Market Review April 17 2012

Apr 17 • Market Reviews • 2665 Views • Comments Off on Market Review April 17 2012

Economic events scheduled for today

09:30   GBP   CPI (YoY)   3.4%
The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation.

10:00   EUR  CPI (YoY)   2.6% – 2.6%
The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation.

10:00   EUR  German ZEW Economic Sentiment   19.0 – 22.3

The German Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment Index gauges the six-month economic outlook. A level above zero indicates optimism; below indicates pessimism. The reading is compiled from a survey of about 350 German institutional investors and analysts.

10:00    EUR  Core CPI (YoY)   1.5%
The Core Consumer Price Index (CPI) measures the change in the price of goods and services purchased by consumers, excluding food, energy, alcohol, and tobacco. The data has a relatively mild impact because overall CPI is the European Central Bank’s mandated inflation target.

13:30    USD  Building Permits   0.71M
Building Permits measures the change in the number of new building permits issued by the government. Building permits are a key indicator of demand in the housing market.

13:30    USD  Housing Starts   0.70M
Housing starts measures the change in the annualized number of new residential buildings that began construction during the reported month. It is a leading indicator of strength in the housing sector.      

13:30   CAD  Manufacturing Sales (MoM)   -0.90%
Manufacturing Sales measures the change in the overall value of sales made at the manufacturing level. 

14:00  CAD  Interest Rate Decision    1.00%
Bank of Canada (BOC) governing council members come to a consensus on where to set the rate. Traders watch interest rate changes closely as short term interest rates are the primary factor in currency valuation.    

14:15  USD  Industrial Production (MoM)   0.5%
Industrial Production measures the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities.

Euro Dollar
EURUSD (1.3030) • The euro was weak, having lost a further 0.4% since Friday’s close and flirting with a break below 1.30.but rebounded towards the end of the US session on disappointing US data.  Spanish 10‐year yields have raised back over 6% (see top chart), still off their November highs of 6.78%; but the rapid pace of upward pressure is a significant concern. In addition, any bank that participated in the LTRO simply to reinvest in the sovereign market will now be faced with increasing mark‐to‐market losses. The IBEX reached a new low today, with the banking sector notably weak.

Accordingly, the focus is on Europe as EUR flirts with a break of its almost three month range. A break below 1.2974, the February low, would open up a test down to the January lows of 1.2624. We do not expect a EUR collapse, but forecast a weakening EUR into year‐end, with a forecast of 1.25.

The Sterling Pound
GBPUSD (1.5837) • The Sterling is flat vs the USD and gaining against most of the majors amid ongoing concerns in Europe.   Annualized housing price increases have accelerated for the fourth consecutive month, sharpening the focus on inflation in the UK ahead of tomorrow’s CPI releases and following last week’s stronger PPI data.   Elevated inflation limits policymakers’ ability to stimulate demand and foster growth, and complicates the BoE’s ability to respond to an environment of reduced economic activity.     However, GBP continues to benefit from issues in the Euro‐Area, as EURGBP trades at its lowest levels in 18 months, having declined from levels of recent congestion around 0.8250.


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Asian –Pacific Currency
USDJPY (80.76) The Japanese yen is stronger, up 0.2% from Friday’s close, as FX markets continue to show signs of risk aversion.  However, safe haven gains in yen are being dampened by dovish rhetoric from the BoJ ahead of the April 27th policy meeting.

Governor Shirakawa has stated that the BoJ is maintaining its effort to battle deflation; while market expectations are that the central bank will pursue further easing, in the form of asset purchases, in order to generate inflation close to the recently announced 1.0% target.

USDCNY (6.3153) The yuan has fallen 0.2%vs the USD in its first trading session since the widening of the trading band from 0.5% to .0%.  Chinese policymakers last widened the band, from 0.3% to0.5%, in May 2007 at a time when the yuan was considered to be undervalued vs the USD.  Since then, CNY has appreciated against the USD by 20.3% and China’s trade surpluses have declined in both absolute and relative terms (as a %of GDP).   As the bottom hart on page 1suggests, USDCNY has rarely made use of the full band.

This, combined with the change being well telegraphed to markets, has led to a muted reaction.   The forecast continued strength in the yuan, albeit at a more moderate pace, with a USDCNY target of 6.10 for Q4 2012 and5.90 by year‐end 2013.

Gold (1650.80) Spot gold edged down 0.1 percent to $1,649.70 an ounce by 0312 GMT, extending the price decline to a third straight session. U.S. gold was little changed at $1,650.80. Technical analysis suggested that spot gold could fall to $1,630 an ounce during the day A stronger dollar may cap gains in gold and keep prices in a range, especially as the U.S. economic recovery seems to be on track.

People may buy into the dollar as a safe haven, which causes some kind of neutral trade in gold. We are looking at gold to trade between $1,600 to $1,660. The dollar index rose to a one-month high in the previous session, weighing on dollar-priced commodities as they become more expensive for buyers holding other currencies.


Crude Oil
Crude Oil (102.98) Oil is up by 0.05% for the first time in two days as Retail sales in the US rose more than forecast in March and the Federal Reserve said it’s holding off on increasing monetary accommodation.

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