Key Points
EUR-USD tests key support at 1.3260 overnight - IMM data suggests some liquidation risk below that level.
JPY upside fancied initially - Japanese data and global equity markets will determine how far it weakens later in the week.
US new home sales today's main data feature
Market Outlook
The USD has remained firm through the night, helped in part by the surprise rise in existing home sales reported on Friday. EUR-USD touched as low as 1.3258 in very early Asian trading, which is close to the 1.3260 breakout point of March 16 and whether this holds in the next couple of days will be significant for broader USD sentiment. Speculative positioning still seems to be fairly long of EUR-USD, if the IMM data is any guide, suggesting some downside risk if key support levels break down.

As of last Tuesday, IMM data showed that spec net longs on EUR-USD eased back to 87,956 contracts from 96,155k the previous week but still not too far below the record high of 102,598 contracts seen a few weeks ago. 1.3170-1.3200 is initial support if 1.3260 breaks. Above 1.3345 is needed to suggest a retest of last week's high at 1.3410. Today's US home sales data (see below) could have a bearing on the price action, while consumer confidence, durable orders, the final estimate of Q4 GDP, core PCE prices and Michigan sentiment also feature this week.

Not much movement on the JPY overnight, with the market in two minds perhaps about what to focus on this week - the risk of any last-minute end of financial-year JPY buying or the prospect of JPY selling when the new financial-year begins next week. There remains a risk of some JPY strength in the very short-term by way of a corrective move to the weakness seen over the past couple of weeks, although unless equity markets start to weaken, JPY weakness may return later in the week and how far this develops will depend upon the nature of Friday's Japanese CPI and consumer spending data. 155.00 and 228.00 are feasible targets for EUR-JPY and GBP-JPY initially, although USD-JPY will be more dependent on USD sentiment.

There were no major revelations in the minutes of the Feb 20- 21 BoJ meeting where rates were raised 25bp. The one dissenter, deputy governor Iwata, argued for unchanged rates on the basis that there was too much uncertainty about the CPI outlook due to weak trends in wages and consumption.

GBP continues to edge higher against the EUR, although cable would also be vulnerable on any breakdown in EUR-USD and key support is at the 1.9555 low seen after Wednesday's MPC minutes.

Day Ahead
Eurozone - state CPI numbers for Germany will start to appear from this afternoon (NRW) and the market is anticipating that more of January's VAT hike will show up in the data. This has been slow to occur so far with the y/y rate for February still only 1.6% compared to 1.4% in December. The market is expecting 1.8% this month and the rest of the states are currently scheduled to report on Tuesday and Wednesday. Market implications should be fairly limited.

US - new home sales data in the US is the main feature and the market will be slightly sensitive to any unusual developments. This particular series has been the most volatile of the housing numbers in recent months (Oct -5.4% m/m, Nov 6.4%, Dec 9.1% and Jan -16.6%) so gauging an underlying trend is not straightforward. After the extent of the fall seen last month a higher number should be seen (market is expecting 5.7%) and if a rebound fails to materialise it would leave the impression that the trend is still down.

Diary
Data/event BST Consensus*
 
DE CPI states (Mar, prel) m/m from today 0.2%
EU Eurogroup meeting
SE Trade balance (Feb) 08.30 SEK12.5bn
US New home sales (Feb) 15.00 990k
JP CSPI (Feb) y/y 00.50 0.6%
AU New home sales (Feb) n/a 5.8% last
Latest data Actual Consensus*
NZ Trade balance (Feb) -NZ$127m -NZ$250m
FR Own company ind outlook (Mar) 17 11
FR Business climate indicator (Mar) 109 107