Key Points USD remains weak after yesterday's data - durable orders may show some strength today. Cable will be driven by EUR-USD - UK GDP also due. NZD eyeing recent highs ahead of RBNZ announcement, although unchanged rates seem likely for now. AUD bounces back after CPI shock, but more consolidation could be seen unless there is further major USD weakness. German IFO, Norges Bank policy outcome, US new home sales and Beige Book also due today.
Market Outlook Yesterday's weaker than expected US home sales & consumer confidence numbers continue to weigh on the USD, although the data was not that weak and it is not clear whether further significant USD weakness will develop at this stage. As EURUSD is within striking distance of the Dec 2004 high of 1.3666, a certain degree of technical upside risk is in place, although there is a fair chance of a rebound in durable orders today (see below for a preview) and this may buy the USD some time. The market already seems well positioned for USD downside so it is not clear whether there will be enough fresh selling power to instigate further weakness. The German IFO survey also has the potential to affect EUR-USD early this morning.
The JPY has remained fairly soft on the crosses, although 161.75-95 needs to break on EUR-JPY to trigger fresh upside and USD-JPY remains well contained by 119.00-05, in part because of the weaker USD. Cable looks like taking its cue from EUR-USD, although GBP may also be affected by this morning's GDP data (see below).
The AUD has bounced back after the CPI related weakness seen yesterday, although corrective pressure is likely to resurface if the USD shows any signs of recovering against the EUR today. The NZD is also higher, but remains below the recent high at 0.7493 and this is likely to remain intact in the short-term, as long as the RBNZ leaves rates unchanged tonight. The market is fairly split on the likely outcome of this meeting (see below), although there is a stronger likelihood of them leaving policy on hold for now and while this would in no way undermine the general yield support arguments in the NZD's favour, it could see some further consolidation in the short-term. This may also supplement any corrective moves on the AUD. If they do raise rates a break through 0.7500 would seem likely
Day Ahead Eurozone - German IFO is due today and it remains at historically high levels, with the main index (107.7 last month) only a touch below the 108.6 post-reunification high seen in December. Overall, the data backdrop in the Eurozone is likely to remain strong.
UK - the market is expecting the GDP data for Q1 to confirm a modest slowdown in growth compared to recent quarters. The 0.6% consensus would be the slowest since Q4 2005 and is most probably inspired by the subdued NIESR GDP estimates that have materialised over the past few months ( 0.5% q/q for Q1). A much weaker number will be required to disrupt expectations for a May rate hike.
Norway - the Norges Bank meets and over the past week or so the market has moved towards expecting a 25bp rate hike. A stronger than expected CPI number as well as ongoing strength in other data has been the main reason for bringing this expectation forward from the May meeting. Such an outcome does seem likely but is not a done deal, so a NOK reaction looks likely either way. 8.09-8.1250 are the immediate parameters of interest on EUR-NOK.
US - durable orders and new home sales appear today, while the Beige Book is also released. February durable orders were disappointing, with the ex-transport number falling by a further 1.0% after the 3.3% decline recorded in January. However, some indicators like retail sales and employment have shown strong March numbers in addition to upward revisions to initially weak February outcomes, so it is possible that a similar scenario could appear on orders. If it does it would throw some doubt over the extent of the gloomy conclusions drawn after the February data. New home sales data have been falling sharply in recent months and in terms of ''statistical noise' there is a chance of some respite today. However, with existing home sales numbers falling back yesterday (albeit after strong outcomes during the previous two months) the market will retain some degree of pessimism about housing. The Beige Book will provide the economic backdrop to the May 9 FOMC meeting and key issues will be the extent of the slowdown in activity being reported, the state of consumer spending, labour demand and pricing power. It seems unlikely that anything fresh will be revealed in this document.
New Zealand - the RBNZ meet on policy and the market is split on whether they will hike rates for the second meeting in succession. At their last meeting they accompanied their rate hike with the warning that more tightening would be necessary if there was no weakening in household demand. Since then there has been a much stronger than expected retail sales number, which has fed the speculation about the possibility of a further immediate hike. However, while this is a clear risk, there is a greater likelihood of the RBNZ waiting another month to see whether such spending strength has been sustained.
Diary Data/event BST Consensus*
Market Holiday – AU and NZ SE Unemployment rate (Mar, nsa) 08.30 4.6% SE Trade balance (Mar) 08.30 SEK14.1bn DE IFO index (Apr) 09.00 107.9 DE IFO current (Apr) 09.00 112.5 DE IFO expectations (Apr) 09.00 103.5 GB GDP (Q1, 1st est) q/q 09.30 0.6% GB Services index (3mths to Feb) q/q 09.30 0.8% ZA CPI (Mar) y/y 10.30 6.2% ZA CPIX (Mar) y/y 10.30 5.5% US Mortgage apps – purchases w/w 12.00 -4.2% last NO Norges Bank policy outcome 13.00 25bp US Durable orders (Mar) m/m 13.30 2.5% US Durables ex-transport (Mar) m/m 13.30 1.1% US New home sales (Mar) 15.00 890k US Beige Book for May 9 FOMC 19.00 NZ RBNZ rate announcement 22.00 unch/ 25bp NZ Trade balance (Mar) 23.45 NZ$50m Latest data Actual Consensus* US ABC consumer conf (w/e Apr 22) -7 -5 last JP Trade balance (Mar, sa) ?1.1trn ?947bn * Consensus unless stated
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