intact.

Asia-Pacific Preview

The Australian dollar hit a record on Tuesday ahead of quarterly CPI at 0130 GMT. Now, the Aussie may be more vulnerable to a weak reading than an upside surprise. Economists are expecting a 3.0% y/y rise and a 1.2% q/q rise. Remember that last week, AUD gained on unexpectedly high import prices data and the producer price index both inflation measures. Given those figures, the market will be positioned for a reading around +3.1% y/y and +1.4% q/q.

Before the CPI, we get Japanese retail trade data at 2350 GMT. The effects of the disaster will be evident, with a 5.4% m/m decline expected. Momentum, flows, repatriation and yield differentials continue to drive yen trading, rather than eco data. On Tues, USD/JPY failed on a second effort to climb above 82.00 then fell 50 pips to the lowest since March 24. The move also closed the Mar. 24-26 gap. This indicates further weakness but be sure to guard against intervention risks, especially below 81.

New Zealand business confidence is also at 0100 GMT (see yesterdays note).

By AB AshrafLaidi.com Staff

Trichet's comments that a stronger US dollar is in the interest of the US saw the single currency slip a little overnight, but this is no surprise given that it is probably driven more by concern about the strength of the euro, and its effect on peripheral economies growth potential. Todays short term T-bill auction by Spain of 3 and 6 month bills is not expected to cause any problems, but the yields will probably continue to be on the high side.

USD/CHF at record lows on rising UBS inflows; UK industrial orders disappoint; Case-Shiller, Conference Board Leading Index data due

Swiss economy has long stood out as the model of fiscal responsibility in an era of profligate spending on both sides of the Atlantic. With the advent of higher scrutiny on US debt by S&P, the franc has become the ultimate safe-haven destination. The swissy hit a new record high against the dollar below CHF0.8750, also outperforming EUR and GBP, helped in part by a much better than expected Q1 result from UBS. Having weathered the storm of the oversight by US and European tax authorities, the Swiss financial stalwart beat on the top and bottom lines with CHF8.3B in revenue. More importantly, UBS attracted CHF11B over the past quarter - its highest inflows since before the financial crisis - helping shares to a 6% rise in early Zurich trade.

EUR REVERSED COURSE from the Asia session damage that followed a mixed set of comments from Trichet. The ECB President said he saw no specific evidence of significant 2nd round inflation and also reiterated his shared support with the US authorities for a stronger dollar. Lip service to dollar weakness was but a blip in currency market impact, as USD bounced off the $1.45 post-Trichet low to test $1.4650 - its highest print since late 2009.

GBP A NOTABLE UNDEPERFORMER of the session, mainly treading water against the greenback and losing ground to EUR and CHF. Uncertainty is high ahead of tomorrow's GDP report and its impact on expectations for an eventual BOE stimulus exit that are already being pushed back to late 2011 in the analyst community. Disappointing industrial CBI order expectations have done little to brighten sentiment, retuning into the red after last month's lone positive number since 2008. A 3-month low, -11 print was below expected +4 and the prior +5, with manufacturing outlook remaining soured by the stiff austerity imposed by UK's Conservative government. Former resistance turned support in GBP/USD at $1.6430 is key in keeping the bears at bay, though event risk is high ahead of the GDP report and the FOMC decision on Wednesday.

US markets awaits the release of the Case-Shiller report on home prices (13:00GMT) as well as the Conference Board leading index (14:00GMT) data. The former assesses the month of February with risk balanced toward a disappointment. Given the modest improvement in existing and new home sales data in March, the lagging CS index should have limited impact the assessment of the (non) recovery in US housing. The April Conference Board consumer confidence index is expected to bounce back to 64.6 from 63.4 which was the first decline in 3 months from February's 3-year high.

In US pre-market earnings, Delta Airlines and 3M both beat consensus on earnings and revenue, while defense giant Lockheed Martin raised its FY EPS outlook by $0.25 to $6.95-7.00. Steelmakers AKS and X will post results shortly, updating investors on the rising costs of iron ore. Consumer discretionary's Hershey and Coca Cola are also on tap - both are likewise expected to be affected by higher costs of cocoa and sugar.

By GG - AshrafLaidi.com Staff

Financial markets look set to be dominated by earnings ahead of tomorrow's FOMC meeting and press conference, as investors speculate on the tone, or otherwise, of what could give some clues as to how the Fed is looking to move post-QE2. This will be especially important given USD weakness on the back of last week's warning shot from S&P about the US deteriorating fiscal position and the US' political deadlock with respect to the debt ceiling.

KEY US EARNINGS TODAY INCLUDE Amazon (Q1 $0.61c), Coca Cola, (Q1 $0.87c), Ford (Q1 $0.50c), Hershey (Q1 $0.50c) and UPS (Q1 $0.85c) amongst others.

The most important factor so far has not been so much about the beating of expectations but more about the OVERALL OUTLOOK for Q2, which has been notable for some downward revisions on the back of higher costs, as was the case last night with Netflix.

US CONSUMER CONFIDENCE due out later this afternoon will be a key barometer of how the US consumer perceives the effect of these higher costs with expectations for April expected to rise to 64.5 slightly above the previous figure of 63.4.

