Mid-Day Report: Markets in Consolidations, Dollar and Yen Recover

By: Milla Shaw in Forex Consultant on Apr. 8, 2011

Markets are generally in consolidations today as dollar recovers on news that US governments avoided a shutdown. Risk appetite recedes mildly as after strong new magnitude 7.0 earthquake rattled Japan’s northeast today. Yen also recovers mildly on renewed speculation of repatriation. Though, officials said that today’s aftershock did not endanger any nuclear operations. Meanwhile, crude oil and gold are both lower in European session after African Union said Libyan leader Muammar Qaddafi agreed to a cease-fire. No US economic data is scheduled to release today and focus will be on speeches from Fed doves Evans and Yellen. New York Fed Dudley said earlier today that markets shouldn’t be too enthusiastic about tightening monetary policy soon.

A German official said today that IMF would leave global growth forecast in it’s World Economic Outlook to be released later today. However, US and Japan growth projections would be lowered on rising commodity prices. Economic impact of earthquake and tsunami in Japan is around 3-5% of the country’s GDP. The IMF sees new risks to the global economy from a rise in the price of oil and other raw materials.

BoE hawk Sentance said today that he voted for a 50bps hike during last week’s meeting. Sentance believed that there’s a need to ” begin to adjust interest rates in a gradual way”. Also, “a rise in interest rates does exert some upward pressure on the pound,” and he could see “some benefit from a gradual upward move in the pound” to reduce imported inflation. Sentance said that “the yield curve suggests getting up to somewhere round about 2 percent next year.”

China recorded a small trade surplus in March with growth in exports unexpectedly outpacing growth in imports. Exports expanded 35.8% yoy, compared with consensus of 22% and 2.4% in February. Imports grew 27.3% yoy, resulting in a small trade surplus of $0.14B. The stronger-than-expected exports and imports should ease worries the China’s economic growth may slow down due to government’s tightening. For 1Q11 as a whole, the world’s second largest economy reported a deficit of $1.02B as driven by rising commodity prices, first quarterly deficit in 7 years. For instance, crude oil imports rose 12% by volume and 39% by value to $43.7B during the period. While a trade deficit in the first quarter may alleviate external pressures for RMB appreciation in the near-term, the trend for the currency is to go up in the future. With China’s imports rising rapidly in value terms, imported inflation will be heightened due to elevated commodity price levels across the globe. Indeed, we expect the Chinese government will find appreciating RMB as a means of tighter monetary policy.

Daily Pivots: (S1) 0.9022; (P) 0.9096; (R1) 0.9135; More.

Intraday bias in USD/CHF remains on the downside for a test on 0.8921 support. Break there will confirm down trend resumption for 61.8% projection of 1.1729 to 0.9462 from 1.0065 at 0.8664. On the upside, above 0.9160 minor resistance will dampen the immediate bearish view and bring more consolidation first.

In the bigger picture, whole decline from 1.1729 is still in progress and is expected to develop into a five wave impulsive pattern, with fall from 1.0065 as third leg. Sustained trading below 0.9 psychological level will target 61.8% projection of 1.1729 to 0.9462 from 1.0065 at 0.8664 first and then 100% projection at 0.7798. On the upside, break of 0.9774 resistance is needed to be the first signal of medium term reversal. Otherwise, outlook will remain bearish.

GMT Ccy Events Actual Consensus Previous Revised

23:50 JPY Machine Orders Y/Y Feb 7.60% 9.00% 5.90% 23:50 JPY Machine Orders M/M Feb -2.30% -0.90% 4.20% 9:15 USD Fed Dudley Speaks 15:00 USD Fed Evans Speaks 16:15 USD Fed Yellen Speaks

Similar Posts:

Share

Post comment