At 8:30:00 AM US Jobless Claims (exp 369k, prev 371k) US Q4 Final Sales (exp 3.8%, prev 3.6%) US Q4 GDP q/q final (exp 1.4%, prev 1.4%) At 9:00:00 AM US March New York NAPM (exp n/f, prev 250.2) At 9:45:00 AM US March U Mich Sent. Final (exp 95.1, prev 90.7) At 10:00:00 AM US March Chicago PMI (exp 53.8, prev 53.1)
The bond market closes early today and the stock market will be close on Friday for Easter, implying quiet rangebound trading in the FX market as well. Today's sole action came at the start of London trade when the City showed up and bought the dollar ahead of expectedly good data from the US. However, critical support levels in the euro and sterling were not breached and the dollar continued to trade in the 132-133 yen range as traders awaited key jobless claims figures, Q4 GDP revisions, Chicago PMI, and the University of Michigan's sentiment survey which is expected to be revised much higher.
Today was the first day for spot FX positions to be settled in the new fiscal year in Japan but the lack of Japanese interest in selling the yen in a familiar range. USD/JPY rose to a day's high of 132.88, matching overnight highs around the same level. But resistance is seen around 132.90 and the upside should remain capped at 133.45 into the week's end. Support at 132.20 and 131.80 should provide strong buying interest.
Next week, the Bank of Japan's Tankan survey should kick off a new round of yen selling as investors begin to reassess the real risks of Japan. Although the survey is expected to improve, most progress will be seen in the expectations of export related businesses due to the US recovery and a weaker yen. Banks on the other hand will again find themselves in the spotlight and familiar topics like deflation, reform and bad loans will resurface. Therefore, with repatriation done, the yen's recent strength is likely to be finished as well and traders will again talk of revisiting the 135 yen level against the dollar.
The dollar also remains well bid today after news of a record issuance of US corporate debt this month is expected to draw demand from foreign investors who have been large buyers in the past. The new supply is due to companies trying lock in lower long-term rates to essentially beat the Fed raising rates. US corporate bonds have been the asset of choice amongst European investors because of the higher returns and diversity offered over similar investment grade bonds in Europe. Last year, foreigners bought a record amount, near 2.5 billion USD, and March issuance is expected to be a record as well.
EUR/USD fell to a fresh 2-week low of 87.09, but remained supported above key support at 87.10. Overnight the pair slipped below 87.50 support but only a break below key support at 87.10 would turn sentiment bearish again for the single currency after failing last week to break above its 200-day moving average at 88.62. Support is seen at 87.10 and 86.80, 86.30 and key trendline support at 86.20. Resistance is seen at 87.70 and 88.20 and 88.40.
The Swiss franc also fell to a new 2-week low of 1.6842 against the dollar, over one centime lower since the Swiss National Bank unexpectedly lowered its repo rate on Wednesday. USD/CHF eased off earlier highs and trendline resistance at 1.69 is expected to cap gains. Support at 1.6745 is expected to hold. However, the euro continues to struggle to maintain above key technical resistance at 1.4660 and a slide back towards 1.46 would force the Swiss National Bank to show it is serious about defending the franc's competitiveness.
The SNB restated its desire for a weaker franc today, but an escalation of violence in the Middle East could call the Swiss National Bank's bluff because the natural demand for CHF in times of crisis could prove stronger than the SNB's lowering of its repo rate. But the chances of going to war with Iraq this year appear slim and the franc should come under pressure again as investors realize this, and ease pressure on the central bank to act. This would please the SNB because it is not expected to lower its LIBOR band because of the inflationary expectations that would bring. Currently the SNB is targeting 1.75% in its 1.25-2.25% range.
Meanwhile, sterling's M&A inspired strength against the euro this week is unlikely to last and trendline support at 61.05 pence should hold up the euro. EUR/GBP fell to a 3-week low of 61.19 today. Moreover, the pound is likely to suffer a continued net investment outflow, which will bring sterling back under pressure against the dollar and force a break of support at 1.4220.
GBP/USD fell from an overnight high of 1.4273 as sterling again failed to break above resistance at 1.4280. But support at 1.4220 continued to hold. Prolonged rangebound in the 1.4220/80 range has put many traders on the sidelines, but dealers maintain that sterling looks heavy after failing to break key trendline resistance at 1.4320 last Thursday and the downside is now seen targeted. Support holds at 1.4220, 1.4205, and 1.4175. A break of 1.4175, which marks the 61.8% retracement of the 1.4085 to 1.4323 move, would call upon support at 1.4085. Resistance is seen at 1.4285 and the upside should remain contained by trendline resistance at 1.4300 followed by a reaction high of 1.4323.
Today's data from the US is expected to show continued improvement in jobless claims, consumer confidence and manufacturing. The estimate of real GDP growth for the fourth quarter might also be revised slightly higher, but the consensus expects no change at 1.4%. The Chicago Purchasing Managers data is also expected to rise to 53.8 in March from 53.1, but market activity is likely to be relatively thin ahead of the Good Friday holiday.