Archived IMT (2011.04.14)

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