UK data out later today is expected to show that while business optimism for April may have increased slightly to 10 from Marchs 7, industrial trends total orders for April will have dropped back to 2 from Marchs 5. Such weakness is especially important ahead of TOMORROWs UK Q1 GDP data comes in much stronger than estimations of 0.5%. MPC member Martin Weale --who last month voted for a rate rise--suggested last week he feared data could come in weaker than a lot of people expect. If that proven to be the case, then it could prompt him to reassess his vote at the May meeting.

Strong moves to new highs yesterday for gold and silver but slightly lower closes could be the first warnings that a correction could be on the cards, however in the absence of European markets could just be a low liquidity spikes. A close below $45 could well see a deeper sell-off while a close below $1,500 in gold could see a sharp move towards $1,480. Such falls could then translate across to an unwinding of commodity currencies recent gains, with the Australian dollar falling back to support around 1.0580.

By KM AshrafLaidi.com Staff

Economic news was light. New home sales were 300K vs. 280K expected. Feb was revised to 270K from 250K. The Dallas Fed fell to 8 from 24. Portugal conceded its budget deficit will be significantly higher than the 9.1% of GDP expected. Worries about global growth crept in with copper falling as much as 3% at one point. Oil, gold and silver all hit cycle highs then retreated. Silver fell from above $49 to $47.25 after the CME hiked silver margin rates by 9%. Such hikes have had minimal medium-term impact in the past.

Two late headlines should continue to eat into sentiment. First, S&P lowered its outlook on 6 Japanese auto companies, including Honda and Toyota due to the earthquake. They said production wont fully rebound until October. This increases the chances of further disappointing trade balance figures. News reports also suggest the Bank of Japan will cut its 2011 GDP forecast to 0.8% from 1.6%. USD/JPY edged lower but is losing its downside technical momentum as it failed to breach the April 20 low of 81.61. This is key s/t support. Second, Netflix beat on earnings but their outlook was soft and the high-flying stock fell 4.5% after hours. That should keep pressure on sentiment after a 0.2% fall in the S&P 500 on Monday.

ASIA PACIFIC PREVIEW

New Zealand business confidence from the National Bank is due at 0100 GMT and is the lone economic indicator in the Asia-Pacific session. The prior reading was -8.7 after four consecutive readings in the +30 range. There is no consensus but the market will be expecting a reading above zero. Its the final economic data point before the RBNZ meeting on Thursday. NZD/USD is being supported by 80.00 after breaking above the psychological mark last week for the first time since 2008.

China failed to deliver on a weekend revaluation rumour but three other important headlines crossed. 1) Officials said they need to guard against falling U.S. Treasury prices. 2) The PBOCs Zhou said Chinas $3 trillion in fx reserves exceeds a reasonable requirement. 3) The CEO of a state-owned investment company said reserves should be diversified and lowered to $1.3 trillion.

In short, China is threatening to cut its investments in U.S. Treasuries by $1.7 trillion. In comparison, the sum total of Q1 and Q2 is around $2.6 trillion and there is about $14 trillion in marketable debt outstanding. The consequences would be considerable. No surprise then that on Monday the Treasury Dept. announced a US-China meeting for May 9-10 in Washington. We see the Chinese comments as political maneuvering aimed at quieting U.S. calls for a yuan revaluation at those meetings but we also expect some measure of diversification in the near future. This will hurt the USD as we look for them to invest in: a) resources and resource companies b) real estate, especially arable land c) places where their money buys maximum political influence esp. distressed govts. Primary targets will be in the developing world but Australia, Canada and the European periphery will also benefit.

By AB AshrafLaidi.com Staff

Silver gains 7% in single session to a spot record high above $49.70/oz. COT data shows speculators not impressed with JPY rebound. US March new home sales expected to show slight improvement. US earnings season shifts into higher gear with Netflix and Express Scripts.

Thin holiday liquidity in the early European hours accentuated volatility in the precious metals, sending silver sharply higher by as much as 7%. Stop hunting saw prices briefly rise above $49.70 - above the early 1980 spot market highs when Hunt brothers cornered nearly a third of the overall physical market. Regulatory changes on leverage and expanded supply were implemented in response, costing the brothers nearly a billion dollars in losses and another $140 million in fees, resulting in one of the more high-profile bankruptcies in finance history books. And while speculative interest and leverage are certainly in play for this rally, we submit that the Fed's easy money policy, rising scrutiny of US debt by S&P, and reserve diversification among global central banks are fuelling silver gains. Concurrently gold also hit a fresh record high at $1,518/oz. Key risk remains this week's FOMC decision, with any hint of inflation assessment as less "transitory" threatening to derail rising silver/gold via a stronger dollar.

Highlights from the CFTC Commitment of Traders report include net short positioning in Japanese Yen extended to a 1-year high. Mexican peso also remains in high demand, hitting a net-long multi-year high for the second consecutive week. Both the euro and the aussie saw net long exposure diminish, however we should note the latest CFTC data only reflects positioning through last Tuesday - prior to Intel-infused return of risk-on flows.

New home sales for the US in March on tap for 10amET are expected to rise to 287K units from 250K. Median price remains a critical component to the US housing data as indicated ahead of the existing sales last week - February print marked a 7-year low just above the $200K mark. Last month's figure should also answer to what extent housing market activity was depressed by inclement weather. US earnings season continues with high-flyers Express Scripts, Ameriprise Financial and Netflix expected to report afterhours. Home improvement play Masco is also expected to post its Q1 quarterly results after disappointing investors on the top and bottom lines last time around.

By GG - AshrafLaidi.com Staff